Question & Answer

What is the expected value of the above lottery ticket gamble if the chances of purchasing a winning ticket with a prize of £50 are 30 per cent? How much of the expected value of the gamble is a risk-averse person willing to sacrifice if they decide against purchasing the ticket? If they were indifferent between purchasing and not purchasing the ticket, what is their certainty equivalent and risk premium of the gamble?

Baker Corporation owned a building located in Kansas. Baker used the building for its business operations. Last year, a tornado hit the property and completely destroyed it. This year, Baker received an insurance settlement. Baker had originally purchased the building for $350,000 and had claimed a total of $100,000 of depreciation deductions against the property. What are Baker’s realized and recognized gain or (loss) on this transaction and what is its basis in the new building in the following alternative scenarios? a. Baker received $450,000 in insurance proceeds and spent $450,000 rebuilding the building during the current year. b. Baker received $450,000 in insurance proceeds and spent $500,000 rebuilding the building during the current year. c. Baker received $450,000 in insurance proceeds and spent $400,000 rebuilding the building during the current year. d. Baker received $450,000 in insurance proceeds and spent $450,000 rebuilding the building during the next three years.

What is the difference between control charts for variables and control charts for attributes?

What is press fit technology in electrical connections?

Describe a situation in which a former C corporation that elected to be taxed as an S corporation may have its S election automatically terminated, but a similarly situated corporation that has always been taxed as an S corporation would not.

Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2014. The insurance company which administers the pension plan provided the following selected information for the years 2014, 2015, and 2016. For Year Ended December 31, 2014 2015 2016 Plan assets (fair value) $50,000 $ 85,000 $180,000 Accumulated benefi t obligation 45,000 165,000 292,000 Projected benefi t obligation 60,000 200,000 324,000 Net (gain) loss (for purposes of corridor calculation) –0– 78,400 86,121 Employer’s funding contribution (made at end of year) 50,000 60,000 105,000 There were no balances as of January 1, 2014, when the plan was initiated. The actual and expected return on plan assets was 10% over the 3-year period, but the settlement rate used to discount the company’s pension obligation was 13% in 2014, 11% in 2015, and 8% in 2016. The service cost component of net periodic pension expense amounted to the following: 2014, $60,000; 2015, $85,000; and 2016, $119,000. The average remaining service life per employee is 12 years. No benefits were paid in 2014, $30,000 of benefits were paid in 2015, and $18,500 of benefits were paid in 2016 (all benefits paid at end of year). Instructions (Round to the nearest dollar.) (a) Calculate the amount of net periodic pension expense that the company would recognize in 2014, 2015, and 2016. (b) Prepare the journal entries to record net periodic pension expense, employer’s funding contribution, and related pension amounts for the years 2014, 2015, and 2016.

Cost function using multiple regression (appendix 2A) Refer to the data and requirements of Problem 2.23.   Required (a)          Perform multiple regression using all three cost drivers. Compare the adjusted R-squares and cost functions for the multiple regression with the results of simple regressions for each potential cost driver. (b)          Which cost drivers do the best job of explaining manufacturing overhead costs? Explain. (c)           Select only the cost drivers that do the best job of explaining manufacturing overhead costs. Perform multiple regression analysis for those cost drivers and write the cost function. (d)          Explain why more than one cost driver is plausible for manufacturing overhead costs. (a)     Multiple regression with all three potential cost drivers:   Regression Statistics Multiple R 0.9092294 R Square 0.8266982 Adjusted R Square 0.8067018 Standard Error 4832.5558 Observations 30     Coefficients Standard Error t Stat P-value Intercept 60988.489 10361.2349 5.886218 3.3E-06 Labour Hours -0.1959303 3.333162437 -0.05878 0.953575 Machine Hours 48.778501 5.291558412 9.218173 1.12E-09 Raw Materials 82.976635 10.10654585 8.210187 1.08E-08   Comparison of simple and multiple regression results: (b)     Labour hours does not appear to be a cost driver when using either simple regression or multiple regression; its coefficient is not significantly different from zero in either regression. Also, its coefficient is negative rather than positive in the multiple regression. Thus, labour hours can be eliminated as a potential cost driver.   Both machine hours and raw materials are positive and significantly different from zero when using simple regression and also when using multiple regression. The adjusted R-Square is far higher in the multiple regression (0.806) than in either of the simple regressions (0.352 and 0.226) for these two cost drivers. A combination of cost drivers does a much better job of explaining the variation in manufacturing overhead costs than either cost driver alone.   (c)     Multiple regression using machine hours and raw materials as cost drivers:   Regression Statistics Multiple R 0.90921678 R Square 0.82667515 Adjusted R Square 0.81383627 Standard Error 4742.5348 Observations 30     Coefficients Standard Error t Stat P-value Intercept 60677.5902 8743.664851 6.939606 1.86E-07 Machine Hours 48.7422519 5.157604083 9.450561 4.71E-10 Raw Materials 82.925842 9.881964042 8.391636 5.29E-09   The cost function is: TC = $60 678 + $48.74×Machine hours + $82.93×Raw materials   (d)    Manufacturing can be a complex activity requiring a number of different tasks. Each task includes different activities. Costs for these activities are likely related to specific cost drivers. In this example, machine hours and raw materials explain different activity costs, such as machining work on units, and materials handling for the units. A better understanding of the manufacturing process improves the ability to determine the types and number of cost drivers that can be used in a more complete cost function.

