Question & Answer

Why would banks not be prepared to offer a forward exchange rate to a firm for, say, five years’ time?

Bo Newman will invest $10,000 today in a fund that earns 5% annual interest. How many years will it take for the fund to grow to $17,100?

: Explain why communication is essential for effective management.

Of what use is the statement of cash flows?

Indicate whether the following items are capitalized or expensed in the current year. (a) Purchase cost of a patent from a competitor. (b) Research costs. (c) Development costs (after achieving economic viability). (d) Organizational costs. (e) Costs incurred internally to create goodwill.

Given the liquidity advantage of holding Treasury bills, why do banks hold only a relatively small portion of their assets as T-bills? (LO2)

Briefly describe the process of computing a corporation’s taxable income assuming the corporation must use GAAP to determine its book income.

Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2013. The purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2014. Kulikowski reported net income of $730,000 for 2014. The fair value of Kulikowski’s stock was $27 per share at December 31, 2014. Instructions (a) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps cannot exercise significant influence over Kulikowski. The securities should be classified as availablefor- sale. (b) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps can exercise significant influence over Kulikowski. (c) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2014? What is the total net income reported in 2014 under each of these methods?

Cost variance analysis; use of variance information Baker Street Animal Clinic uses a particular serum routinely in its vaccination program. Veterinarian technicians give the injections. The standard dose is 10cc per injection, and the cost has been $100 per 1000cc. According to records, 2000 injections were administered last month at a serum cost of $2270. The veterinarian noted that the serum for the injections should have cost $2000 [($0.10 per cc) × (10cc per injection) × (2000 injections)]. Moreover, she noted some carelessness in handling the serum that could easily lead to unnecessary waste. When this issue was brought to the attention of the technicians, together with the $270 discrepancy in costs, they claimed that the $270 excess costs must be due to the inflated prices charged by the veterinarian supply company. Purchasing records reveal that the price for the serum used last month had indeed increased to $105 per 1000cc.   Required (a)     Provide variance calculations to help you evaluate the technicians’ argument. (b)     Discuss whether a significant waste of serum occurred last month. Include quantitative and qualitative information in your discussion. (c)     If you were the manager for the Baker Street Animal Clinic, how would you use the results of your analyses in parts (a) and (b)? Explain.

Employees at your company disagree about the accounting for sales returns. The sales manager believes that granting more generous return provisions can give the company a competitive edge and increase sales revenue. The controller cautions that, depending on the terms granted, loose return provisions might lead to non-GAAP revenue recognition. The company CFO would like you to research the issue to provide an authoritative answer. Instructions If your school has a subscription to the FASB Codification, go to http://aaa.hq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses. (a) What is the authoritative literature addressing revenue recognition when right of return exists? (b) What is meant by “right of return”? (c) When there is a right of return, what conditions must the company meet to recognize the revenue at the time of sale? (d) What factors may impair the ability to make a reasonable estimate of future returns?

Differentiate between a fixed-rate mortgage and a variablerate mortgage.

Kellogg Company is the world’s leading producer of ready-to-eat cereal products. In recent years, the company has taken numerous steps aimed at improving its profitability and earnings per share. Presented below are some basic facts for Kellogg.   Instructions (a) What are some of the reasons that management purchases its own stock? (b) Explain how earnings per share might be affected by treasury stock transactions. (c) Calculate the ratio of debt to assets for 2010 and 2011, and discuss the implications of the change.

Draw a pair of diagrams like those in Figure 8.4. Illustrate what would happen if there were a rise in market demand and no rise in the costs of either the leader or the followers. Would there be an equal percentage increase in the output of both leader and followers?

Livesey Company has signed a long-term contract to build a new basketball arena. The total revenue related to the contract is $120 million. Estimated costs for building the arena are $40 million in the first year and $30 million in both the second and third years. The costs cannot be reliably estimated. How much revenue should Livesey Company report in the first year under IFRS?

