Question & Answer

Define resistance welding.

On July 1, 2014, Brigham Corporation purchased Young Company by paying $250,000 cash and issuing a $100,000 note payable to Steve Young. At July 1, 2014, the balance sheet of Young Company was as follows. Cash $ 50,000 Accounts payable $200,000 Accounts receivable 90,000 Stockholders’ equity 235,000 Inventory 100,000 $435,000 Land 40,000 Buildings (net) 75,000 Equipment (net) 70,000 Trademarks 10,000 $435,000 The recorded amounts all approximate current values except for land (fair value of $60,000), inventory (fair value of $125,000), and trademarks (fair value of $15,000). Instructions (a) Prepare the July 1 entry for Brigham Corporation to record the purchase. (b) Prepare the December 31 entry for Brigham Corporation to record amortization of intangibles. The trademark has an estimated useful life of 4 years with a residual value of $3,000.

Below is the income statement for a British company, Avon Rubber plc. Avon prepares its financial statements in accordance with IFRS.   Instructions (a) Review the Avon Rubber income statement and identify at least three differences between the IFRS income statement and an income statement of a U.S. company as presented in the chapter. (b) Identify any irregular items reported by Avon Rubber. Is the reporting of these irregular items in Avon’s income statement similar to reporting of these items in U.S. companies’ income statements? Explain.

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for leases.

For each of the following citations, identify the type of authority (statutory, administrative, or judicial) and explain the citation.

According to this chapter, have banks been able to insulate themselves against interest rate movements? Explain. (LO3)

1.       : Explain the basic idea underlying the contingency view. How would you go about identifying key contingencies facing an organization?

Assume a financial institution has more rate-sensitive assets than rate-sensitive liabilities. Would it be more likely to be adversely affected by an increase or decrease in interest rates? Should it purchase or sell interest rate futures contracts in order to hedge its exposure? (LO2)

Explain the guidelines for credit rating agencies that resulted from the Financial Reform Act of 2010. (LO2)

Hill Corporation is in the leasing business and faces a marginal tax rate of 21 percent. It has leased a building to Whitewater Corporation for several years. Hill bought the building for $150,000 and claimed $20,000 of depreciation deductions against the asset. The lease term is about to expire and Whitewater would like to acquire the building. Hill has been offered two options:

On October 1, 2014, Chung, Inc. assigns $1,000,000 of its accounts receivable to Seneca National Bank as collateral for a $750,000 note. The bank assesses a finance charge of 2% of the receivables assigned and interest on the note of 9%. Prepare the October 1 journal entries for both Chung and Seneca.

Cost function using account analysis and high-low method The Elder Clinic, a not-for-profit entity, provides limited medical services to low-income elderly patients. The manager’s summary report for the past four months of operations is reproduced here.     The clinic receives an operating subsidy from the city, but unfortunately, the operating loss that has been incurred through June $(79 392) is larger than anticipated. Part of the problem is the salary increase that went into effect in June, which had been overlooked when the budget was submitted to the city last year. To compound the problem, the cold winter months traditionally bring with them an increase in cold-related health problems. Thus, the clinic is likely to experience an increase in patient visits during July.   The clinic’s managers are considering an increase in patient fees to reduce losses. However, they are reluctant to raise fees because the patients have low incomes. They will raise fees only if it is necessary.   Required (a)          Use your judgement to classify costs as fixed, variable, or mixed. Explain how you classified each item. (b)          Create a cost function for the Elder Clinic. Use the high-low method to estimate the function for any mixed costs. (c)           Use the cost function to estimate July expenses based on a projection of 940 patient visits. (d)          List reasons why management of the Elder Clinic cannot know with certainty what the expenses will be during July. List as many reasons as you can. (e)           Describe the pros and cons of using your cost estimate from part (C) to decide whether to raise patient fees. (f)           The managers need your July cost estimate to decide whether to raise patient fees. Use the information you learned from parts (a) and (b)  to write a memo to the director of the Elder Clinic presenting your estimate of July costs. Provide the director with appropriate information for understanding your methodology and evaluating the reliability of your cost estimate.

What are the desirable features of atomic or molecular self-assembly processes in nanotechnology?

Horton Corporation is preparing a bank reconciliation and has identified the following potential reconciling items. For each item, indicate if it is (1) added to balance per bank statement, (2) deducted from balance per bank statement, (3) added to balance per books, or (4) deducted from balance per books. (a) Deposit in transit $5,500. (d) Outstanding checks $7,422. (b) Bank service charges $25. (e) NSF check returned $377. (c) Interest credited to Horton’s account $31.