Some accountants have said that politicization in the development and acceptance of generally accepted accounting principles (i.e., rule-making) is taking place. Some use the term “politicization” in a narrow sense to mean the influence by governmental agencies, particularly the Securities and Exchange Commission, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromise that results when the bodies responsible for developing generally accepted accounting principles are pressured by interest groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Management Accountants, financial analysts, bankers, lawyers, and so on). Instructions (a) The Committee on Accounting Procedure of the AICPA was established in the mid- to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the first two indicate an increasing politicization (as the term is used in the broad sense) of accounting standard-setting? Explain your answer by indicating how the CAP, the APB, and the FASB operated or operate. Cite specific developments that tend to support your answer. (b) What arguments can be raised to support the “politicization” of accounting rule-making? (c) What arguments can be raised against the “politicization” of accounting rule-making?

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.

Botticelli Inc. was organized in late 2012 to manufacture and sell hosiery. At the end of its fourth year of operation, the company has been fairly successful, as indicated by the following reported net incomes. 2012 $140,000a 2014 $205,000 2013 160,000b 2015 276,000 aIncludes a $10,000 increase because of change in bad debt experience rate. bIncludes extraordinary gain of $30,000. The company has decided to expand operations and has applied for a sizable bank loan. The bank officer has indicated that the records should be audited and presented in comparative statements to facilitate analysis by the bank. Botticelli Inc. therefore hired the auditing firm of Check & Doublecheck Co. and has provided the following additional information. 1. In early 2013, Botticelli Inc. changed its estimate from 2% of sales to 1% on the amount of bad debt expense to be charged to operations. Bad debt expense for 2012, if a 1% rate had been used, would have been $10,000. The company therefore restated its net income for 2012. 2. In 2015, the auditor discovered that the company had changed its method of inventory pricing from LIFO to FIFO. The effect on the income statements for the previous years is as follows. 2012 2013 2014 2015 Net income unadjusted—LIFO basis $140,000 $160,000 $205,000 $276,000 Net income unadjusted—FIFO basis 155,000 165,000 215,000 260,000 $ 15,000 $ 5,000 $ 10,000 $ (16,000) 3. In 2015, the auditor discovered that: (a) The company incorrectly overstated the ending inventory (under both LIFO and FIFO) by $14,000 in 2014. (b) A dispute developed in 2013 with the Internal Revenue Service over the deductibility of entertainment expenses. In 2012, the company was not permitted these deductions, but a tax settlement was reached in 2015 that allowed these expenses. As a result of the court’s finding, tax expenses in 2015 were reduced by $60,000. Instructions (a) Indicate how each of these changes or corrections should be handled in the accounting records. (Ignore income tax considerations.) (b) Present comparative income statements for the years 2012 to 2015, starting with income before extraordinary items. (Ignore income tax considerations.)

Dave LaCroix recently received a 10 percent capital and profits interest in Cirque Capital LLC in exchange for consulting services he provided. If Cirque Capital had paid an outsider to provide the advice, it would have deducted the payment as compensation expense. Cirque Capital’s balance sheet on the day Dave received his capital interest appears below: Assets: Basis Fair Market Value Cash $ 150,000 $ 150,000 Investments 200,000 700,000 Land 150,000 250,000 Totals $ 500,000 $1,100,000   Liabilities and capital: Nonrecourse liabilities 100,000 100,000 Tatsuki* 200,000 500,000 Robert* 200,000 500,000 Totals $ 500,000 $ 1,100,000

The concept of the time value of money suggests that $1 today is not equal to $1 in the future. Explain why this is true.

