Question & Answer

Katherine Irving, controller of Lotan Corp., is aware of a pronouncement on accounting changes. After reading the pronouncement, she is confused about what action should be taken on the following items related to Lotan Corp. for the year 2014. 1. In 2014, Lotan decided to change its policy on accounting for certain marketing costs. Previously, the company had chosen to defer and amortize all marketing costs over at least 5 years because Lotan believed that a return on these expenditures did not occur immediately. Recently, however, the time differential has considerably shortened, and Lotan is now expensing the marketing costs as incurred. 2. In 2014, the company examined its entire policy relating to the depreciation of plant equipment. Plant equipment had normally been depreciated over a 15-year period, but recent experience has indicated that the company was incorrect in its estimates and that the assets should be depreciated over a 20-year period. 3. One division of Lotan Corp., Hawthorne Co., has consistently shown an increasing net income from period to period. On closer examination of its operating statement, it is noted that bad debt expense and inventory obsolescence charges are much lower than in other divisions. In discussing this with the controller of this division, it has been learned that the controller has increased his net income each period by knowingly making low estimates related to the write-off of receivables and inventory. 4. In 2014, the company purchased new machinery that should increase production dramatically. The company has decided to depreciate this machinery on an accelerated basis, even though other machinery is depreciated on a straight-line basis. 5. All equipment sold by Lotan is subject to a 3-year warranty. It has been estimated that the expense ultimately to be incurred on these machines is 1% of sales. In 2014, because of a production breakthrough, it is now estimated that 1/2 of 1% of sales is sufficient. In 2012 and 2013, warranty expense vwas computed as $64,000 and $70,000, respectively. The company now believes that these warranty costs should be reduced by 50%. 6. In 2014, the company decided to change its method of inventory pricing from average-cost to the FIFO method. The effect of this change on prior years is to increase 2012 income by $65,000 and increase 2013 income by $20,000. Instructions Katherine Irving has come to you, as her CPA, for advice about the situations above. Prepare a report, indicating the appropriate accounting treatment that should be given for each of these situations.

A production line with four automatic workstations (the other stations are manual) produces a certain product whose total assembly work content time = 55.0 min of direct manual labor. The production rate on the line is 45 units/hr. Because of the automated stations, uptime efficiency = 89%. The manual stations each have one worker. It is known that 10% of the cycle time is lost due to repositioning. If the balancing efficiency = 0.92 on the manual stations, find (a) cycle time, (b) number of workers and (c) workstations on the line. (d) What is the average manning level on the line, where the average includes the automatic stations?

Your client, Cascade Company, is planning to invest some of its excess cash in 5-year revenue bonds issued by the county and in the stock of one of its suppliers, Teton Co. Teton’s shares trade on the over-the-counter market. Cascade plans to classify these investments as available-for-sale. They would like you to conduct some research on the accounting for these investments. Instructions If your school has a subscription to the FASB Codification, go to http://aaahq.org/ascLogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses. (a) Since the Teton shares do not trade on one of the large stock markets, Cascade argues that the fair value of this investment is not readily available. According to the authoritative literature, when is the fair value of a security “readily determinable”? (b) How is an impairment of a security accounted for? (c) To avoid volatility in their financial statements due to fair value adjustments, Cascade debated whether the bond investment could be classified as held-to-maturity; Cascade is pretty sure it will hold the bonds for 5 years. How close to maturity could Cascade sell an investment and still classify it as heldto- maturity? (d) What disclosures must be made for any sale or transfer from securities classified as held-to-maturity?

A DC servomotor drives the x-axis of a NC milling machine table. The motor is coupled to the table lead screw using a 4:1 gear reduction (4 turns of the motor for each turn of the lead screw). The leadscrew pitch = 6.25 mm. An optical encoder is connected to the lead screw. The optical encoder emits 500 pulses per revolution. To execute a certain programmed instruction, the table must move from point (x = 87.5 mm, y = 35.0) to point (x = 25.0 mm, y = 180.0 mm) in a straight-line trajectory at a feed rate = 200 mm/min. Determine (a) the control resolution of the system for the x-axis only, (b) the corresponding rotational speed of the motor, and (c) frequency of the pulse train emitted by the optical encoder at the desired feed rate.

Robert and Keisha invited Bijan to join them in forming Aero, a plane-chartering company, as a corporation. Bijan did not want to join at the time and declined their invitation. More than a year later, Bijan changed his mind and transferred appreciated property to Aero in exchange for 45 percent of Aero stock. Is Bijan required to recognize his realized gain on the transaction?

Theory If the segmented markets theory causes an upward-sloping yield curve, what does this imply? If markets are not completely segmented, should we dismiss the segmented markets theory as even a partial explanation for the term structure of interest rates? Explain. (LO3)

(Threshold Concept 4) 1. If there is a shortage of certain skilled workers in the economy, how will market forces lead to an elimination of the skills shortage? (Threshold Concept 4) 2. If consumers want more of a product, it is always desirable that market forces result in more being produced?

