Question & Answer

In 12 samples of size n = 7, the average value of the sample means is x = 6.860 cm for the dimension of interest, and the mean of the ranges of the samples is R = 0.027 cm. Determine (a) lower and upper control limits for the x chart and (b) lower and upper control limits for the R chart. (c) What is your best estimate of the standard deviation of the process?

Cost function; opportunity cost; relevant costs Yummy Yoghurt sells yogurt cones in a variety of natural flavours. Data for a recent month follow: Required (a)          Categorise each cost as fixed or variable. (b)          Create a cost function.

Wade Corp. has 150,000 shares of common stock outstanding. In 2014, the company reports income from continuing operations before income tax of $1,210,000. Additional transactions not considered in the $1,210,000 are as follows. 1. In 2014, Wade Corp. sold equipment for $40,000. The machine had originally cost $80,000 and had accumulated depreciation of $30,000. The gain or loss is considered ordinary. 2. The company discontinued operations of one of its subsidiaries during the current year at a loss of $190,000 before taxes. Assume that this transaction meets the criteria for discontinued operations. The loss from operations of the discontinued subsidiary was $90,000 before taxes; the loss from disposal of the subsidiary was $100,000 before taxes. 3. An internal audit discovered that amortization of intangible assets was understated by $35,000 (net of tax) in a prior period. The amount was charged against retained earnings. 4. The company had a gain of $125,000 on the condemnation of much of its property. The gain is taxed at a total effective rate of 40%. Assume that the transaction meets the requirements of an extraordinary item. Instructions Analyze the above information and prepare an income statement for the year 2014, starting with income from continuing operations before income tax. Compute earnings per share as it should be shown on the face of the income statement. (Assume a total effective tax rate of 38% on all items, unless otherwise indicated.)

Compare and contrast how a Land Rover SUV and a Mercedes-Benz sedan are treated under the luxury auto rules. Also include a discussion of the similarities and differences in available §179 expense.

On January 2, 2009, Banno Corporation issued $1,500,000 of 10% bonds at 97 due December 31, 2018. Legal and other costs of $24,000 were incurred in connection with the issue. Interest on the bonds is payable annually each December 31. The $24,000 issue costs are being deferred and amortized on a straight-line basis over the 10-year term of the bonds. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (Straight-line is not materially different in effect from the preferable “interest method.”) The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, 2014, Banno called $900,000 face amount of the bonds and redeemed them. Instructions Ignoring income taxes, compute the amount of loss, if any, to be recognized by Banno as a result of retiring the $900,000 of bonds in 2014 and prepare the journal entry to record the redemption.

Indiana Jones Corporation enters into a 6-year lease of equipment on January 1, 2014, which requires 6 annual payments of $40,000 each, beginning January 1, 2014. In addition, Indiana Jones guarantees the lessor a residual value of $20,000 at lease-end. The equipment has a useful life of 6 years. Prepare Indiana Jones’ January 1, 2014, journal entries assuming an interest rate of 10%.

With reference to Table 4.1, determine the increase in length of a steel bar whose length = 10.0 in, if the bar is heated from room temperature of 70°F to 500°F.

One financial accounting issue encountered when a company constructs its own plant is whether the interest cost on funds borrowed to finance construction should be capitalized and then amortized over the life of the assets constructed. What is the justification for capitalizing such interest?

Rayburn Corporation has a building that it bought during year 0 for $850,000. It sold the building in year 5. During the time it held the building, Rayburn depreciated it by $100,000. What are the amount and character of the gain or loss Rayburn will recognize on the sale in each of the following alternative situations?    a. Rayburn receives $840,000.  b. Rayburn receives $900,000. c. Rayburn receives $700,000.

How can gross interest income rise while the net interest margin remains somewhat stable for a particular bank? (LO2)

On September 30 of last year, Rex received some investment land from Holly as a gift. Holly’s basis was $50,000 and the land was valued at $40,000 at the time of the gift. Holly acquired the land five years ago. What are the amount and character of Rex’s recognized gain (loss) if he sells the land on May 12 this year at the following prices? a. $32,000 b. $70,000 c. $45,000   a. $8,000 short-term capital loss, computed as follows: Description Amount Explanation (1) Amount Realized$32,000 (2) Adjusted Basis 40,000 Rex’s basis is the fair market value of the land at the date of the gift. Gain (Loss) Recognized ($8,000) (1) – (2)

What will be the effects on the domestic economy under free-floating exchange rates if there is a rapid expansion in world economic activity? What will determine the size of these effects?

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?

Peter Henning Tool Company’s December 31 year-end financial statements contained the following errors. December 31, 2014 December 31, 2015 Ending inventory $9,600 understated $8,100 overstated Depreciation expense $2,300 understated — An insurance premium of $66,000 was prepaid in 2014 covering the years 2014, 2015, and 2016. The entire amount was charged to expense in 2014. In addition, on December 31, 2015, fully depreciated machinery was sold for $15,000 cash, but the entry was not recorded until 2016. There were no other errors during 2014 or 2015, and no corrections have been made for any of the errors. (Ignore income tax considerations.) Instructions (a) Compute the total effect of the errors on 2015 net income. (b) Compute the total effect of the errors on the amount of Henning’s working capital at December 31, 2015. (c) Compute the total effect of the errors on the balance of Henning’s retained earnings at December 31, 2015.

Explain how banks become exposed to exchange rate risk. (LO7)

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)

How does the amount of liability allocated to a partner affect the amount of gain a partner recognizes when contributing property secured by a liability?

What are the types of situations that result in troubled debt?

During 2014, Nilsen Company started a construction job with a contract price of $1,600,000. The job was completed in 2016. The following information is available. 2014 2015 2016 Costs incurred to date $400,000 $825,000 $1,070,000 Estimated costs to complete 600,000 275,000 –0– Billings to date 300,000 900,000 1,600,000 Collections to date 270,000 810,000 1,425,000 Instructions (a) Compute the amount of gross profit to be recognized each year, assuming the percentage-ofcompletion method is used. (b) Prepare all necessary journal entries for 2015. (c) Compute the amount of gross profit to be recognized each year, assuming the completed-contract method is used.

Last December 31, Ramon sold the 10 percent interest in the Del Sol Partnership, which he had held for two years to Garrett for $400,000. Prior to selling his interest, Ramon’s basis in Del Sol was $200,000, which included a $100,000 share of nonrecourse liabilities allocated to him. a. What is Garrett’s tax basis in his partnership interest? b. If Garrett sells his partnership interest three months after receiving it and recognizes a gain, what is the character of his gain?

Use your table to draw diagrams like Figures 6.19 and 6.21. Use these two diagrams to show the profit-maximising output and the level of maximum profit. Confirm your findings by reference to the table you have constructed.

Would the demand for securities be low if their price was high, but was expected to go on rising?

A sand core located inside a mold cavity has a volume of 157.0 in3 . It is used in the casting of a cast iron pump housing. Determine the buoyancy force that will tend to lift the core during pouring.

Riverbend Inc. received a $200,000 dividend from stock it held in Hobble Corporation.  Riverbend’s taxable income is $2,100,000 before deducting the dividends-received deduction (DRD) and a $100,000 charitable contribution.

Identify why RPE would be used t the company level.