What are some of the operations required in sand casting after the casting is removed from the mold?

Vania Magazine Company started construction of a warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2013, and completed the building on December 31, 2013. During the construction period, Vania has the following debt obligations outstanding. Construction loan—12% interest, payable semiannually, issued December 31, 2012 $2,000,000 Short-term loan—10% interest, payable monthly, and principal payable at maturity, on May 30, 2014 1,400,000 Long-term loan—11% interest, payable on January 1 of each year; principal payable on January 1, 2016 1,000,000 Total cost amounted to $5,200,000, and the weighted average of accumulated expenditures was $3,500,000. Jane Esplanade, the president of the company, has been shown the costs associated with this construction project and capitalized on the balance sheet. She is bothered by the “avoidable interest” included in the cost. She argues that, first, all the interest is unavoidable—no one lends money without expecting to be compensated for it. Second, why can’t the company use all the interest on all the loans when computing this avoidable interest? Finally, why can’t her company capitalize all the annual interest that accrued over the period of construction? Instructions (Round the weighted-average interest rate to two decimal places.) You are the manager of accounting for the company. In a memo, explain what avoidable interest is, how you computed it (being especially careful to explain why you used the interest rates that you did), and why the company cannot capitalize all its interest for the year. Attach a schedule supporting any computations that you use.

What are the parameters that have the greatest influence in determining the ideal surface roughness Ri in a turning operation?

Sasha owes additional tax imposed in a recent audit.  In addition to the tax, will they be assessed other amounts?  If so, how will these amounts be determined?

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.

What is the difference between a basic process and a secondary process?

What is the heat-affected zone (HAZ) in a fusion weld?

1.       : One small business owner said that he had to teach his young employees what a “dial tone” was. Do you have phone aversion? Do you think it is possible to build a solid business relationship with customers using only text messaging, e-mail, and social media?

Smithers is a self-employed individual who earns $30,000 per year in self-employment income. Smithers pays $2,200 in annual health insurance premiums (not through an exchange) for his own medical care. In each of the following situations, determine the amount of the deductible health insurance premium for Smithers before any AGI floor limitation.

Which cutting speed is always lower for a given machining operation, cutting speed for minimum cost or cutting speed for maximum production rate? Why?

Why do the world’s top footballers earn millions of pounds per year, while the top lacrosse players are paid less than the equivalent of £30 000?

In a turning operation on cast iron, the nose radius on the tool = 1.5 mm, feed = 0.22 mm/rev, and speed = 1.8 m/s. Compute an estimate of the surface roughness for this cut.

Sustainability; outsourcing; monitoring measures To reduce costs and focus on core competencies, many entities are increasingly outsourcing manufacturing activities to vendors in countries having low labour costs such as China, India, Thailand, Indonesia and Mexico. Certain activists claim that this practice is socially irresponsible. They claim that numerous factory problems in low-cost countries include excessive work hours, poverty wages, toxic gas releases and harassment of union organisers. The problems were exacerbated after the collapse of a garment factory in Bangladesh resulting in 1137 deaths and 2500 injuries. As a result, 41 people, including the building’s owner, were charged with murder or culpable homicide. Such conditions have prompted individuals and organisations to reconsider their purchasing habits and policies. However, some people argued that boycotts against certain companies cause more harm than good; workers who were already poor often lost their jobs, and unionisation efforts and other improvements were hindered.64 They suggest it is difficult for companies to adequately monitor working conditions at outsource locations. Workers were often afraid to talk to inspectors, and they sometimes provided inaccurate information. For example, they sometimes erroneously said that they were not paid overtime because they did not understand how their pay was calculated. In the Bangladesh case, it was found that the owner and managers of the garment factory had forced the workers to enterthe building on the day of the accident despite major cracks appearing on the building a day earlier.   Required (a)     Describe whether and how sustainability management practices (that is, business practices related to human rights, labour standards and the environment) affect your decisions as a consumer. (b)     Is it possible for you to know the conditions under which the products you purchase are produced? Why? (c)     Is it possible for managers of companies that retail the final products to know with certainty that their outsource partners comply with agreed-upon working conditions? Why? (d)     Would the inclusion of compliance monitoring costs in its purchasing decision process help? (e)     Identify and explain four measures that a company could use to monitor worker conditions in outsource factories. For each measure, describe how the company might collect reliable data. (f)      How should entities weigh corporate social responsibility and profits when deciding whether or how to outsource manufacturing? Describe the values you use in drawing your conclusions. (LO5)