Question & Answer

1.    Why do you think the three skills are all needed to be an effective manager? Give examples of times when each one is used.

Jayhawk Forecasting Services analyzed several factors that could affect interest rates in the future. Most factors were expected to place downward pressure on interest rates. Jayhawk also expected that although the annual budget deficit was to be cut by 40 percent from the previous year, the deficit would still be very large. Because Jayhawk believed that the deficit’s impact would more than offset the effects of other factors, it forecast interest rates to increase by 2 percent. Comment on Jayhawk’s logic. (LO2)

P.1 What would cause (a) a steep DAD curve; (b) a gently sloping DAD curve? P.2 Compare the short-run and long-run effects of (i) a temporary adverse supply shock and (ii) a permanent supply reduction under each of (a) and (b).

What issue precipitated the return of capital principle? Explain.

Clarence Weatherspoon, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to withdraw $20,000 per year on June 30, beginning in 2018 and continuing through 2021. To develop this fund, Clarence intends to make equal contributions on June 30 of each of the years 2014–2017. Instructions (a) How much must the balance of the fund equal on June 30, 2017, in order for Clarence Weatherspoon to satisfy his objective? (b) What are each of Clarence’s contributions to the fund?

Jasper and Crewella Dahvill were married in year 0. They filed joint tax returns in years 1 and 2. In year 3, their relationship was strained and Jasper insisted on filing a separate tax return. In year 4, the couple divorced. Both Jasper and Crewella filed single tax returns in year 4. In year 5, the IRS audited the couple’s joint year 2 tax return and each spouse’s separate year 3 tax returns. The IRS determined that the year 2 joint return and Crewella’s separate year 3 tax return understated Crewella’s self-employment income, causing the joint return year 2 tax liability to be understated by $4,000 and Crewella’s year 3 separate return tax liability to be understated by $6,000. The IRS also assessed penalties and interest on both of these tax returns. Try as it might, the IRS has not been able to locate Crewella, but they have been able to find Jasper.

Amirante Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is $411,324, and its guaranteed residual value at the end of the noncancelable lease term is estimated to be $15,000. The hospital will pay rents of $60,000 at the beginning of each year and all maintenance, insurance, and taxes. Amirante Inc. incurred costs of $250,000 in manufacturing the machine and $14,000 in negotiating and closing the lease. Amirante Inc. has determined that the collectibility of the lease payments is reasonably predictable, that there will be no additional costs incurred, and that the implicit interest rate is 10%. Instructions (a) Discuss the nature of this lease in relation to the lessor and compute the amount of each of the following items. (1) Lease receivable at inception of the lease. (2) Sales price. (3) Cost of sales. (b) Prepare a 10-year lease amortization schedule. (c) Prepare all of the lessor’s journal entries for the first year.

Presented below is information related to Waveland Inc. Cost Retail Inventory, 12/31/14 $250,000 $ 390,000 Purchases 914,500 1,460,000 Purchase returns 60,000 80,000 Purchase discounts 18,000 — Gross sales revenue (after employee discounts) — 1,410,000 Sales returns — 97,500 Markups — 120,000 Markup cancellations — 40,000 Markdowns — 45,000 Markdown cancellations — 20,000 Freight-in 42,000 — Employee discounts granted — 8,000 Loss from breakage (normal) — 4,500 Instructions Assuming that Waveland Inc. uses the conventional retail inventory method, compute the cost of its ending inventory at December 31, 2015.

Judds Company purchased a new plant asset on April 1, 2014, at a cost of $711,000. It was estimated to have a service life of 20 years and a salvage value of $60,000. Judds’ accounting period is the calendar year. Instructions (a) Compute the depreciation for this asset for 2014 and 2015 using the sum-of-the-years’-digits method. (b) Compute the depreciation for this asset for 2014 and 2015 using the double-declining-balance method.

The following transactions occurred during 2014. Assume that depreciation of 10% per year is charged on all machinery and 5% per year on buildings, on a straight-line basis, with no estimated salvage value. Depreciation is charged for a full year on all fixed assets acquired during the year, and no depreciation is charged on fixed assets disposed of during the year. Jan. 30 A building that cost $132,000 in 1997 is torn down to make room for a new building. The wrecking contractor was paid $5,100 and was permitted to keep all materials salvaged. Mar. 10 Machinery that was purchased in 2007 for $16,000 is sold for $2,900 cash, f.o.b. purchaser’s plant. Freight of $300 is paid on the sale of this machinery. Mar. 20 A gear breaks on a machine that cost $9,000 in 2009. The gear is replaced at a cost of $2,000. The replacement does not extend the useful life of the machine but does make the machine more effi cient. May 18 A special base installed for a machine in 2008 when the machine was purchased has to be replaced at a cost of $5,500 because of defective workmanship on the original base. The cost of the machinery was $14,200 in 2008. The cost of the base was $3,500, and this amount was charged to the Machinery account in 2008. June 23 One of the buildings is repainted at a cost of $6,900. It had not been painted since it was constructed in 2010. Instructions (Round to the nearest dollar.) Prepare general journal entries for the transactions.

