Question & Answer

Part I: The appropriate method of amortizing a premium or discount on issuance of bonds is the effectiveinterest method. Instructions (a) What is the effective-interest method of amortization and how is it different from and similar to the straight-line method of amortization? (b) How is amortization computed using the effective-interest method, and why and how do amounts obtained using the effective-interest method differ from amounts computed under the straight-line method? Part II: Gains or losses from the early extinguishment of debt that is refunded can theoretically be accounted for in three ways: 1. Amortized over remaining life of old debt. 2. Amortized over the life of the new debt issue. 3. Recognized in the period of extinguishment. Instructions (a) Develop supporting arguments for each of the three theoretical methods of accounting for gains and losses from the early extinguishment of debt. (b) Which of the methods above is generally accepted and how should the appropriate amount of gain or loss be shown in a company’s financial statements?

Grant Company has had a record-breaking year in terms of growth in sales and profitability. However, market research indicates that it will experience operating losses in two of its major businesses next year. The controller has proposed that the company record a provision for these future losses this year, since it can afford to take the charge and still show good results. Advise the controller on the appropriateness of this charge.

Your firm has been engaged to examine the financial statements of Almaden Corporation for the year 2014. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2009. The client provides you with the following information.       The supplementary information below is also provided. 1. On May 1, 2014, the corporation issued at 95.4, $750,000 of bonds to finance plant expansion. The long-term bond agreement provided for the annual payment of interest every May 1. The existing plant was pledged as security for the loan. Use the straight-line method for discount amortization. 2. The bookkeeper made the following mistakes. (a) In 2012, the ending inventory was overstated by $183,000. The ending inventories for 2013 and 2014 were correctly computed. (b) In 2014, accrued wages in the amount of $225,000 were omitted from the balance sheet, and these expenses were not charged on the income statement. (c) In 2014, a gain of $175,000 (net of tax) on the sale of certain plant assets was credited directly to retained earnings. 3. A major competitor has introduced a line of products that will compete directly with Almaden’s primary line, now being produced in a specially designed new plant. Because of manufacturing innovations,the competitor’s line will be of comparable quality but priced 50% below Almaden’s line. The competitor announced its new line on January 14, 2015. Almaden indicates that the companywill meet the lower prices that are high enough to cover variable manufacturing and selling expenses, but permit recovery of only a portion of fixed costs. 4. You learned on January 28, 2015, prior to completion of the audit, of heavy damage because of a recent fire to one of Almaden’s two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail. Instructions Analyze the above information to prepare a corrected balance sheet for Almaden in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared. The books are closed and adjustments to income are to be made through retained earnings.

Using the appropriate interest table, provide the solution to each of the following four questions by computing the unknowns. (a) What is the amount of the payments that Ned Winslow must make at the end of each of 8 years to accumulate a fund of $90,000 by the end of the eighth year, if the fund earns 8% interest, compounded annually? (b) Robert Hitchcock is 40 years old today and he wishes to accumulate $500,000 by his sixty-fifth birthday so he can retire to his summer place on Lake Hopatcong. He wishes to accumulate this amount by making equal deposits on his fortieth through his sixty-fourth birthdays. What annual deposit must Robert make if the fund will earn 12% interest compounded annually? (c) Diane Ross has $20,000 to invest today at 9% to pay a debt of $47,347. How many years will it take her to accumulate enough to liquidate the debt? (d) Cindy Houston has a $27,600 debt that she wishes to repay 4 years from today; she has $19,553 that she intends to invest for the 4 years. What rate of interest will she need to earn annually in order to accumulate enough to pay the debt?