Bryan followed in his father’s footsteps and entered the carpet business. He owns and operates I Do Carpet (IDC). Bryan prefers to install carpet only, but in order to earn additional revenue, he also cleans carpets and sells carpet cleaning supplies. Compute his taxable income for the current year considering the following items:  a) IDC contracted with a homebuilder in December of last year to install carpet in 10 new homes being built. The contract price of $80,000 includes $50,000 for materials (carpet). The remaining $30,000 is for IDC’s service of installing the carpet. The contract also stated that all money was to be paid up front. The homebuilder paid IDC in full on December 28 of last year. The contract required IDC to complete the work by January 31 of this year. Bryan purchased the necessary carpet on January 2 and began working on the first home January 4. He completed the last home on January 27 of this year.  b) IDC finalized several other contracts this year and completed the work before year-end. The work cost $130,000 in materials, and IDC elects to immediately deduct supplies. Bryan billed out $240,000 but only collected $220,000 by year-end. Of the $20,000 still owed to him, Bryan wrote off $3,000 he didn’t expect to collect as a bad debt from a customer experiencing extreme financial difficulties. c) IDC agreed to a three-year contract to clean the carpets of an office building. The contract specified that IDC would clean the carpets monthly from July 1 of this year through June 30 three years hence. IDC received payment in full of $8,640 ($240 a month for 36 months) on June 30 of this year.  d) IDC sold 100 bottles of carpet stain remover this year for $5 per bottle (it collected $500). IDC sold 40 bottles on June 1 and 60 bottles on November 2. IDC had the following carpet-cleaning supplies on hand for this year, and IDC has elected to use the LIFO method of accounting for inventory under a perpetual inventory system: Purchase Date Bottles Total Cost November last year 40 $120 February this year 35 $112 July this year 25 $85 August this year 40 $140 Totals 140 $457   e) On August 1 of this year, IDC needed more room for storage and paid $900 to rent a garage for 12 months.  f) On November 30 of this year, Bryan decided it was time to get his logo on the sides of his work van. IDC hired We Paint Anything Inc. (WPA) to do the job. It paid $500 down and agreed to pay the remaining $1,500 upon completion of the job. WPA indicated it would not be able to begin the job until January 15 of next year, but the job would only take one week to complete. Due to circumstances beyond its control, WPA was unable to complete the job until April 1 of next year, at which time IDC paid the remaining $1,500. g) In December, Bryan’s son, Aiden, helped him finish some carpeting jobs. IDC owed Aiden $600 (reasonable) compensation for his work. However, Aiden did not receive the payment until January of next year.  h) IDC also paid $1,000 for interest on a short-term bank loan relating to the period from November 1 of this year through March 31 of next year.

How is a prepreg different from a molding compound?

What are the three steps in the sintering cycle in PM?

Under what circumstances is relative sales value an appropriate basis for determining the price assigned to inventory?

Given the following equation for a firm’s average cost (AC, i.e. the cost per unit of output (Q):                      AC = 60 – 16Q + 2Q²                (a)  At what output is AC at a minimum?                (b)  Use the second derivative test to prove that this is a minimum not a maximum.

On January 1, 2014, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $137,899 (including the executory costs of $6,000) at the beginning of each year, starting January 1, 2014. The taxes, the insurance, and the maintenance, estimated at $6,000 a year, are the obligations of the lessee. The leased equipment is to be capitalized at $550,000. The asset is to be depreciated on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Cage’s incremental borrowing rate is 12%, and the implicit rate in the lease is 10%, which is known by Cage.  itle to the equipment transfers to Cage when the lease expires. The asset has an estimated useful life of 5 years and no residual value. Instructions (a) Explain the probable relationship of the $550,000 amount to the lease arrangement. (b) Prepare the journal entry or entries that should be recorded on January 1, 2014, by Cage Company. (c) Prepare the journal entry to record depreciation of the leased asset for the year 2014. (d) Prepare the journal entry to record the interest expense for the year 2014. (e) Prepare the journal entry to record the lease payment of January 1, 2015, assuming reversing entries are not made. (f) What amounts will appear on the lessee’s December 31, 2014, balance sheet relative to the lease contract?

1. Assume that there is both internal and narrow external balance. Now assume that as a result of inflation being below target, the central bank cuts interest rates. Into which of the four quadrants in Figure 25.2 will the economy move? 2. Imagine that there is an inflationary gap, but a balance of payments equilibrium. Describe what will happen if the government raises interest rates in order to close the inflationary gap. Assume first that there is a fixed exchange rate and then that there is a floating exchange rate.

Tensile testing is not appropriate for hard brittle materials such as ceramics. What is the test commonly used to determine the strength properties of such materials?

1.       : Describe specific ways that you might incorporate Twitter into an organization’s communication with customers. How about with employees?

On January 1, 2014, Henderson Corporation redeemed $500,000 of bonds at 99. At the time of redemption, the unamortized premium was $15,000 and unamortized bond issue costs were $5,250. Prepare the corporation’s journal entry to record the reacquisition of the bonds.

Johanne transferred investment property to S&J Corporation in exchange for 60 percent of the S&J Corporation stock (60 shares valued at $115,000). The property's fair market value was $190,000 and its tax basis to Johanne was $60,000. The investment property was subject to a $75,000 mortgage that S&J Corporation assumed on the transfer (not treated as boot).   a. Assuming the transfer qualifies under §351, what are the amount and character of the gain Johanne must recognize on the exchange?  b. What is Johanne's tax basis in the S&J stock he received in the exchange? c. Assume that in addition to the investment property, Johanne transferred inventory with a fair market value of $30,000 and a tax basis of $20,000 for additional S&J Corporation stock. What are the amount and character of gain Johanne must recognize on the exchange of the investment property and inventory for stock? d. Assuming the facts in part (c), what is Johanne's basis in the S&J stock he received in the exchange? e. Assume the original facts except that the liability assumed by S&J Corporation would give rise to a deduction when paid. What are the amount and character of gain Johanne must recognize on the exchange? f. Assuming the facts in part (e), what is Johanne's basis in the S&J stock he received in the exchange?