Question & Answer

Cineplex Corporation is a diversified company that operates in five different industries: A, B, C, D, and E. The following information relating to each segment is available for 2015. A B C D E Sales revenue $40,000 $ 75,000 $580,000 $35,000 $55,000 Cost of goods sold 19,000 50,000 270,000 19,000 30,000 Operating expenses 10,000 40,000 235,000 12,000 18,000 Total expenses 29,000 90,000 505,000 31,000 48,000 Operating profi t (loss) $11,000 $ (15,000) $ 75,000 $ 4,000 $ 7,000 Identifi able assets $35,000 $ 80,000 $500,000 $65,000 $50,000 Sales of segments B and C included intersegment sales of $20,000 and $100,000, respectively. Instructions (a) Determine which of the segments are reportable based on the: (1) Revenue test. (2) Operating profit (loss) test. (3) Identifiable assets test. (b) Prepare the necessary disclosures required by GAAP.

What is viscoelasticity, as a material property?

On January 1, 2013, Locke Company, a small machine-tool manufacturer, acquired for $1,260,000 a piece of new industrial equipment. The new equipment had a useful life of 5 years, and the salvage value was estimated to be $60,000. Locke estimates that the new equipment can produce 12,000 machine tools in its first year. It estimates that production will decline by 1,000 units per year over the remaining useful life of the equipment. The following depreciation methods may be used: (1) straight-line, (2) double-declining-balance, (3) sum-of-the-years’-digits, and (4) units-of-output. For tax purposes, the class life is 7 years. Use the MACRS tables for computing depreciation. Instructions (a) Which depreciation method would maximize net income for financial statement reporting for the 3-year period ending December 31, 2015? Prepare a schedule showing the amount of accumulated depreciation at December 31, 2015, under the method selected. Ignore present value, income tax, and deferred income tax considerations. (b) Which depreciation method (MACRS or optional straight-line) would minimize net income for income tax reporting for the 3-year period ending December 31, 2015? Determine the amount of accumulated depreciation at December 31, 2015. Ignore present value considerations.

What are the general rules for measuring and recognizing gain or loss by both the debtor and the creditor in an impairment?

Employees at your company disagree about the accounting for sales returns. The sales manager believes that granting more generous return provisions and allowing customers to order items on a bill and hold basis can give the company a competitive edge and increase sales revenue. The controller cautions that, depending on the terms granted, loose return or bill and hold provisions might lead to non-IFRS revenue recognition. The company CFO would like you to research the issue to provide an authoritative answer. Instructions Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.) (a) What is the authoritative literature addressing revenue recognition when right of return exists? (b) What is meant by “right of return”? “Bill and hold”? (c) When there is a right of return, what conditions must the company meet to recognize the revenue at the time of sale? (d) What factors may impair the ability to make a reasonable estimate of future returns? (e) When goods are sold on a bill and hold basis, what conditions must be met to recognize revenue upon receipt

What distinguishes operating from liquidating distributions?

Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential tax savings. However, management wishes to consider all of the effects on the company, including its reported performance, before making the final decision. The inventory account, currently valued on the FIFO basis, consists of 1,000,000 units at $8 per unit on January 1, 2014. There are 1,000,000 shares of common stock outstanding as of January 1, 2014, and the cash balance is $400,000. The company has made the following forecasts for the period 2014–2016. 2014 2015 2016 Unit sales (in millions of units) 1.1 1.0 1.3 Sales price per unit $10 $12 $12 Unit purchases (in millions of units) 1.0 1.1 1.2 Purchase price per unit $8 $9 $10 Annual depreciation (in thousands of dollars) $300 $300 $300 Cash dividends per share $0.15 $0.15 $0.15 Cash payments for additions to and replacement of plant and equipment (in thousands of dollars) $350 $350 $350 Income tax rate 40% 40% 40% Operating expenses (exclusive of depreciation) as a percent of sales 15% 15% 15% Common shares outstanding (in millions) 1 1 1 Instructions (a) Prepare a schedule that illustrates and compares the following data for Harrisburg Company under the FIFO and the LIFO inventory method for 2014–2016. Assume the company would begin LIFO at the beginning of 2014. (1) Year-end inventory balances. (3) Earnings per share. (2) Annual net income after taxes. (4) Cash balance. Assume all sales are collected in the year of sale and all purchases, operating expenses, and taxes are paid during the year incurred. (b) Using the data above, your answer to (a), and any additional issues you believe need to be considered, prepare a report that recommends whether or not Harrisburg Company should change to the LIFO inventory method. Support your conclusions with appropriate arguments.

