Question & Answer

Identify two major disadvantages of plasma arc cutting.

Are all capital gains (gains on the sale or disposition of capital assets) taxed at the same rate? Explain.

On February 1, 2015, one of the huge storage tanks of Viking Manufacturing Company exploded. Windows in houses and other buildings within a one-mile radius of the explosion were severely damaged, and a number of people were injured. As of February 15, 2015 (when the December 31, 2014, financial statements were completed and sent to the publisher for printing and public distribution), no suits had been filed or claims asserted against the company as a consequence of the explosion. The company fully anticipates that suits will be filed and claims asserted for injuries and damages. Because the casualty was uninsured and the company considered at fault, Viking Manufacturing will have to cover the damages from its own resources. Instructions Discuss fully the accounting treatment and disclosures that should be accorded the casualty and related contingent losses in the financial statements dated December 31, 2014.

Define legal–political risk and give an example of how it can affect an international corporation.

1.       : Explain the basic idea underlying the contingency view. How would you go about identifying key contingencies facing an organization?

In Problem 21.1, suppose the rake angle were changed to 0°. Assuming that the friction angle remains the same, determine (a) the shear plane angle, (b) the chip thickness, and (c) the shear strain for the operation.

The balance sheet of Kishwaukee Corporation as of December 31, 2014, is as follows.   Equities Notes payable (Note 3) $ 600,000 Common stock, authorized and issued, 1,000,000 shares, no par 1,150,000 Retained earnings 803,000 Noncontrolling interest 55,000 Appreciation capital (Note 1) 570,000 Income tax payable 75,000 Reserve for depreciation recorded to date on the building 410,000 $3,663,000 Note 1: Buildings are stated at cost, except for one building that was recorded at appraised value. The excess of appraisal value over cost was $570,000. Depreciation has been recorded based on cost. Note 2: Goodwill in the amount of $120,000 was recognized because the company believed that book value was not an accurate representation of the fair value of the company. The gain of $120,000 was credited to Retained Earnings. Note 3: Notes payable are long-term except for the current installment due of $100,000. Instructions Prepare a corrected classified balance sheet in good form. The notes above are for information only.

At January 1, 2014, Beidler Company reported retained earnings of $2,000,000. In 2014, Beidler discovered that 2013 depreciation expense was understated by $400,000. In 2014, net income was $900,000 and dividends declared were $250,000. The tax rate is 40%. Prepare a 2014 retained earnings statement for Beidler Company.

1.    : Some people say an organization could never be “prepared” for a disaster such as the shooting at a Walmart in El Paso, Texas; the Japan nuclear disaster; or the huge BP oil spill in the Gulf of Mexico. Discuss the potential value of crisis planning in situations like these, even if the situations are difficult to plan for.

: Describe how diversity initiatives such as sponsor relationships, employee resource groups, and coaching programs help create an inclusive climate that values diversity.

What are some of the design guidelines for weldments that are fabricated by arc welding?

Explain how pro-cyclical lending criteria applied by financial institutions could amplify fluctuations in real GDP.

Explain systemic risk as it relates to the futures market. Explain how the Financial Reform Act of 2010 attempted to improve the monitoring of systemic risk in the futures market and other markets. (LO4)

Corrs Wholesalers Co. sells industrial equipment for a standard 3-year note receivable. Revenue is recognized at time of sale. Each note is secured by a lien on the equipment and has a face amount equal to the equipment’s list price. Each note’s stated interest rate is below the customer’s market rate at date of sale. All notes are to be collected in three equal annual installments beginning one year after sale. Some of the notes are subsequently sold to a bank with recourse, some are subsequently sold without recourse, and some are retained by Corrs. At year end, Corrs evaluates all outstanding notes receivable and provides for estimated losses arising from defaults. Instructions (a) What is the appropriate valuation basis for Corrs’s notes receivable at the date it sells equipment? (b) How should Corrs account for the sale, without recourse, of a February 1, 2014, note receivable sold on May 1, 2014? Why is it appropriate to account for it in this way? (c) At December 31, 2014, how should Corrs measure and account for the impact of estimated losses resulting from notes receivable that it (1) Retained and did not sell? (2) Sold to bank with recourse?

1.      What additional investigation might Whitley and Vinson undertake before settling on a plan of action toward Cam?

Travis and Alix Weber are equal partners in the Tralix Partnership, which does not have a §754 election in place. Alix sells one-half of her interest (25 percent) to Michael Tomei for $30,000 cash. Just before the sale, Alix’s basis in her entire partnership interest is $75,000, including her $30,000 share of the partnership liabilities. Tralix’s assets on the sale date are as follows: Basis Fair Market Value Cash $ 40,000 $ 40,000 Inventory 30,000 90,000 Land held for investment 80,000 50,000    Totals $ 150,000 $ 180,000 a. What are the amount and character of Alix’s recognized gain or loss on the sale? b. What is Alix’s basis in her remaining partnership interest? c. What is Michael’s basis in his partnership interest? d. What is the effect of the sale on the partnership’s basis in the assets?