Jimmy Carter Company has provided information on intangible assets as follows. A patent was purchased from Gerald Ford Company for $2,000,000 on January 1, 2013. Carter estimated the remaining useful life of the patent to be 10 years. The patent was carried in Ford’s accounting records at a net book value of $2,000,000 when Ford sold it to Carter. During 2014, a franchise was purchased from Ronald Reagan Company for $480,000. In addition, 5%, of revenue from the franchise must be paid to Reagan. Revenue from the franchise for 2014 was $2,500,000. Carter estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase. Carter incurred research and development costs in 2014 as follows. Materials and equipment $142,000 Personnel 189,000 Indirect costs 102,000 $433,000 Carter estimates that these costs will be recouped by December 31, 2017. The materials and equipment purchased have no alternative uses. On January 1, 2014, because of recent events in the field, Carter estimates that the remaining life of the patent purchased on January 1, 2013, is only 5 years from January 1, 2014. Instructions (a) Prepare a schedule showing the intangibles section of Carter’s balance sheet at December 31, 2014.Show supporting computations in good form. (b) Prepare a schedule showing the income statement effect (related to expenses) for the year endedDecember 31, 2014, as a result of the facts above. Show supporting computations in good form.

What are the functions of a well-designed electronics package?

What is meant by impairment of a loan? Under what circumstances should a creditor recognize an impaired loan?

What are the three types of tax credits? Explain why it is important to distinguish between the different types of tax credits.

Compare actual and normal cost systems. Discuss the ways in which they are similar and the ways they differ.

Explain how U.S. speculators could use foreign exchange derivatives to speculate on the expected appreciation of the Japanese yen. (LO4)

: Describe how unconscious bias can contribute to an environment that limits the advancement of women, people of color, and other underrepresented employees.

What is cross-linking in a polymer, and what is its significance?

Petrenko Corporation has outstanding 2,000 $1,000 bonds, each convertible into 50 shares of $10 par value common stock. The bonds are converted on December 31, 2014, when the unamortized discount is $30,000 and the market price of the stock is $21 per share. Record the conversion using the book value approach.

Types of manager decisions Suppose that the following are activities conducted by Microsoft Corporation. A. Comparing the timeliness of development steps of a new release of Windows with the timeline that was laid out to guide development. B. Developing a timeline for the release of new Windows and Microsoft Office products over the next year. C. Debugging the next version of Windows. D. Providing technical support to customers who are having problems with Microsoft Office. E. Estimating cash expenditures for the next year. F. Comparing budgeted costs to actual costs and discussing major differences with department managers. G. Deciding whether to construct a new building on the Microsoft site.   Required Identify whether each activity is most likely part of: (a)          organisational strategies (b)          operating plans (c)           actual operations (d)          measuring, monitoring, and motivating. For each item, explain why. (LO1)

Remuneration plan    (LO2, 4, 5) Matahari Ltd manufactures and installs renewable energy systems. It has four divisions in Australia: Wind, Thermal Solar, Photo Voltaic (PV) and Installation. The company was listed on the Australian Stock Exchange in 2013. The CEO, William Smith, believes that divisional managers should be given a high degree of autonomy and held accountable for the performance of their divisions. He believes that if the divisions prosper then the company and its shareholders will prosper. Before the beginning of each financial year, William reviews performance and then sets a return-on-investment (ROI) target for each division for the coming year. ROI is defined as the operating profit as a percentage of the book-value of the assets employed. Targets are set in consultation with the respective divisional manager with due regard to the prevailing market conditions. William makes sure that the ROI target is challenging but achievable. Over the past 10 years, the ROI targets have tended to increase slightly each year. Key personnel within each division are awarded a performance bonus, if and only if, the ROI of that division exceeds the target. For the past 7 years, Matahari has been using a bonus and incentive scheme to motivate and reward key personnel. The scheme is based on the distribution of a bonus pool. The size of the bonus pool is 10% of Matahari’s residual income for the year and is capped at $1.5 million per year. The bonus pool is distributed to divisions on the basis of  the ROI achieved by each division. If a division does not reach its target, it does not receive a bonus. If a division achieves its target, it receives a bonus score equal to the division’s actual ROI less the division's target ROI, up to a maximum of 5.00 points. The bonus pool is then distributed according to each division’s score relative to the total bonus score. The bonus awarded to a division is then distributed to key personnel as determined by the divisional manager. William is disappointed that Chloe Lee, the manager of the PV Division, has not taken the opportunity to increase her division’s production capacity. The shareholders are supportive and would be happy to finance the expansion. William recalls that divisional managers have been reluctant to submit investment proposals on several occasions in the past. William has also found himself starting to think more about the suitability of the bonus system and underlying performance measures. A member of William’s business network has suggested that Matahari would benefit from the adoption of a balanced scorecard. William gets nervous when people start talking about non-financial measures; he thinks his focus on a small number of key financial measures has worked well to date and aligns with shareholder interests.            Required (a)   For the year ended 30 June 2019, Matahari’s residual income was $13 939 000. The target and actual ROI’s for each division are given in the Table below. Calculate the bonus awarded to each division by completing the Table below.     (b) State two key strengths of the existing bonus plan. (c) Identify one key weakness of the existing bonus plan and suggest a change that would alleviate the weakness.

Treasure Land Corporation incurred the following costs in 2014. Cost of laboratory research aimed at discovery of new knowledge $120,000 Cost of testing in search for product alternatives 100,000 Cost of engineering activity required to advance the design of a product to the manufacturing stage 210,000 $430,000 Prepare the necessary 2014 journal entry or entries for Treasure Land.

Grady received $8,200 of Social Security benefits this year. Grady also reported salary and interest income this year. What amount of the benefits must Grady include in his gross income under the following two independent situations?

What quantitative materiality test is applied to determine whether a segment is significant enough to warrant separate disclosure?

Simms Corp. controlled four domestic subsidiaries and one foreign subsidiary. Prior to the current year, Simms Corp. had excluded the foreign subsidiary from consolidation. During the current year, the foreign subsidiary was included in the financial statements. How should this change in accounting entity be reflected in the financial statements?