Question & Answer

On February 20, 2014, Barbara Brent Inc., purchased a machine for $1,500,000 for the purpose of leasing it. The machine is expected to have a 10-year life, no residual value, and will be depreciated on the straight-line basis. The machine was leased to Rudy Company on March 1, 2014, for a 4-year period at a monthly rental of $19,500. There is no provision for the renewal of the lease or purchase of the machine by the lessee at the expiration of the lease term. Brent paid $30,000 of commissions associated with negotiating the lease in February 2014. Instructions (a) What expense should Rudy Company record as a result of the facts above for the year ended December 31, 2014? Show supporting computations in good form. (b) What income or loss before income taxes should Brent record as a result of the facts above for the year ended December 31, 2014? (Hint: Amortize commissions over the life of the lease.)

(Threshold Concept 13) When comparing two countries’ GDP growth rates, does it matter if we use nominal figures, provided we use them for both countries?

Provide examples of off-balance sheet activities. Why are regulators concerned about them? (LO2)

Explain the meaning of the following terms: (a) commonsize analysis, (b) vertical analysis, (c) horizontal analysis, and (d) percentage analysis.

Why are real wages likely to be more flexible downwards than money wages?

In what section of the balance sheet should the following items appear, and what balance sheet terminology would you use? (a) Treasury stock (recorded at cost). (b) Checking account at bank. (c) Land (held as an investment). (d) Sinking fund. (e) Unamortized premium on bonds payable. (f) Copyrights. (g) Pension fund assets. (h) Premium on capital stock. (i) Long-term investments (pledged against bank loans payable).

Explain the difference between ordinary, capital, and §1231 assets.

How do hot assets affect the character of gain or loss on the sale of a partnership interest?

Timpanogos Inc. is an accrual-method, calendar-year corporation. For 2024, it reported financial statement income after taxes of $1,342,000. Timpanogos provided the following information relating to its 2024 activities:   Life insurance proceeds as a result of CEO’s death $200,000   Revenue from sales (for book and tax purposes) 2,000,000   Cost of goods sold for book and tax purposes   300,000   Premiums paid on the key-person life insurance policies (the policies have no cash surrender value)     21,000   Charitable contributions     180,000   Interest income on tax-exempt bonds    40,000   Interest paid on loan obtained to purchase tax-exempt bonds     45,000   Rental income payments received and earned in 2024     15,000   Rental income payments received in 2023 but earned in 2024     10,000     Rental income payments received in 2024 but not earned by year-end    30,000   Tax depreciation    55,000   Book Depreciation    25,000   Net capital loss    42,000   Federal income tax expense for books 310,000       Required:  a. Reconcile book income to taxable income for Timpanogos Inc. Be sure to start with book income and identify all of the adjustments necessary to arrive at taxable income. b. Identify each book-tax difference as either permanent or temporary. c. Complete Schedule M-1 for Timpanogos. d. Compute Timpanogos, Inc.’s tax liability.

1. Who is likely to work harder as a result of a cut in income tax rates, a rich person or a poor person? Why? Would your answer be different if personal allowances were zero? 2. How will tax cuts affect the willingness of married women to return to employment after having brought up a family?

For each of the unrelated transactions described below, present the entry(ies) required to record each transaction. 1. Grand Corp. issued $20,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95. Expenses of issuing the bonds were $70,000. 2. Hoosier Company issued $20,000,000 par value 10% bonds at 98. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $4. 3. Suppose Sepracor, Inc. called its convertible debt in 2014. Assume the following related to the transaction. The 11%, $10,000,000 par value bonds were converted into 1,000,000 shares of $1 par value common stock on July 1, 2014. On July 1, there was $55,000 of unamortized discount applicable to the bonds, and the company paid an additional $75,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.

Presented below are a number of operational guidelines and practices that have developed over time. Instructions Select the assumption, principle, or constraint that most appropriately justifies these procedures and practices. (Do not use qualitative characteristics.) (a) Fair value changes are not recognized in the accounting records. (b) Financial information is presented so that investors will not be misled. (c) Intangible assets are capitalized and amortized over periods benefited. (d) Repair tools are expensed when purchased. (e) Agricultural companies use fair value for purposes of valuing crops. (f) Each enterprise is kept as a unit distinct from its owner or owners. (g) All significant post-balance-sheet events are reported. (h) Revenue is recorded at point of sale. (i) All important aspects of bond indentures are presented in financial statements. (j) Rationale for accrual accounting. (k) The use of consolidated statements is justified. (l) Reporting must be done at defined time intervals. (m) An allowance for doubtful accounts is established. (n) Goodwill is recorded only at time of purchase. (o) A company charges its sales commission costs to expense.

Describe an inventoriable product cost.

A deep drawing operation is performed in which the inside of the cylindrical cup has a diameter of 4.25 in and a height = 2.65 in. The stock thickness = 3/16 in, and the starting blank diameter = 7.7 in. Punch and die radii = 5/32 in. The metal has a tensile strength = 65,000 lb/in2 , a yield strength = 32,000 lb/in2 , and a shear strength of 40,000 lb/in2 . Determine (a) drawing ratio, (b) reduction, (c) drawing force, and (d) blankholder force

Where can authoritative IFRS guidance related to intangible assets be found?

Assume that the price of a good falls. How will an ‘efficient’ level of consumption be restored?

What is the theoretical justification of the allowance method as contrasted with the direct write-off method of accounting for bad debts?

