Question & Answer

1.      Have you heard of Casper, purchased a Casper mattress, or visited a Casper store? What is your impression? What do you value most and what do you want to avoid when buying a mattress?

Assume that the Fed adopts an inflation-targeting strategy. Describe how the Fed’s monetary policy would be affected by an abrupt 15 percent rise in oil prices in response to an oil shortage. Do you think an inflation targeting strategy would be more or less effective in this situation than a strategy of balancing inflation concerns with unemployment concerns? Explain. (LO3)

In January 2014, Susquehanna Inc. requested and secured permission from the commissioner of the Internal Revenue Service to compute inventories under the last-in, first-out (LIFO) method and elected to determine inventory cost under the dollar-value LIFO method. Susquehanna Inc. satisfied the commissioner that cost could be accurately determined by use of an index number computed from a representative sample selected from the company’s single inventory pool. Instructions (a) Why should inventories be included in (1) a balance sheet and (2) the computation of net income? (b) The Internal Revenue Code allows some accountable events to be considered differently for income tax reporting purposes and financial accounting purposes, while other accountable events must be reported the same for both purposes. Discuss why it might be desirable to report some accountable events differently for financial accounting purposes than for income tax reporting purposes. (c) Discuss the ways and conditions under which the FIFO and LIFO inventory costing methods produce different inventory valuations. Do not discuss procedures for computing inventory cost.

Olympia Corporation, of Kittery, Maine, wants to exchange its manufacturing facility for Bangor Company’s warehouse. Both parties agree that that Olympia’s building is worth $100,000 and that Bangor’s building is worth $95,000. Olympia would like the transaction to qualify as a like-kind exchange. What could the parties do to equalize the value exchanged but still allow the exchange to qualify as a like-kind exchange?  How would the necessary change affect the tax consequences of the transaction?

Using the facts in problem 40, if Scot and Vidia earn an additional $80,000 of taxable income, what is their marginal tax rate on this income?  How would your answer differ if they, instead, had $80,000 of additional deductions?

By referring to each of the above determinants of supply, identify what would cause (a) the supply of potatoes to fall and (b) the supply of leather to rise.

Quantity requirements are to be planned for component C2 in product P1. Required deliveries for P1 are given in Table 41.1. Ordering, manufacturing, and assembly lead times are as follows: for P1 and C2, the lead time is one week; and for S1 and M2, the lead time is two weeks. Given the product structure in Figure 41.4, determine the time-phased requirements for M2, C2, and S1 to meet the master schedule for P1. Assume no common use items and all on-hand inventories and scheduled receipts are zero. Use a format similar to Table 41.2 and develop a spreadsheet calculator to solve. Ignore demand for P1 beyond period 10.

Clem is married and is a skilled carpenter. Clem’s wife, Wanda, works part-time as a substitute elementary school teacher. Determine the amount of Clem’s expenses that are deductible for AGI this year (if any) under the following independent circumstances:

Why didn’t the FASB cover both types of postretirement benefits—pensions and healthcare—in the earlier pension accounting rules?

Assume that European countries impose a quota on goods imported from the United States and that the United States does not plan to retaliate. How could this affect the value of the euro? Explain. (LO2)

When incorporating Spotfree, a cleaning company, Jayne transferred accounts receivable (fair market value $20,000 and $0 tax basis) and $12,000 of accounts payable from her cash-method sole proprietorship to Spotfree in exchange for Spotfree stock valued at $8,000. Assume the transfer qualifies under §351.   a. What are the amount and character of the gain Jayne must recognize on the exchange?  b. What is Jayne's basis in the Spotfree stock she received in the exchange?

Imagine that a public project yields a return of 13 per cent (after taking into account all social costs and benefits), whereas a 15 per cent private return could typically be earned in the private sector. How would you justify diverting resources from the private sector to this project?