{Planning} Billups, a physician and cash-method taxpayer, is new to the concept of tax planning and recently learned of the timing strategy.  To implement the timing strategy, Billups plans to establish a new policy that allows all his clients to wait two years to pay their co-pays.  Assume that Billups does not expect his marginal tax rates to change.  What is wrong with his strategy?

Absent any special elections, what effect does a sale of partnership interest have on the partnership?

The part in Problem 33.1 is to be fabricated using fused deposition modeling instead of stereolithography. Layer thickness is to be 0.20 mm and the width of the extrudate deposited on the surface of the part = 1.25 mm. The extruder workhead moves in the x-y plane at a speed of 150 mm/s. A delay of 10 s is experienced between each layer to reposition the workhead. Compute an estimate for the time required to build the part.

Stephanie began her consulting business this year, and on April 1 Stephanie received a $9,000 payment for full payment on a three-year service contract (under the contract, Stephanie is obligated to provide advisory services for the next three years). Stephanie has elected to use the accrual method of accounting for her business.  a) What is the minimum amount of income should Stephanie recognize for tax purposes this year if she recognizes $2,250 of income from the for financial accounting purposes?  b) What is the minimum amount of income will Stephanie recognize next year for tax purposes?

An investment newsletter suggests that because the prevailing stock market conditions are subject to much uncertainty, investors should purchase call options on the CBOE volatility index (VIX). Write a short essay on the logic behind how the valuation of VIX is influenced by market uncertainty. Also support or refute the advice provided by the newsletter and offer a strategy for investing in call options on the VIX based on expectations of changes in market uncertainty.

Go through each of the determinants we have identified so far and show how the respective elasticity of demand makes the problem of traffic congestion a difficult one to tackle.

What is the normal procedure for handling the collection of accounts receivable previously written off using the direct write-off method? The allowance method?

Using the data shown on the pie charts in Figure 11.1, construct two Lorenz curves (on the same diagram), corresponding to the before- and after-tax income figures. Interpret and comment on the diagram you have drawn.

Stock splits and stock dividends may be used by a corporation to change the number of shares of its stock outstanding. (a) What is meant by a stock split effected in the form of a dividend? (b) From an accounting viewpoint, explain how the stock split effected in the form of a dividend differs from an ordinary stock dividend. (c) How should a stock dividend that has been declared but not yet issued be classified in a balance sheet? Why?

Jackson Company adopts acceptable accounting for its defined benefit pension plan on January 1, 2013, with the following beginning balances: plan assets $200,000; projected benefit obligation $250,000. Other data relating to 3 years’ operation of the plan are as follows. 2013 2014 2015 Annual service cost $16,000 $ 19,000 $ 26,000 Settlement rate and expected rate of return 10% 10% 10% Actual return on plan assets 18,000 22,000 24,000 Annual funding (contributions) 16,000 40,000 48,000 Benefi ts paid 14,000 16,400 21,000 Prior service cost (plan amended, 1/1/14) 160,000 Amortization of prior service cost 54,400 41,600 Change in actuarial assumptions establishes a December 31, 2015, projected benefi t obligation of: 520,000 Instructions (a) Prepare a pension worksheet presenting all 3 years’ pension balances and activities. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31 of each year. (c) Indicate the pension-related amounts reported in the financial statements for 2015.