Crawford Imports Inc. was involved in two default and repossession cases during the year: 1. A refrigerator was sold to Cindy McClary for $1,800, including a 30% markup on selling price. McClary made a down payment of 20%, four of the remaining 16 equal payments, and then defaulted on further payments. The refrigerator was repossessed, at which time the fair value was determined to be $800. 2. An oven that cost $1,200 was sold to Travis Longman for $1,500 on the installment basis. Longman made a down payment of $240 and paid $80 a month for six months, after which he defaulted. The oven was repossessed and the estimated fair value at time of repossession was determined to be $750. Instructions Prepare journal entries to record each of these repossessions using a fair value approach. (Ignore interest charges.)

Kenoly Corporation owns a patent that has a carrying amount of $300,000. Kenoly expects future net cash flows from this patent to total $210,000 over its remaining life of 10 years. The recoverable amount of the patent is $110,000. Prepare Kenoly’s journal entry, if necessary, to record the loss on impairment.

Summarize the six steps used in managerial decision making.

Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, Understock.com. Though Ken is retired, he is still very active. Ken reported the following financial information this year. Assume Ken files as a single taxpayer. Determine Ken’s gross income and complete page 1 of Form 1040 (through line 9) and Schedule 1 for Ken.

Omar Morena has recently completed his first year of studying accounting. His instructor for next semester has indicated that the primary focus will be the area of financial accounting. Instructions (a) Differentiate between financial accounting and managerial accounting. (b) One part of financial accounting involves the preparation of financial statements. What are the financial statements most frequently provided? (c) What is the difference between financial statements and financial reporting?

How would each of the following items be reported on the balance sheet? (a) Accrued vacation pay. (j) Premium offers outstanding. (b) Estimated taxes payable. (k) Discount on notes payable. (c) Service warranties on appliance sales. (l) Personal injury claim pending. (d) Bank overdraft. (m) Current maturities of long-term (e) Employee payroll deductions unremitted. debts to be paid from current assets. (f) Unpaid bonus to officers. (n) Cash dividends declared but unpaid. (g) Deposit received from customer to guarantee (o) Dividends in arrears on preferred performance of a contract. stock. (h) Sales taxes payable. (p) Loans from officers. (i) Gift certificates sold to customers but not yet redeemed.

There are 23 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, andeach 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. 42.1 Which of the following quality aspects would be classified as examples of freedom from deficiencies rather than product features (two correct answers): (a) components within tolerance, (b) location of ON/OFF switch, (c) no missing parts, (d) product weight, (e) reliability, and (f) reputation of the company? 42.2 If the product tolerance is set so that the process capability index = 1.0, then the percentage of parts that are within tolerance will be closest to which one of the following when the process is operating in statistical control: (a) 35%, (b) 65%, (c) 95%, (d) 99%, or (e) 100%? 42.3 In a control chart, the upper control limit is set equal to which one of the following: (a) process mean, (b) process mean plus three standard deviations, (c) upper design tolerance limit, or (d) upper value of the maximum range R? 42.4 The R chart is used for which one of the following product or part characteristics: (a) number of rejects in the sample, (b) number of reworked parts in a sample, (c) radius of a cylindrical part, or (d) range of sample values? 42.5 Which one of the following best describes the situations for which the c chart is most suited: (a) control of defective parts, (b) mean value of part characteristic of interest, (c) number of defects in a sample, or (d) proportion of defects in a sample? 42.6 Which of the following identify a likely out-of-control condition in a control chart (three correct answers): (a) consistently increasing value of x , (b) points near the central line, (c) points oscillating back and forth across the central line, (d) R outside the control limits of the R chart, (e) sample points consistently slightly above the central line, and (f) x outside the control limits of the x chart? 42.7 Which of the following are the three main goals in a total quality management (TQM) program: (a) achieving customer satisfaction, (b) computing defects per million, (c) continuous improvement, (d) developing robust product and process designs, (e) encouraging the involvement of the entire workforce, (f) forming worker teams, (g) statistical process control, and (h) zero defects? 42.8 Which one of the following measures in a Six Sigma program allows products of different complexity to be directly compared: (a) defects per million units, (b) defects per million opportunities, or (c) defective units per million units? 42.9 Which of the following principles and/or approaches are generally credited to G. Taguchi (two correct answers): (a) acceptance sampling, (b) control charts, (c) loss function, (d) Pareto priority index, and (e) robust design? 42.10 Which of the following phrases relating to ISO 9000 are correct (three correct answers): (a) certified by the International Standards Office located in Geneva, Switzerland, (b) developed by the International Organization for Standardization located somewhere in Europe, (c) establishes standards for the quality systems and procedures used by a facility, (d) establishes standards for the products and services delivered by a facility, and (e) registration in ISO 9000 obtained through a third-party agency that certifies the facility’s quality systems? 42.11 The two basic types of inspection are inspection by variables and inspection by attributes. The second of these inspections uses which one of the following: (a) destructive testing, (b) gaging, (c) measuring, or (d) nondestructive testing? 42.12 Automated 100% inspection can be integrated with the manufacturing process to accomplish which of the following (two best answers): (a) better design of products, (b) feedback of data to adjust the process, (c) 100% perfect quality, and (d) sortation of good parts from defects? 42.13 Which one of the following is an example of contact inspection: (a) coordinate measuring systems, (b) machine vision, (c) radiation techniques, (d) scanning laser systems, and (e) ultrasonic techniques? 42.14 Which one of the following is the most important application of vision systems: (a) inspection, (b) object identification, (c) safety monitoring, or (d) visual guidance and control of a robotic manipulator?

Explain how the value-at-risk (VaR) method can be used to determine whether a bank has adequate capital. (LO3)