Holt Company purchased a computer for $8,000 on January 1, 2013. Straight-line depreciation is used, based on a 5-year life and a $1,000 salvage value. In 2015, the estimates are revised. Holt now feels the computer will be used until December 31, 2016, when it can be sold for $500. Compute the 2015 depreciation.

Dold Acrobats lent $16,529 to Donaldson, Inc., accepting Donaldson’s 2-year, $20,000, zero-interestbearing note. The implied interest rate is 10%. Prepare Dold’s journal entries for the initial transaction, recognition of interest each year, and the collection of $20,000 at maturity.

{Planning} Alan inherited $100,000 with the stipulation that he “invest it to financially benefit his family.”  Alan and Alice decided they would invest the inheritance to help them accomplish two financial goals: purchasing a Park City vacation home and saving for their son Cooper’s education.     Vacation Home Cooper’s Education Initial Investment $50,000 $50,000 Investment Horizon 5 years 18 years   Alan and Alice have a marginal income tax rate of 30 percent (capital gains rate of 15 percent), and have decided to investigate the following investment opportunities.      5 Years Annual After-Tax Rate of Return 18 Years Annual After-Tax Rate of Return Corporate bonds (ordinary interest taxed annually) 5.75%   4.75%   Dividend-paying stock (no appreciation and dividends are taxed at 15%)   3.50%     3.50%   Growth stock Future Value is $65,000   Future Value is $140,000   Municipal bond (tax-exempt) 3.20%   3.10%     Complete the two annual after-tax rates of return columns for each investment and provide investment recommendations for Alan and Alice.

Ethical Decision-Making — Wasted Soup83 While she was watching operations at a food processing plant, a consultant noticed a large amount of soup on the floor under a filling machine. An operator washed this soup away each day. When asked about the loss of soup, the production manager replied that no losses occurred. In this manager’s view, no problem existed because the production line operating costs were below budgeted costs. Later, a productivity team analysed the amount of soup wasted over a given time period. The team estimated the cost of the leak to be $750 000 a year. To correct the problem, the company installed a set of valves costing $50 000. The new valves eliminated the loss of soup.   Instead of measuring performance against expected budget levels, managers could compare actual profits to ideal profits that could be earned if operations were to run at their true potential. By focusing on the gap between ideal and actual profits, managers are encouraged to identify lost profit potential and to reconsider critical processes. Once gaps are identified, managers rank them according to their value to the organisation and correct them in priority order.   Required (a)     Is it an ethical problem when employees observe inefficiencies in the workplace, such as the loss of soup in this case? Why? (b)     Why is it common for employees to do nothing when they observe inefficiencies? Compare the responsibility of operation workers to the responsibility of the operating manager with respect to identifying and correcting inefficiencies. In what ways are the responsibilities the same? In what ways are they different? (c)     Is it ethical for employees to ignore inefficiencies? Why? What values did you use to arrive at the conclusion? (d)     People do not always seek to achieve their best performance. For example, students sometimes apply minimum effort to achieve a targeted grade. What does it mean for individuals to seek continuous improvement? (LO2)

Vedula Advertising Agency was founded by Murali Vedula in January 2009. Presented on the next page are both the adjusted and unadjusted trial balances as of December 31, 2014.   Instructions (a) Journalize the annual adjusting entries that were made. (b) Prepare an income statement and a retained earnings statement for the year ended December 31, and a classified balance sheet at December 31. (c) Identify which accounts should be closed on December 31. (d) If the note has been outstanding 10 months, what is the annual interest rate on that note? (e) If the company paid $10,500 in salaries and wages in 2014, what was the balance in Salaries and Wages Payable on December 31, 2013?

What is meant by “past service cost”? When is past service cost recognized as pension expense?

If speculators on average gain from their speculation, who loses?

The controller for Lafayette Inc. recently commented, “If I have to disclose our segments individually, the only people who will gain are our competitors and the only people that will lose are our present stockholders.” Evaluate this comment.

What is meant by “prior service cost”? When is prior service cost recognized as pension expense?

An injection molded polyethylene part has a dimension of 2.500 in. A new material, polycarbonate, is used in the same mold. What is the expected corresponding dimension of the polycarbonate molding?

At December 31, 2014, Hyasaki Corporation has the following account balances: Bonds payable, due January 1, 2023 $2,000,000 Discount on bonds payable 88,000 Interest payable 80,000 Show how the above accounts should be presented on the December 31, 2014, balance sheet, including the proper classifications.