Kohlbeck Corporation, a manufacturer of steel products, began operations on October 1, 2013. The accounting department of Kohlbeck has started the fixed-asset and depreciation schedule presented on page 632. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company’s records and personnel. 1. Depreciation is computed from the first of the month of acquisition to the first of the month of disposition. 2. Land A and Building A were acquired from a predecessor corporation. Kohlbeck paid $800,000 for the land and building together. At the time of acquisition, the land had an appraised value of $90,000, and the building had an appraised value of $810,000. 3. Land B was acquired on October 2, 2013, in exchange for 2,500 newly issued shares of Kohlbeck’s common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $30 per share. During October 2013, Kohlbeck paid $16,000 to demolish an existing building on this land so it could construct a new building. 4. Construction of Building B on the newly acquired land began on October 1, 2014. By September 30, 2015, Kohlbeck had paid $320,000 of the estimated total construction costs of $450,000. It is estimated that the building will be completed and occupied by July 2016. 5. Certain equipment was donated to the corporation by a local university. An independent appraisal of the equipment when donated placed the fair value at $40,000 and the salvage value at $3,000. 6. Machinery A’s total cost of $182,900 includes installation expense of $600 and normal repairs and maintenance of $14,900. Salvage value is estimated at $6,000. Machinery A was sold on February 1, 2015. 7. On October 1, 2014, Machinery B was acquired with a down payment of $5,740 and the remaining payments to be made in 11 annual installments of $6,000 each beginning October 1, 2014. The prevailing interest rate was 8%. The following data were abstracted from present value tables (rounded). Present value of $1.00 at 8% Present value of an ordinary annuity of $1.00 at 8% 10 years .463 10 years 6.710 11 years .429 11 years 7.139 15 years .315 15 years 8.559   Instructions For each numbered item on the schedule above, supply the correct amount. (Round each answer to the nearest

Tedesco Company changed depreciation methods in 2014 from double-declining-balance to straight-line. Depreciation prior to 2014 under double-declining-balance was $90,000, whereas straight-line depreciation prior to 2014 would have been $50,000. Tedesco’s depreciable assets had a cost of $250,000 with a $40,000 salvage value, and an 8-year remaining useful life at the beginning of 2014. Prepare the 2014 journal entries, if any, related to Tedesco’s depreciable assets.

If everyone’s incomes rose in line with inflation, would it matter if inflation were 100 per cent or even 1000 per cent per annum?

What hurdles (or limitations) must partners overcome before they can ultimately deduct partnership losses on their tax returns?

What are the reporting issues in a sale and buyback agreement?

On January 1, 2013, Dagwood Company purchased at par 12% bonds having a maturity value of $300,000. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. The bonds are classified in the held-to-maturity category. Instructions (a) Prepare the journal entry at the date of the bond purchase. (b) Prepare the journal entry to record the interest received for 2013. (c) Prepare the journal entry to record the interest received for 2014.

Explain why the failure of Lehman Brothers caused prices on credit default swap contracts to increase. (LO7)

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marksand- Spencer-Annual-report-and-financial-statements-2012.pdf. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) What alternative formats could M&S have adopted for its statement of financial position? Whichformat did it adopt? (b) Identify the various techniques of disclosure M&S might have used to disclose additional pertinentfinancial information. Which technique does it use in its financials? (c) In what classifications are M&S’s investments reported? What valuation basis does M&S use to report its investments? How much working capital did M&S have on 31 March 2012? On 2 April 2011? (d) What were M&S’s cash flows from its operating, investing, and financing activities for 2012? What were its trends in net cash provided by operating activities over the period 2011 to 2012? Explain why the change in accounts payable and in accrued and other liabilities is added to net income to arrive at net cash provided by operating activities. (e) Compute M&S’s (1) current cash debt coverage, (2) cash debt coverage, and (3) free cash flow for 2012. What do these ratios indicate about M&S’s financial conditions?