Question & Answer

Explain how shareholder protection varies among countries. Explain how enforcement of securities laws varies among countries. Why do these characteristics affect the valuations of stocks? (LO7)

Tool life turning tests have been conducted on B1112 steel with high-speed steel tooling, and the resulting parameters of the Taylor equation are: n = 0.13 and C = 225. B1112 is the base metal and has a machinability rating = 1.00 (100%). During the tests, feed = 0.010 in/rev, and depth of cut = 0.100 in. Based on this information, and machinability data given in Table 24.1, determine the cutting speed you would recommend for the following work materials, if the tool life desired in operation is 30 min (the same feed and depth of cut are to be used): (a) C1008 low carbon steel with 150 Brinell hardness, (b) 4130 alloy steel with 190 Brinell hardness, and (c) B1113 steel with 170 Brinell hardness.

1.      : Vote to exonerate the three group members who didn’t cheat. You’re convinced they had no reason to suspect Conrad Novak of dishonesty. Exonerating them is the right thing to do.

During 2014, Pretenders Furniture Company purchases a carload of wicker chairs. The manufacturer sells the chairs to Pretenders for a lump sum of $59,850 because it is discontinuing manufacturing operations and wishes to dispose of its entire stock. Three types of chairs are included in the carload. The three types and the estimated selling price for each are listed below. Type No. of Chairs Estimated Selling Price Each Lounge chairs 400 $90 Armchairs 300 80 Straight chairs 700 50 During 2014, Pretenders sells 200 lounge chairs, 100 armchairs, and 120 straight chairs. Instructions What is the amount of gross profit realized during 2014? What is the amount of inventory of unsold straight chairs on December 31, 2014?

If fringe benefits (such as long holidays, company cars, free clothing/uniforms, travel allowances and health insurance) were included, do you think the level of inequality would increase or decrease? Explain why.

Presented below is information from Perez Computers Incorporated. July 1 Sold $20,000 of computers to Robertson Company with terms 3/15, n/60. Perez uses the gross method to record cash discounts. 10 Perez received payment from Robertson for the full amount owed from the July transactions. 17 Sold $200,000 in computers and peripherals to The Clark Store with terms of 2/10, n/30. 30 The Clark Store paid Perez for its purchase of July 17. Instructions Prepare the necessary journal entries for Perez Computers.

1. Why is it easier to use taxes and subsidies to tackle the problem of car exhaust pollution than to tackle the problem of peak-time traffic congestion in cities? 2. CFCs in fridges were known to cause environmental damage and their use has been banned in most countries. Why has this approach been adopted rather than the tax solution?

The value of the dollar is monitored by bond market participants over time. a. Explain why expectations of a weak dollar could reduce bond prices in the United States. b. On some occasions, news of the dollar’s weakening has not had any impact on the bond markets. Assuming that no other information offsets the weakening dollar, explain why the bond markets may not have responded to the dollar’s decline. (LO2)

How does money aid the specialisation and division of labour?

Scratch Miniature Golf and Driving Range Inc. was opened on March 1 by Scott Verplank. The following selected events and transactions occurred during March. Mar. 1 Invested $50,000 cash in the business in exchange for common stock. 3 Purchased Michelle Wie’s Golf Land for $38,000 cash. The price consists of land $10,000, building $22,000, and equipment $6,000. (Make one compound entry.) 5 Advertised the opening of the driving range and miniature golf course, paying advertising expenses of $1,600. 6 Paid cash $1,480 for a one-year insurance policy. 10 Purchased golf equipment for $2,500 from Singh Company, payable in 30 days. Mar. 18 Received golf fees of $1,200 in cash. 25 Declared and paid a $500 cash dividend. 30 Paid wages of $900. 30 Paid Singh Company in full. 31 Received $750 of fees in cash. Scratch uses the following accounts: Cash, Prepaid Insurance, Land, Buildings, Equipment, Accounts Payable, Common Stock, Dividends, Service Revenue, Advertising Expense, and Salaries and Wages Expense. Instructions Journalize the March transactions. (Provide explanations for the journal entries.)

Explain the similarities and dissimilarities between depreciation, amortization, and depletion. Describe the cost recovery method used for each of the four asset types (personal property, real property, intangible property, and natural resources).

Collinsworth Co. reported sales on an accrual basis of $100,000. If accounts receivable increased $30,000 and the allowance for doubtful accounts increased $9,000 after a write-off of $2,000, compute cash sales.

Ames Company reported 2014 net income of $151,000. During 2014, accounts receivable increased by $13,000 and accounts payable increased by $9,500. Depreciation expense was $44,000. Prepare the cash flows from operating activities section of the statement of cash flows.

If people are generally risk averse, why do so many people around the world take part in national lotteries?

Assume the bonds in BE14-2 were issued at 103. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight-line amortization semiannually.

Raleigh Corp. has an investment with a carrying value (equity method) on its books of $170,000 representing a 30% interest in Borg Company, which suffered a $620,000 loss this year. How should Raleigh Corp. handle its proportionate share of Borg’s loss?