Tempe Corporation is a calendar-year corporation.  At the beginning of 2024, its election to be taxed as an S corporation became effective.  Tempe Corp.’s balance sheet at the end of 2023 reflected the following assets (it did not have any earnings and profits from its prior years as a C corporation): Asset Adjusted basis FMV Cash $20,000 $20,000 Accounts receivable 40,000 40,000 Inventory 160,000 200,000 Land 150,000 120,000   Totals $370,000 $380,000 Tempe Corp.’s business income for the year was $40,000 (this would have been its taxable income if it were a C corporation).  During 2024, Tempe Corp. sold all of the inventory it owned at the beginning of the year for $210,000.   a. What is its built-in gains tax in 2024?

A SMAW operation is accomplished in a work cell using a fitter and a welder. The fitter takes 5.5 min to place the unwelded components into the welding fixture at the beginning of the work cycle, and 2.5 min to unload the completed weldment at the end of the cycle. The total length of the several weld seams to be made is 2000 mm, and the travel speed used by the welder averages 400 mm/min. Every 750 mm of weld length, the welding stick must be changed, which takes 0.8 min. While the fitter is working, the welder is idle (resting); and while the welder is working, the fitter is idle. (a) Determine the average arc time in this welding cycle. (b) How much improvement in arc time would result if the welder used FCAW (manually operated), given that the spool of flux-cored weld wire must be changed every five weldments, and it takes the welder 5.0 min to accomplish the change? (c) What are the production rates for these two cases (weldments completed per hour)?

Give some examples of beggar-my-neighbour policies.

Why is the Normal statistical table used in a Six Sigma program different from the standard normal tables found in textbooks on probability and statistics?

What is meant by the term “qualitative characteristics of accounting information”?

Killroy Company owns a trade name that was purchased in an acquisition of McClellan Company. The trade name has a book value of $3,500,000, but according to GAAP, it is assessed for impairment on an annual basis. To perform this impairment test, Killroy must estimate the fair value of the trade name. (You will learn more about intangible asset impairments in Chapter 12.) It has developed the following cash flow estimates related to the trade name based on internal information. Each cash flow estimate reflects Killroy’s estimate of annual cash flows over the next 8 years. The trade name is assumed to have no salvage value after the 8 years. (Assume the cash flows occur at the end of each year.) Probability Cash Flow Estimate Assessment $380,000 20% 630,000 50% 750,000 30% Instructions (a) What is the estimated fair value of the trade name? Killroy determines that the appropriate discount rate for this estimation is 8%. (b) Is the estimate developed for part (a) a Level 1 or Level 3 fair value estimate? Explain.

Satchel Corporation purchases equity securities costing $73,000 and classifies them as available-for-sale securities. At December 31, the fair value of the portfolio is $65,000. Instructions Prepare the adjusting entry to report the securities properly. Indicate the statement presentation of the accounts in your entry.

What actions can either the buyers or sellers take in each of the examples in Table 5.1 to help overcome some of the potential problems caused by the unobservable characteristics?

Assume that a country had no state education at all. For what reasons might the private education system not provide the optimal allocation of resources to and within education?

Briefly comment on how legislation and societal expectations could influence the scope of sustainability management practice within organisations.

1.15     Structural cost drivers (a) With reference to Marino Designs in Self-study problem 2, demonstrate the meaning of the structural cost drivers: scope, technology and experience. (b) Classify Marino Designs’ likely strategy as low cost or product differentiation. Explain.

A portion of the combined statement of income and retained earnings of Seminole Inc. for the current year follows. Income before extraordinary item $15,000,000 Extraordinary loss, net of applicable income tax (Note 1) 1,340,000 Net income 13,660,000 Retained earnings at the beginning of the year 83,250,000 96,910,000 Dividends declared: On preferred stock—$6.00 per share $ 300,000 On common stock—$1.75 per share 14,875,000 15,175,000 Retained earnings at the end of the year $81,735,000 Note 1. During the year, Seminole Inc. suffered a major casualty loss of $1,340,000 after applicable income tax reduction of $1,200,000. At the end of the current year, Seminole Inc. has outstanding 8,500,000 shares of $10 par common stock and 50,000 shares of 6% preferred. On April 1 of the current year, Seminole Inc. issued 1,000,000 shares of common stock for $32 per share to help finance the casualty. Instructions Compute the earnings per share on common stock for the current year as it should be reported to stockholders.

What impact does the financial accelerator have on the marginal propensity to consume domestically produced goods (mpcd)? How does this affect the IS curve?

1. If there was a growth in the total number of worker hours because people worked longer hours, what would happen to GDP per hour worked and GDP per capita? 2. If people worked longer hours how would you assess whether the country was better or worse off?

List the accessory tools that can be used during open die forging according to the video on forging

Consider the existing economic conditions, including inflation and economic growth. Do you think the Fed should increase interest rates, reduce interest rates, or leave interest rates at their present levels? Offer some logic to support your answer. (LO2; LO3)

Explain the difference between the proportional method and the incremental method of allocating the proceeds of lump-sum sales of capital stock.

A drilling operation is to be performed with a 12.7 mm diameter twist drill in a steel workpart. The hole is a blind hole at a depth of 60 mm and the point angle is 118°. The cutting speed is 25 m/min and the feed is 0.30 mm/rev. Determine (a) the cutting time to complete the drilling operation, and (b) metal removal rate during the operation, after the drill bit reaches full diameter.