Question & Answer

Assessing reward systems You are a remuneration consultant employed by a listed company to assess the CEO’s reward plan. The board is concerned that the CEO is overpaid in absolute terms and also when compared to other CEOs of major corporations.   Required How might you determine whether or not the reward plan is appropriate? (LO2, 3 and 5)

Recording transactions in the accounting system requires knowledge of the important characteristics of the elements of financial statements, such as assets and liabilities. In addition, accountants must understand the inherent uncertainty in accounting measures and distinctions between related accounting concepts that are important in evaluating the effects of transactions on the financial statements. Instructions Access the IASB Framework at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following items. (Provide paragraph citations.) (a) Provide the definition of an asset and discuss how the economic benefits embodied in an asset might flow to a company. (b) Provide the definition of a liability and discuss how a company might satisfy a liability. (c) What is “accrual basis”? How do adjusting entries illustrate application of the accrual basis?

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marksand- Spencer-Annual-report-and-financial-statements-2012.pdf. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) What were M&S’s total assets at 31 March 2012? At 2 April 2011? (b) How much cash (and cash equivalents) did M&S have on 31 March 2012? (c) What were M&S’s selling and marketing expenses in 2012? In 2011? (d) What were M&S’s revenues in 2012? In 2011? (e) Using M&S’s financial statements and related notes, identify items that may result in adjusting entries for prepayments and accruals. (f) What were the amounts of M&S’s depreciation and amortization expense in 2011 and 2012?

Presented below are transactions related to Tom Brokaw, Inc. May 10 Purchased goods billed at $15,000 subject to cash discount terms of 2/10, n/60. 11 Purchasedgoods billed at $13,200 subject to terms of 1/15, n/30. 19 Paid invoice of May 10. 24 Purchasedgoods billed at $11,500 subject to cash discount terms of 2/10, n/30. Instructions (a) Prepare general journal entries for the transactions above under the assumption that purchases are to be recorded at net amounts after cash discounts and that discounts lost are to be treated as financial expense. (b) Assuming no purchase or payment transactions other than those given above, prepare the adjusting entry required on May 31 if financial statements are to be prepared as of that date.

Garcia Home Improvement Company installs replacement siding, windows, and louvered glass doors for single-family homes and condominium complexes in northern New Jersey and southern New York. The company is in the process of preparing its annual financial statements for the fiscal year ended May 31, 2014, and Jim Alcide, controller for Garcia, has gathered the following data concerning inventory. At May 31, 2014, the balance in Garcia’s Raw Materials Inventory account was $408,000, and Allowance to Reduce Inventory to Market had a credit balance of $27,500. Alcide summarized the relevant inventory cost and market data at May 31, 2014, in the schedule below. Alcide assigned Patricia Devereaux, an intern from a local college, the task of calculating the amount that should appear on Garcia’s May 31, 2014, financial statements for inventory under the lower-of-costor- market rule as applied to each item in inventory. Devereaux expressed concern over departing from the historical cost principle. Cost Replacement Cost Sales Price Net Realizable Value Normal Profit Aluminum siding $ 70,000 $ 62,500 $ 64,000 $ 56,000 $ 5,100 Cedar shake siding 86,000 79,400 94,000 84,800 7,400 Louvered glass doors 112,000 124,000 186,400 168,300 18,500 Thermal windows 140,000 126,000 154,800 140,000 15,400 Total $408,000 $391,900 $499,200 $449,100 $46,400 Instructions (a) (1) Determine the proper balance in Allowance to Reduce Inventory to Market at May 31, 2014. (2) For the fiscal year ended May 31, 2014, determine the amount of the gain or loss that would be recorded due to the change in Allowance to Reduce Inventory to Market. (b) Explain the rationale for the use of the lower-of-cost-or-market rule as it applies to inventories.

What does heat of fusion mean in casting?

Why is silicon a desirable work material in microsystem technology?

1. Give other examples of each of the four types of externality. 2. Redraw Figure 12.4, only this time assume there is only one producer, which is thus a monopoly. How does the existence of power affect the relationship between the private and the social optimum positions? 3. Redraw Figure 12.4, only this time assume that at low levels of production the good generates no external costs. Only once a certain outcome is reached (Qx) does the production of additional units generate rising external costs.

Explain the difference between a static budget and a flexible budget.

Why is the heat transfer factor in arc-welding processes that utilize consumable electrodes greater than in those that use nonconsumable electrodes?

During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock. Jan. 10 Issued 80,000 shares for cash at $6 per share. Mar. 1 Issued 5,000 shares to attorneys in payment of a bill for $35,000 for services rendered in helping the company to incorporate. July 1 Issued 30,000 shares for cash at $8 per share. Sept. 1 Issued 60,000 shares for cash at $10 per share. Instructions (a) Prepare the journal entries for these transactions, assuming that the common stock has a par value of $5 per share. (b) Prepare the journal entries for these transactions, assuming that the common stock is no-par with a stated value of $3 per share.

What are the three layers of a part’s surface after undergoing EDM.