You have completed the field work in connection with your audit of Alexander Corporation for the year ended December 31, 2014. The balance sheet accounts at the beginning and end of the year are shown below. Increase Dec. 31, Dec. 31, or 2014 2013 (Decrease) Cash $ 277,900 $ 298,000 ($20,100) Accounts receivable 469,424 353,000 116,424 Inventory 741,700 610,000 131,700 Prepaid expenses 12,000 8,000 4,000 Investment in subsidiary 110,500 –0– 110,500 Cash surrender value of life insurance 2,304 1,800 504 Machinery 207,000 190,000 17,000 Buildings 535,200 407,900 127,300 Land 52,500 52,500 –0– Patents 69,000 64,000 5,000 Copyrights 40,000 50,000 (10,000) Bond discount and issue costs 4,502 –0– 4,502 $2,522,030 $2,035,200 $486,830 Income taxes payable $ 90,250 $ 79,600 $ 10,650 Accounts payable 299,280 280,000 19,280 Dividends payable 70,000 –0– 70,000 Bonds payable—8% 125,000 –0– 125,000 Bonds payable—12% –0– 100,000 (100,000) Allowance for doubtful accounts 35,300 40,000 (4,700) Accumulated depreciation—buildings 424,000 400,000 24,000 Accumulated depreciation—machinery 173,000 130,000 43,000 Premium on bonds payable –0– 2,400 (2,400) Common stock—no par 1,176,200 1,453,200 (277,000) Paid-in capital in excess of par—common stock 109,000 –0– 109,000 Retained earnings—unappropriated 20,000 (450,000) 470,000 $2,522,030 $2,035,200 $486,830 STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2014 January 1, 2014 Balance (defi cit) $(450,000) March 31, 2014 Net income for fi rst quarter of 2014 25,000 April 1, 2014 Transfer from paid-in capital 425,000 Balance –0– December 31, 2014 Net income for last three quarters of 2014 90,000 Dividend declared—payable January 21, 2015 (70,000) Balance $ 20,000 Your working papers from the audit contain the following information: 1. On April 1, 2014, the existing deficit was written off against paid-in capital created by reducing the stated value of the no-par stock. 2. On November 1, 2014, 29,600 shares of no-par stock were sold for $257,000. The board of directors voted to regard $5 per share as stated capital. 3. A patent was purchased for $15,000. 4. During the year, machinery that had a cost basis of $16,400 and on which there was accumulated depreciation of $5,200 was sold for $9,000. No other plant assets were sold during the year. 5. The 12%, 20-year bonds were dated and issued on January 2, 2002. Interest was payable on June 30 and December 31. They were sold originally at 106. These bonds were redeemed at 100.9 plus accrued interest on March 31, 2014. 6. The 8%, 40-year bonds were dated January 1, 2014, and were sold on March 31 at 97 plus accrued interest. Interest is payable semiannually on June 30 and December 31. Expense of issuance was $839. 7. Alexander Corporation acquired 70% control in Crimson Company on January 2, 2014, for $100,000. The income statement of Crimson Company for 2014 shows a net income of $15,000. 8. Extraordinary repairs to buildings of $7,200 were charged to Accumulated Depreciation—Buildings. 9. Interest paid in 2014 was $10,500 and income taxes paid were $34,000. Instructions From the information given, prepare a statement of cash flows using the indirect method. A worksheet is not necessary, but the principal computations should be supported by schedules or general ledger accounts. The company uses straight-line amortization for bond interest.

Rolling Hills Golf Inc. was organized on July 1, 2014. Quarterly financial statements are prepared. The unadjusted trial balance and adjusted trial balance on September 30 are shown here.   Instructions (a) Journalize the adjusting entries that were made. (b) Prepare an income statement and a retained earnings statement for the 3 months ending September 30 and a classified balance sheet at September 30. (c) Identify which accounts should be closed on September 30. (d) If the note bears interest at 12%, how many months has it been outstanding?

: Explain how artificial intelligence may help bridge the historical struggle between managing the “things of production” and the “humanity of production.”

Inventory information for Part 311 of Monique Aaron Corp. discloses the following information for the month of June. June 1 Balance 300 units @ $10 June 10 Sold 200 units @ $24 11 Purchased 800 units @ $12 15 Sold 500 units @ $25 20 Purchased 500 units @ $13 27 Sold 300 units @ $27 Instructions (a) Assuming that the periodic inventory method is used, compute the cost of goods sold and ending inventory under (1) LIFO and (2) FIFO. (b) Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the value of the ending inventory at LIFO? (c) Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the gross profit if the inventory is valued at FIFO? (d) Why is it stated that LIFO usually produces a lower gross profit than FIFO?

Explain the relationship between margin of safety percentage and degree of operating leverage.

Explain how the Fed’s “quantitative easing” strategies differed from its traditional strategy of buying short-term Treasury securities. (LO3)

Why do financial market participants closely monitor money supply movements? (LO5)

Lemke Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the years 2014 and 2015. 2014 2015 Projected benefi t obligation, January 1 $600,000 Plan assets (fair value and market-related value), January 1 410,000 Pension asset/liability, January 1 190,000 Cr. Prior service cost, January 1 160,000 Service cost 40,000 $ 59,000 Settlement rate 10% 10% Expected rate of return 10% 10% Actual return on plan assets 36,000 61,000 Amortization of prior service cost 70,000 50,000 Annual contributions 97,000 81,000 Benefi ts paid retirees 31,500 54,000 Increase in projected benefi t obligation due to changes in actuarial assumptions 87,000 –0– Accumulated benefi t obligation at December 31 721,800 789,000 Average service life of all employees 20 years Vested benefi t obligation at December 31 464,000 Instructions (a) Prepare a pension worksheet presenting both years 2014 and 2015 and accompanying computations and amortization of the loss (2015) using the corridor approach. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31 of each year. (c) For 2015, indicate the pension amounts reported in the financial statements.

Sinise Industries acquired two copyrights during 2014. One copyright related to a textbook that was developed internally at a cost of $9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2014, the date it was published. The second copyright (a history research textbook) was purchased from University Press on December 1, 2014, for $24,000. This textbook has an indefinite useful life. How should these two copyrights be reported on Sinise’s balance sheet as of December 31, 2014?