On January 1, 2014, Millay Inc. paid $700,000 for 10,000 shares of Genso Company’s voting common stock, which was a 10% interest in Genso. At that date, the net assets of Genso totaled $6,000,000. The fair values of all of Genso’s identifiable assets and liabilities were equal to their book values. Millay does not have the ability to exercise significant influence over the operating and financial policies of Genso. Millay received dividends of $1.50 per share from Genso on October 1, 2014. Genso reported net income of $550,000 for the year ended December 31, 2014. On July 1, 2015, Millay paid $2,325,000 for 30,000 additional shares of Genso Company’s voting common stock which represents a 30% investment in Genso. The fair values of all of Genso’s identifiable assets net of liabilities were equal to their book values of $6,550,000. As a result of this transaction, Millay has the ability to exercise significant influence over the operating and financial policies of Genso. Millay received dividends of $2.00 per share from Genso on April 1, 2015, and $2.50 per share on October 1, 2015. Genso reported net income of $650,000 for the year ended December 31, 2015, and $350,000 for the 6 months ended December 31, 2015. Instructions (For both purchases, assume any excess of cost over book value is due to goodwill.) (a) Prepare a schedule showing the income or loss before income taxes for the year ended December 31, 2014, that Millay should report from its investment in Genso in its income statement issued in March 2015. (b) During March 2016, Millay issues comparative financial statements for 2014 and 2015. Prepare schedules showing the income or loss before income taxes for the years ended December 31, 2014 and 2015, that Millay should report from its investment in Genso.

An orthogonal cutting operation is performed using a rake angle of 15°, chip thickness before the cut = 0.012 in and width of cut = 0.100 in. The chip thickness ratio is measured after the cut to be 0.55. Determine (a) the chip thickness after the cut, (b) shear angle, (c) friction angle, (d) coefficient of friction, and (e) shear strain.

If a disastrous harvest of rice were confined to a particular country, would (a) the world price and (b) its own domestic price of rice fluctuate significantly? What would happen to the country’s export earnings and the earnings of individual farmers?

Transfer price; sale to outside versus inside customer The Enviro division of Solar Sun produces electric motors, 20 per cent of which are sold to the Energy Plus division of Solar Sun and the remainder to outside customers. Solar Sun treats its divisions as profit centres and allows division managers to choose their sources of sale and supply. Corporate policy requires that all interdivisional sales and purchases be recorded at variable cost as transfer price. Enviro division’s estimated sales and standard cost data for 2017, based on its full capacity of 100 000 units are as follows:     Enviro has an opportunity to sell the 20 000 units to an outside customer at a price of $75 per unit on a continuing basis. Energy Plus can purchase its requirements from an outside supplier for $85 per unit.   Required Assuming that Enviro division desires to maximise its gross margin, should Enviro accept the new customer and drop its sales to Energy Plus for 2019? Why?

A single-pass rolling operation reduces a 20 mm thick plate to 18 mm. The starting plate is 200 mm wide. Roll radius = 250 mm and rotational speed = 12 rev/min. The work material has a strength coefficient = 600 MPa and a strength coefficient = 0.22. Determine (a) roll force, (b) roll torque, and (c) power required for this operation.

Relative performance evaluation Relative performance evaluation at the company level often results in using a market index like the ASX100 as the peer group.   Required Outline the potential advantages and disadvantages of this practice.             (LO2, 3 and 5)

Bart is the favorite nephew of his aunt Thelma. Thelma transferred several items of value to Bart. For each of the following transactions, determine the effect on Bart’s gross income:

Linus Paper Company decided to close two small pulp mills in Conway, New Hampshire, and Corvallis, Oregon. Would these closings be reported in a separate section entitled “Discontinued operations after income from continuing operations”? Discuss.

Describe a lockup provision and explain why it might be required by the lead underwriter. (LO3)

(Threshold Concept 6) 1. What would you understand by the ‘wage elasticity of demand for labour’? How would the magnitude of this elasticity affect the working of the market for (a) plumbers and (b) footballers? (Threshold Concept 6) 2. How can income elasticity of demand help explain how the structure of economies changes over the years.

Explain the difference between operating departments and support departments

Identify why RPE would be used t the company level.

This year, Sooner Corporation reports a deficit in current E&P of ($300,000).  Its accumulated E&P at the beginning of the year was $200,000. Sooner distributed $400,000 to its sole shareholder, Boomer, on June 30 of this year. Boomer’s tax basis in his Sooner stock before the distribution is $75,000.