Question & Answer

Anne Cleves Company reported the following amounts in the stockholders’ equity section of its December 31, 2013, balance sheet. Preferred stock, 10%, $100 par (10,000 shares authorized, 2,000 shares issued) $200,000 Common stock, $5 par (100,000 shares authorized, 20,000 shares issued) 100,000 Additional paid-in capital 125,000 Retained earnings 450,000 Total $875,000 During 2014, Cleves took part in the following transactions concerning stockholders’ equity. 1. Paid the annual 2013 $10 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2013. 2. Purchased 1,700 shares of its own outstanding common stock for $40 per share. Cleves uses the cost method. 3. Reissued 700 treasury shares for land valued at $30,000. 4. Issued 500 shares of preferred stock at $105 per share. 5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share. 6. Issued the stock dividend. 7. Declared the annual 2014 $10 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2015. Instructions (a) Prepare journal entries to record the transactions described above. (b) Prepare the December 31, 2014, stockholders’ equity section. Assume 2014 net income was $330,000.

Using the IS/MP framework illustrate how the financial accelerator affects the extent of the rise in output following a positive demand-side shock.

1.15     Uncertainties, degree of uncertainty Community Children’s Hospital can invest in one of two different projects. The first project is to purchase and operate a hotel that is located two blocks from the hospital. The CEO of the hospital has no experience operating a hotel, but the hospital does provide rooms for in-patients, and so she is familiar with cleaning requirements and managing housekeeping staff. However, the hospital does little advertising and does not have a large public relations staff. In addition, the hospital and hotel are located in a part of town that is deteriorating. The other investment opportunity is to replace the heart monitors in the neonatal intensive care unit (critical care for newborns and infants). The new monitors would provide a range of functions, including monitoring the body temperature and blood pressure of infants, as well as monitoring heart functions. Each monitor can be used for up to four infants with information about each infant forwarded to one computer that is monitored by a special technician. The current monitors are bedside monitors that need to be read every 10 minutes by nursing staff.   Required (a)          Prepare a list of uncertainties that the CEO faces if she buys the hotel. (b)          Prepare a list of uncertainties the CEO faces if she replaces the heart monitors. (c)           Which scenario appears to have a greater degree of uncertainty? Why?

Using the facts in problem 38, if Jorge and Anita earn an additional $100,000 of taxable income, what is their marginal tax rate on this income?  What is their marginal rate if, instead, they reported an additional $100,000 in deductions?

Assume a savings institution has a large amount of fixed-rate mortgages and obtains most of its funds from short-term deposits. How could it use options on financial futures to hedge its exposure to interest rate movements? Would futures or options on futures be more appropriate if the institution is concerned that interest rates will decline, causing a large number of mortgage prepayments? (LO4, LO6)

Assume the same information as E11-16, except that Suarez intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $20,000. Instructions (a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2014. (b) Prepare the journal entry (if any) to record depreciation expense for 2015. (c) The asset was not sold by December 31, 2015. The fair value of the equipment on that date is $5,300,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $20,000.

: Define the four management functions and the type of management activity associated with ach.

A cylindrical workpart with D = 2.5 in and h = 2.5 in is upset forged in an open die to a height = 1.5 in. Coefficient of friction at the die-work interface = 0.10. The work material has a flow curve defined by: K = 40,000 lb/in2 and n = 0.15. Yield strength = 15,750 lb/in2. Determine the instantaneous force in the operation (a) just as the yield point is reached (yield at strain = 0.002), (b) at height h = 2.3 in, (c) h = 2.1 in, (d) h = 1.9 in, (e) h = 1.7 in, and (f) h = 1.5 in. Use of a spreadsheet calculator is recommended.

What are interim reports? Why are balance sheets often anot provided with interim data?

How does an entity choose its tax year? Is it the same process no matter the type of tax year-end the taxpayer adopts?

Use the information from IFRS18-6, but assume Turner uses the cost-recovery method. Prepare the company’s 2014 journal entries.

List the types of environments that can be present during the sintering process according to the powder metallurgy video.

Explain why the medical expense and casualty loss provisions are sometimes referred to as “wherewithal” deductions and how this rationale is reflected in the limits on these deductions.

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.

How did the repayment of subprime mortgages compare to the repayment of prime mortgages during the credit crisis? (LO5)

You have the choice of investing in toprated commercial paper or commercial paper that has a lower risk rating. How do you think the risk and return performances of the two investments differ? (LO1)

Assume a horizontal yield curve exists. How do you think the yield curve would be affected if foreign investors in short-term securities and long-term securities suddenly anticipate that the value of the dollar will strengthen? (You may find it helpful to refer to the discussion of the yield curve in Chapter 3.) (LO2, LO3)

During a tensile test, a metal has a true strain = 0.10 at a true stress = 37,000 lb/in2 . Later, at a true stress = 55,000 lb/in2 , true strain = 0.25. Determine the strength coefficient and strain-hardening exponent in the flow curve equation.

Lance contributed investment property worth $500,000, purchased three years ago for $200,000 cash, to Cloud Peak LLC in exchange for an 85 percent profits and capital interest in the LLC. Cloud Peak owes $300,000 to its suppliers but has no other liabilities. a. What is Lance’s tax basis in his LLC interest? b. What is Lance’s holding period in his interest? c. What is Cloud Peak’s basis in the contributed property? d. What is Cloud Peak’s holding period in the contributed property?

What is the link between sustainability strategies and management accounting?

Define the following terms. (a) Basic earnings per share. (b) Potentially dilutive security. (c) Diluted earnings per share. (d) Complex capital structure. (e) Potential common stock.

How can small investors participate in investments in negotiable certificates of deposits (NCDs)? (LO1, LO2)

: Explain the fundamental attribution error, and give an example of it from your own experience.

1.    : If you were to interview someone for a position as an international business executive, what are three questions you think it would be important to ask? Explain your reasoning.

Janet is a cash-method, calendar-year taxpayer. She received a check for services provided in the mail during the last week of December. However, rather than cash the check, Janet decided to wait until the following January because she believes that her delay will cause the income to be realized and recognized next year. What would you tell her? Would it matter if she didn’t open the envelope? Would it matter if she refused to check her mail during the last week of December? Explain.