There are 15 correct answers in the following multiple choice questions (some questions have multiple answers that are correct). To attain a perfect score on the quiz, all correct answers must be given. Each correct answer is worth 1 point. Each omitted answer or wrong answer reduces the score by 1 point, and each additional answer beyond the correct number of answers reduces the score by 1 point. Percentage on the quiz is based on the total number of correct answers. 41.1 Which one of the following terms best describes the overall function of production planning and control: (a) inventory control, (b) manufacturing logistics, (c) manufacturing engineering, (d) mass production, or (e) product design? 41.2 Which of the following are the three categories of items usually listed in the master production schedule: (a) components used to build the final products, (b) firm customer orders, (c) general product lines, (d) orders for maintenance and spare parts, (e) sales forecasts, and (f) spare tires? 41.3 Inventory carrying costs include which of the following (two best answers): (a) equipment downtime, (b) interest, (c) production, (d) setup, (e) spoilage, (f) stock-out, and (g) storage? 41.4 Which of the following are the three terms in the economic order quantity formula: (a) annual demand rate, (b) batch size, (c) cost per piece, (d) holding cost, (e) interest rate, and (f) setup cost? 41.5 Order point inventory systems are intended for which of the following (two best answers): (a) dependent demand items, (b) independent demand items, (c) low production quantities, (d) mass production quantities, and (e) mid-range production quantities? 41.6 With which of the following manufacturing resources is capacity requirements planning primarily concerned (two best answers): (a) component parts, (b) direct labor, (c) inventory storage space, (d) production equipment, and (e) raw materials? 41.7 The word kanban is most closely associated with which one of the following: (a) capacity planning, (b) economic order quantity, (c) just-in-time production, (d) master production schedule, or (e) material requirements planning? 41.8 Machine loading refers most closely to which one of the following: (a) assigning jobs to a work center, (b) floor foundation in the factory, (c) managing work-in-process in the factory, (d) releasing orders to the shop, or (e) sequencing jobs through a machine?

Solve Problem 19.7, only assume a cluster mill with working rolls of radius = 50 mm. Compare the results with the previous two problems, and note the important effect of roll radius on force, torque and power.

Explain why the expenses incurred to get an asset in place and operable should be included in the asset’s basis.

What is a best-efforts agreement? (LO1)

The flow curve for a certain metal has a strain-hardening exponent of 0.22 and strength coefficient of 54,000 lb/in2 . Determine (a) the flow stress at a true strain = 0.45 and (b) the true strain at a flow stress = 40,000 lb/in2 .

1.      : Review the section on goal conflict in the chapter. Do you think that building a coalition and working out stakeholder differences in goal preferences is an important part of a manager’s job? Why or why not?

1.      : Agree with Hazel Putnam. Despite your personal feelings, accept that Farhad Hamidi is not capable of carrying out the accountant assistant’s responsibilities. Make the break now, and give him his notice on the grounds that he cannot carry out one of the key stated job requirements. Advise him that a position that primarily involves paperwork would be a better fit for him if he doesn’t improve his speaking skills.

Recent financial statements of General Mills, Inc. report net sales of $12,442,000,000. Accounts receivable are $912,000,000 at the beginning of the year and $953,000,000 at the end of the year. Compute General Mills’ accounts receivable turnover. Compute General Mills’ average collection period for accounts receivable in days.

What are some of the methods used to apply adhesives in industrial production operations?

What are some of the reasons why plastic shaping processes are important?

(a) How are the components of revenues and expenses different for a merchandising company? (b) Explain the income measurement process of a merchandising company.

A cylindrical billet that is 100 mm long and 50 mm in diameter is reduced by indirect (backward) extrusion to a 20 mm diameter. The die angle is 90°. The Johnson equation has a = 0.8 and b = 1.4, and the flow curve for the work metal has a strength coefficient of 800 MPa and strain hardening exponent of 0.13. Determine (a) extrusion ratio, (b) true strain (homogeneous deformation), (c) extrusion strain, (d) ram pressure, and (e) ram force.

According to research, have mutual funds outperformed the market? Explain. Would mutual funds be attractive to some investors even if they are not expected to outperform the market? Explain. (LO6)

Faith Battle operates a health food store, and she has been the only employee. Her business is growing, and she is considering hiring some additional staff to help her in the store. Explain to her the various payroll deductions that she will have to account for, including their potential impact on her financial statements, if she hires additional staff.

