Question & Answer

The cutting force and thrust force have been measured in an orthogonal cutting operation to be 300 lb and 291 lb, respectively. The rake angle = 10°, width of cut = 0.200 in, chip thickness before the cut = 0.015, and chip thickness ratio = 0.4. Determine (a) the shear strength of the work material and (b) the coefficient of friction in the operation.

Briefly discuss the convergence efforts that are under way by the IASB and FASB in the area of dilutive securities and earnings per share.

Accounting for scrap You are helping a friend, Jonah, set up a new accounting system for a small start-up construction company. He specialises in custom, energy efficient homes that are built on a cost-plus basis. Cost-plus means that his customers pay a fixed percentage above the sum of direct and overhead costs.   As he goes through the accounts, Jonah asks why you set up a separate account for scrap. He does not believe that scrap should be recorded anywhere in his accounting system because it is worth little, and theft is no problem. He makes weekly trips to a recycling plant where he receives a small sum for the scrap. Most of the time Jonah is working on only one house and the scrap is only for that house. However, once in a while he is working on several houses, and the scrap for all of the houses is recycled at once.   Required (a)     Explain the two ways that scrap can be recorded in a job costing system. (b)     Choose the appropriate method for Jonah and explain your choice. (c)      Suppose you are a prospective homeowner. Explain to Jonah why you believe the revenue from scrap associated with your home should be recorded as a reduction in your costs rather than his overall costs. (d)     Write a brief (and diplomatic) paragraph to convince Jonah that he needs to account for the revenues from scrap.

Shaw Company sells goods that cost $300,000 to Ricard Company for $410,000 on January 2, 2014. The sales price includes an installation fee, which is valued at $40,000. The fair value of the goods is $370,000. The installation is expected to take 6 months. Instructions (a) Prepare the journal entry (if any) to record the sale on January 2, 2014. (b) Shaw prepares an income statement for the first quarter of 2014, ending on March 31, 2014. How much revenue should Shaw recognize related to its sale to Ricard?

To qualify for head of household status a taxpayer must maintain a residence that is the principal place of abode for more than one-half of the taxable year of a qualifying child.The issue here is whether Marty’s nine-month military stay in Australia disqualifies Janice from head of household status.Reg. §1.2-2(c)(1) states that temporary absences of a qualifying child from the household due to special circumstances does not preclude taxpayers from qualifying for head of household status.Military service is one of the special circumstances described in the regulation.However, this regulationindicates that it must be reasonable to assume that the qualifying child will return to the household after the absence and that the taxpayer (head of household) maintains the household in anticipation of the return of the qualifying child.Because Marty will be returning to his home (or at least intends to), Janice can file as head of household status.

Kramer Co. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet are not decipherable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2014.   Instructions (a) Determine the missing amounts in the 2014 pension worksheet, indicating whether the amounts are debits or credits. (b) Prepare the journal entry to record 2014 pension expense for Kramer Co. (c) Determine the following for Kramer for 2014: (1) settlement rate used to measure the interest on the liability and (2) expected return on plan assets.

Your client, Keith Moreland Leasing Company, is preparing a contract to lease a machine to Souvenirs Corporation for a period of 25 years. Moreland has an investment cost of $365,755 in the machine, which has a useful life of 25 years and no salvage value at the end of that time. Your client is interested in earning an 11% return on its investment and has agreed to accept 25 equal rental payments at the end of each of the next 25 years. Instructions You are requested to provide Moreland with the amount of each of the 25 rental payments that will yield an 11% return on investment.

A mold has a downsprue of length = 6.0 in. The cross-sectional area at the bottom of the sprue is 0.5 in2 . The sprue leads into a horizontal runner which feeds the mold cavity, whose volume = 75 in3 . Determine (a) the velocity of the molten metal flowing through the base of the downsprue, (b) the volume rate of flow, and (c) the time required to fill the mold cavity

Relevant information; recommendation Frank owns a caravan and loves to visit national parks with his family. However, the family only takes two one-week trips in the caravan each year. Frank’s wife would rather stay in motels than the caravan. She presented him with the following itemisation of the cost per trip, hoping that he will sell the caravan and use motels instead. Required (a)          What are the relevant costs for deciding whether the family should go on one more camping trip this year? (b)          What are the relevant costs for deciding whether Frank should sell the caravan? Assume the family will take the same vacations but stay in motels if the caravan is sold. (c)           What factors other than costs might influence the decision to sell the caravan? List as many as you can. (d)          Consider your own preferences for this problem. Do you expect Frank’s preferences to be the same as yours? How can you control for your biases and consider this problem from Frank’s point of view? (e)           Frank asks you to help him decide what to do. Do you think he should sell the caravan? Why?             (LO1, 2 and 3)

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?

An annual report of Ford Motor Corporation states, “Net income a share is computed based upon the average number of shares of capital stock of all classes outstanding. Additional shares of common stock may be issued or delivered in the future on conversion of outstanding convertible debentures, exercise of outstanding employee stock options, and for payment of defined supplemental compensation. Had such additional shares been outstanding, net income a share would have been reduced by 10¢ in the current year and 3¢ in the previous year. . . . As a result of capital stock transactions by the company during the current year (primarily the purchase of Class A Stock from Ford Foundation), net income a share was increased by 6¢.” What information is provided by this note?

Which limitations might restrict a corporation’s deduction for a cash charitable contribution?  Explain how to determine the amount of the limitation.