Tiffany and Carlos decided to liquidate their jointly owned corporation, Royal Oak Furniture (ROF).  After liquidating its remaining inventory and paying off its remaining liabilities, ROF had the following tax accounting balance sheet.     FMV         Tax BasisAppreciation (Depreciation) Cash$  200,000$     200,000 Building      50,000         10,000       40,000 Land    150,000       200,000      (50,000) Total$  400,000$     410,000$    (10,000)

Explain why investors that provided guarantees on commercial paper were exposed to so much risk during the credit crisis. (LO1)

Ethical Decision making — promoting inappropriate uses of ABC When activity-based costing was first developed, consultants sometimes promoted it for inappropriate uses. Many consulting services focused on using ABC information for short-term decisions such as pricing and product emphasis. Yet in the early stages of ABC and activity-based management development, both flexible and committed costs were included in ABC cost pools and were not tracked separately. As a result, ABC unit costs included both fixed and variable costs, even when the fixed costs were irrelevant for decision making. ABC promoters suggested that all costs were variable in the long run, and they ignored criticism of their methods.   If the ABC cost rates include fixed costs, their unquestioned use in setting prices is detrimental to operations. If demand falls, then production volumes might fall too, causing costs per unit to increase followed by increases in prices. This type of pricing policy can lead to a death spiral, in which prices increase inappropriately as volumes decline.   After ABC was developed, it was quickly added to cost accounting curriculums at many different universities. However, a few academics were highly critical of ABC and eventually provided evidence that overhead costs included a large portion of fixed costs, even in the long run.80 As research evidence accumulated, ABC consultants advised entities not to allocate facility-level costs and to categorise costs within each activity cost pool as flexible and committed. Then total costs could be used to analyse processes and improve operations, but flexible cost information could be retrieved for decision making.   Currently, ‘incremental ABC cost analysis’ services are being promoted. These services are sometimes called predictive accounting. Because consulting services can be expensive and judging the outcome of new ideas difficult, managers need to incorporate healthy scepticism when considering the potential costs and benefits of products and services promoted by consultants.81   Required What ethical problems might arise for managers when considering the use of consultants to develop ABC techniques for sustainability opportunities? Your answers should relate to the promotion of ABC for pricing, other short-term decision, incremental ABC or predictive accounting relating to sustainability opportunities? Answers should also consider the potential for consultant bias and whether the technique will benefit their client particularly when the consulting service might have uncertain outcomes.             (LO2 and 4)

Presented below is information from the annual report of Emporia Plastics, Inc. Operating income $ 532,150 Bond interest expense 135,000 397,150 Income taxes 183,432 Net income $ 213,718 Bonds payable $1,000,000 Common stock 875,000 Retained earnings 375,000 Instructions (a) Compute the return on common stock equity and the rate of interest paid on bonds. (Assume balances for debt and equity accounts approximate averages for the year.) (b) Is Emporia Plastics Inc. trading on the equity successfully? Explain.

Why is it reasonable to believe that microsystem products would be available at lower costs than products of larger, more conventional size?

Given that crystal yield = 55%, crystal-to-slice yield = 60%, wafer yield = 75%, multiprobe yield = 65%, and final test yield = 95%, if a starting boule weighs 125 kg, what is the final weight of silicon that is represented by the non-defective chips after final test?

Buckley, an individual, began a business two years ago and has never sold a §1231 asset. Buckley has owned each of the assets since they began the business. In the current year, Buckley sold the following business assets:  Asset Original Cost Accumulated Depreciation Gain/Loss Computers $6,000 $2,000 ($3,000) Machinery 10,000 4,000 (2,000) Furniture 20,000 12,000 7,000  Building 100,000 10,000 (1,000)

Midwest Enterprises made the following entry on December 31, 2014. Interest Expense 10,000 Interest Payable 10,000 (To record interest expense due on loan from Anaheim National Bank) What entry would Anaheim National Bank make regarding its outstanding loan to Midwest Enterprises? Explain why this must be the case.

Discuss the reasons why most welding operations are inherently dangerous.

The chairman of the FASB at one time noted that “the flowof standards can only be slowed if (1) producers focus lesson quarterly earnings per share and tax benefits and moreon quality products, and (2) accountants and lawyers relyless on rules and law and more on professional judgmentand conduct.” Explain his comment.

What are the three basic components of an automated system?

Diderot Stores Inc., which uses the conventional retail inventory method, wishes to change to the LIFO retail method beginning with the accounting year ending December 31, 2014. Amounts as shown below appear on the store’s books before adjustment. Cost Retail Inventory, January 1, 2014 $ 15,800 $ 24,000 Purchases in 2014 116,200 184,000 Markups in 2014 12,000 Markdowns in 2014 5,500 Sales revenue in 2014 175,000 You are to assume that all markups and markdowns apply to 2014 purchases, and that it is appropriate to treat the entire inventory as a single department. Instructions Compute the inventory at December 31, 2014, under the following methods. (a) The conventional retail method. (b) The last-in, first-out retail method, effecting the change in method as of January 1, 2014. Assume that the cost-to-retail percentage for 2013 was recomputed correctly in accordance with procedures necessary to change to LIFO. This ratio was 59%.

Luke sold a building and the land on which the building sits to his wholly owned corporation, Studemont Corp., at fair market value. The fair market value of the building was determined to be $325,000; Luke built the building several years ago at a cost of $200,000. Luke had claimed $45,000 of depreciation on the building. The fair market value of the land was determined to be $210,000 at the time of the sale; Luke purchased the land many years ago for $130,000.      a. What are the amount and character of Luke’s recognized gain or loss on the building?  b. What are the amount and character of Luke’s recognized gain or loss on the land?