There are 19 correct answers in the following multiple choice questions (some questions have multiple answers that are correct). To attain a perfect score on the quiz, all correct answers must be given. Each correct answer is worth 1 point. Each omitted answer or wrong answer reduces the score by 1 point, and each additional answer beyond the correct number of answers reduces the score by 1 point. Percentage on the quiz is based on the total number of correct answers. 40.1 The manufacturing engineering department in an organization is best described as which one of the following: (a) branch of the sales department, (b) concurrent engineers, (c) management, (d) product designers, (e) production supervisors, or (f) technical staff function? 40.2 Which of the following are the usual responsibilities of the manufacturing engineering department (four best answers): (a) advising on design for manufacturability, (b) facilities planning, (c) marketing the product, (d) plant management, (e) process improvement, (f) process planning, (g) product design, (h) solving technical problems in the production departments, and (i) supervision of production workers? 40.3 Which of the following are considered basic processes, as opposed to secondary processes (four correct answers): (a) annealing, (b) anodizing, (c) drilling, (d) electroplating, (e) forward hot extrusion to produce aluminum bar stock, (f) impression die forging, (g) rolling of sheet steel, (h) sand casting, (i) sheet-metal stamping, (j) spot welding, (k) surface grinding of hardened steel, (l) tempering of martensitic steel, and (m) turning? 40.4 Which of the following would be considered secondary processes, as opposed to basic processes (four correct answers): (a) annealing, (b) arc welding, (c) drilling, (d) electroplating, (e) extrusion to produce steel automotive components, (f) impression die forging, (g) painting, (h) plastic injection molding, (i) rolling of sheet steel, (j) sand casting, (k) sheet-metal stamping, (l) sintering of pressed ceramic powders, and (m) ultrasonic machining? 40.5 Which of the following are operations to enhance physical properties (three correct answers): (a) annealing, (b) anodizing, (c) die casting, (d) drilling, (e) electroplating, (f) rolling of nickel alloys, (g) sheet metal drawing, (h) sintering of pressed ceramic powders, (i) surface grinding of hardened steel, (j) tempering of martensitic steel, (k) turning, and (l) ultrasonic cleaning? 40.6 A route sheet is a document whose principal function is which one of the following: (a) continuous improvement, (b) design for manufacturability, (c) provides authorization for material handlers to move the part, (d) quality inspection procedure, (e) specifies the process plan, or (f) specifies the detailed method for a given operation? 40.7 In a make or buy situation, the decision should always be to purchase the component if the vendor’s quoted price is less than the in-house estimated cost of the component: (a) true or (b) false? 40.8 Which one of the following types of computer-aided process planning relies on parts classification and coding in group technology: (a) generative CAPP, (b) retrieval CAPP, (c) traditional process planning, or (d) none of the preceding?

Coldwell, Inc. issued a $100,000, 4-year, 10% note at face value to Flint Hills Bank on January 1, 2014, and received $100,000 cash. The note requires annual interest payments each December 31. Prepare Coldwell’s journal entries to record (a) the issuance of the note and (b) the December 31 interest payment.

The following comment appeared in the notes of Colorado Corporation’s annual report: “Such distributions, representing proceeds from the sale of Sarazan, Inc., were paid in the form of partial liquidating dividends and were in lieu of a portion of the Company’s ordinary cash dividends.” How would a partial liquidating dividend be accounted for in the financial records?

Direct method using estimated costs, benchmarking Devon Ltd allocates support department costs using the direct method and estimated costs. The support department costs are budgeted at $88 000 for department A, $63 000 for department B, and $40 000 for department C. These costs are allocated using the proportion of total cost the firm would pay to an outside service provider.   Required (a)          Allocate budgeted support department costs using the direct method, first using labour hours and then with the outside cost proportions as the allocation bases. (b)          Could Devon Ltd use the cost of purchasing outside as an efficiency benchmark for the cost of both the support departments and the user departments? List several advantages and disadvantages of this approach.

Ortiz purchased a piece of equipment that cost $202,000 on January 1, 2014. The equipment has the following components. Component Cost Residual Value Estimated Useful Life A $70,000 $7,000 10 years B 50,000 5,000 5 years C 82,000 4,000 12 years Compute the depreciation expense for this equipment at December 31, 2014.

Explain how U.S. speculators could use foreign exchange derivatives to speculate on the expected appreciation of the Japanese yen. (LO4)

1.    As an administrator for a medium sized hospital, you and the board of directors have decided to change the business from a short-term, acute-care facility to a drug dependency hospital. How would you go about executing this strategy?