A turning operation is to be performed on a 20 hp lathe that has an 87% efficiency rating. The roughing cut is made on alloy steel whose hardness is in the range 325 to 335 HB. The cutting speed is 375 ft/min, feed is 0.030 in/rev, and depth of cut is 0.150 in. Based on these values, can the job be performed on the 20 hp lathe? Use Table 21.2 to obtain the appropriate unit horsepower value

In January 2014, installation costs of $6,000 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of $30,000 were correctly recorded and have been depreciated using thestraight-line method with an estimated life of 10 years and no salvage value. At December 31, 2015, it is decided that the machinery has a remaining useful life of 20 years, starting with January 1, 2015. What entry(ies) should be made in 2015 to correctly record transactions related to machinery, assuming the machinery has no salvage value? The books have not been closed for 2015 and depreciation aexpense has not yet been recorded for 2015.

On December 31, 2014, Faital Company acquired a computer from Plato Corporation by issuing a $600,000 zero-interest-bearing note, payable in full on December 31, 2018. Faital Company’s credit rating permits it to borrow funds from its several lines of credit at 10%. The computer is expected to have a 5-year life and a $70,000 salvage value. Instructions (Round answers to the nearest cent.) (a) Prepare the journal entry for the purchase on December 31, 2014. (b) Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective-interest method) on December 31, 2015. (c) Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2016.

The credit crisis that occurred in 2008–2009 could also be called an equity crisis due to systemic risk. Write a short essay to explain the impact of the credit markets on the equity markets during the crisis.

Troopers Medical Labs, Inc., began operations 5 years ago producing stetrics, a new type of instrument it hoped to sell to doctors, dentists, and hospitals. The demand for stetrics far exceeded initial expectations, and the company was unable to produce enough stetrics to meet demand. The company was manufacturing its product on equipment that it built at the start of its operations. To meet demand, more efficient equipment was needed. The company decided to design and build the equipment, because the equipment currently available on the market was unsuitable for producing stetrics. In 2014, a section of the plant was devoted to development of the new equipment and a special staff was hired. Within 6 months, a machine developed at a cost of $714,000 increased production dramatically and reduced labor costs substantially. Elated by the success of the new machine, the company built three more machines of the same type at a cost of $441,000 each. Instructions (a) In general, what costs should be capitalized for self-constructed equipment? (b) Discuss the propriety of including in the capitalized cost of self-constructed assets: (1) The increase in overhead caused by the self-construction of fixed assets. (2) A proportionate share of overhead on the same basis as that applied to goods manufactured for sale. (c) Discuss the proper accounting treatment of the $273,000 ($714,000 2 $441,000) by which the cost of the first machine exceeded the cost of the subsequent machines. This additional cost should not be considered research and development costs.

Explain the use of the price-earnings ratio for valuing a stock. Why might investors derive different valuations for a stock when using the PE method? Why might investors derive an inaccurate valuation of a firm when using the PE method? (LO1)

Hollenbeck Foods Inc. sponsors a postretirement medical and dental benefit plan for its employees. The following balances relate to this plan on January 1, 2014. Plan assets $200,000 Expected postretirement benefi t obligation 820,000 Accumulated postretirement benefi t obligation 200,000 No prior service costs exist. As a result of the plan’s operation during 2014, the following additional data are provided by the actuary. Service cost is $70,000 Discount rate is 10% Contributions to plan are $65,000 Expected return on plan assets is $10,000 Actual return on plan assets is $15,000 Benefi ts paid to employees are $44,000 Average remaining service to full eligibility: 20 years Instructions (a) Using the preceding data, compute the net periodic postretirement benefit cost for 2014 by preparing a worksheet that shows the journal entry for postretirement expense and the year-end balances in the related postretirement benefit memo accounts. (Assume that contributions and benefits are paid at the end of the year.) (b) Prepare any journal entries related to the postretirement plan for 2014 and indicate the postretirement amounts reported in the financial statements for 2014.

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.

Why are the molds generally more costly in mechanical thermoforming than in pressure or vacuum thermoforming?

Elon Savings and Loan Association has a large number of 30-year mortgages with floating interest rates that adjust on an annual basis, and it obtains most of its funds by issuing five-year certificates of deposit. It uses the yield curve to assess the market’s anticipation of future interest rates. Elon believes that expectations of future interest rates are the major force affecting the yield curve. Assume that a downward-sloping yield curve with a steep slope exists. Based on this information, should Elon consider using financial futures as a hedging technique? Explain. (LO2)

An article in Barron’s noted the following. Okay. Last fall, someone with a long memory and an even longer arm reached into that bureau drawer and came out with a moldy cheese sandwich and the equally moldy notion of corporate forecasts. We tried to find out what happened to the cheese sandwich—but, rats!, even recourse to the Freedom of Information Act didn’t help. However, the forecast proposal was dusted off, polished up and found quite serviceable. The SEC, indeed, lost no time in running it up the old flagpole—but no one was very eager to salute. Even after some of the more objectionable features—compulsory corrections and detailed explanations of why the estimates went awry—were peeled off the original proposal. Seemingly, despite the Commission’s smiles and sweet talk, those craven corporations were still afraid that an honest mistake would lead them down the primrose path to consent decrees and class action suits. To lay to rest such qualms, the Commission last week approved a “Safe Harbor” rule that, providing the forecasts were made on a reasonable basis and in good faith, protected corporations from litigation should the projections prove wide of the mark (as only about 99% are apt to do). Instructions (a) What are the arguments for preparing profit forecasts? (b) What is the purpose of the “safe harbor” rule? (c) Why are corporations concerned about presenting profit forecasts?

List some rate-sensitive assets and some rate-insensitive assets of banks. (LO3)

A 3/8-24 UNF nut and bolt (3/8 in nominal diameter, 24 threads/in) are inserted through a hole in two stacked steel plates. They are tightened so the plates are clamped together with a force of 1000 lb. The torque coefficient is 0.20. (a) What is the torque required to tighten them? (b) What is the resulting stress in the bolt?