69. Hauswirth Corporation sold (or exchanged) a warehouse in year 0. Hauswirth bought the warehouse several years ago for $65,000, and it has claimed $23,000 of depreciation expense against the building.  a. Assuming that Hauswirth receives $50,000 in cash for the warehouse, compute the amount and character of Hauswirth’s recognized gain or loss on the sale. b. Assuming that Hauswirth exchanges the warehouse in a like-kind exchange for some land with a fair market value of $50,000, compute Hauswirth’s realized gain or loss, recognized gain or loss, deferred gain or loss, and basis in the new land. c. Assuming that Hauswirth receives $20,000 in cash in year 0 and a $50,000 note receivable that is payable in year 1, compute the amount and character of Hauswirth’s gain or loss in year 0 and in year 1.

The present level of a country’s exports is £12 billion; investment is £2 billion; government expenditure is £4 billion; total consumer spending (not Cd) is £36 billion; imports are £12 billion and expenditure taxes are £2 billion. The economy is currently in equilibrium. It is estimated that an income of £50 billion is necessary to generate full employment. The mps is 0.1, the mpt is 0.05 and the mpm is 0.1 (a)  Is there an inflationary or deflationary gap in this situation? (b)  What is the size of the gap? (Don’t confuse this with the difference between Ye and YF.) (c)  What would be the appropriate government policies to close this gap?

Explain how and why the option premiums may change in response to a surprise announcement that the Fed will increase interest rates, even if stock prices are not affected. (LO2)

The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period.  n general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period. Instructions Listed on the next page are six independent cases on how accounting facts might be reported on an individual company’s interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation. (a) J. D. Long Company takes a physical inventory at year-end for annual financial statement purposes. Inventory and cost of sales reported in the interim quarterly statements are based on estimated gross profit rates, because a physical inventory would result in a cessation of operations. Long Company does have reliable perpetual inventory records. (b) Rockford Company is planning to report one-fourth of its pension expense each quarter. (c) Republic Company wrote inventory down to reflect lower-of-cost-or-market in the first quarter. At year-end, the market exceeds the original acquisition cost of this inventory. Consequently, management plans to write the inventory back up to its original cost as a year-end adjustment. (d) Gansner Company realized a large gain on the sale of investments at the beginning of the second quarter. The company wants to report one-third of the gain in each of the remaining quarters. (e) Fredonia Company has estimated its annual audit fee. It plans to pro rate this expense equally over all four quarters. (f) LaBrava Company was reasonably certain it would have an employee strike in the third quarter. As a result, it shipped heavily during the second quarter but plans to defer the recognition of the sales in excess of the normal sales volume. The deferred sales will be recognized as sales in the third quarter when the strike is in progress. LaBrava Company management thinks this is more representative of normal second- and third-quarter operations.

What are the three committees that debate proposed tax legislation?

How do speculators use put options? Describe the conditions under which their strategy would backfire. What is the maximum loss that could occur for a purchaser of a put option? (LO3)

Under what circumstances would the IRS issue an acquiescence? Anonacquiescence? An action on decision?

Consider the cases for and against a poll tax.

Cost categories; cost function The Leyland Hospital Cafe has been reporting losses in past months. In July, for example, the loss was $5000. The Cafe purchases prepared food directly from Hospital Food Services. This charge varies proportionately with the number and kind of meals served. Personnel who are paid by the Cafe serve the food, tend the cash register, waiting and clean tables, and wash dishes. The staffing levels in the cafe rarely change; the existing staff can usually handle daily fluctuations in volume. Administrative costs are primarily the salaries of the Cafe manager and her office staff. The hospital charges the Cafe a surcharge of 10 per cent of its revenue. Utility costs are the costs of cooling, heating, and lighting the Cafe during its normal operating hours.   The hospital’s management is considering shutting the Cafe down because it has been operating at a loss.   Required (a)          List the fixed expenses of the Cafe. (b)          List the variable expenses of the Cafe and the most likely cost driver for each expense. (c)           Write out the cost function for running the Cafe. (d)          Estimate the profit or loss for August if the revenues of the Cafe increase to $80 000. (e)           Explain why the original data show a loss but part (d) shows a profit. Be specific.