Question & Answer

Palmer Co. is evaluating the appropriate accounting for the following items. 1. Management has decided to switch from the FIFO inventory valuation method to the LIFO inventory valuation method for all inventories. 2. When the year-end physical inventory adjustment was made for the current year, the controller discovered that the prior year’s physical inventory sheets for an entire warehouse were mislaid and excluded from last year’s count. 3. Palmer’s Custom Division manufactures large-scale, custom-designed machinery on a contract basis. Management decided to switch from the completed-contract method to the percentage-ofcompletion method of accounting for long-term contracts. Identify and explain whether each of the above items is a change in accounting principle, a change in estimate, or an error.

What is endogenous about endogenous growth theory?

What are the advantages and disadvantages of using estimated support cost allocation rates?

Explain how EVA differs from residual income.

What is the due date for the corporation tax return Form 1120?  Is it possible to extend the due date?  Explain.

Assume that your publicly traded company attempts to be completely transparent about its financial condition, and provides thorough information about its debt, sales, and earnings every quarter. Explain why there still may be much uncertainty surrounding your company’s stock price. (LO3)

Garfield Company purchased, as a held-to-maturity investment, $80,000 of the 9%, 5-year bonds of Chester Corporation for $74,086, which provides an 11% return. Prepare Garfield’s journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used.

Presented below are two independent situations. 1. On January 1, 2014, Simon Company issued $200,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1. 2. On June 1, 2014, Garfunkel Company issued $100,000 of 12%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1. Instructions For each of these two independent situations, prepare journal entries to record the following. (a) The issuance of the bonds. (b) The payment of interest on July 1. (c) The accrual of interest on December 31.

What are the three types of starting materials in rapid prototyping?

Many years ago a famous member of Congress proposed eliminating federal income tax withholding.  What criterion for evaluating tax systems did this proposal violate?  What would likely have been the result of eliminating withholding?

Edna Millay Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Millay and the industry averages for firms of similar size are presented below. 2014 Edna Millay Industry 2012 2013 2014 Average Current ratio 2.09 2.27 2.51 2.24 Quick ratio 1.15 1.12 1.19 1.22 Inventory turnover 2.40 2.18 2.02 3.50 Net sales to stockholders’ equity 2.71 2.80 2.99 2.85 Return on common stock equity 0.14 0.15 0.17 0.11 Total liabilities to stockholders’ equity 1.41 1.37 1.44 0.95 Millay is being reviewed by several entities whose interests vary, and the company’s financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Millay’s financial position. Archibald MacLeish Bank. The bank is processing Millay’s application for a new 5-year term note. Archibald MacLeish has been Millay’s banker for several years but must reevaluate the company’s financial position for each major transaction. Robert Lowell Company. Lowell is a new supplier to Millay and must decide on the appropriate credit terms to extend to the company. Robert Penn Warren. A brokerage firm specializing in the stock of electronics firms that are sold overthe- counter, Robert Penn Warren must decide if it will include Millay in a new fund being established for sale to Robert Penn Warren’s clients. Working Capital Management Committee. This is a committee of Millay’s management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company’s working capital position, comparing actual data against budgets, and recommending changes in strategy as needed. Instructions (a) Describe the analytical use of each of the six ratios presented on page 1535. (b) For each of the four entities described above, identify two financial ratios, from the ratios presented on page 1535, that would be most valuable as a basis for its decision regarding Millay. (c) Discuss what the financial ratios presented in the question reveal about Millay. Support your answer by citing specific ratio levels and trends as well as the interrelationships between these ratios.

Loveless Corporation had the following 2014 income statement. Revenues $100,000 Expenses 60,000 $ 40,000 In 2014, Loveless had the following activity in selected accounts. Allowance for Accounts Receivable Doubtful Accounts 1/1/14 20,000 1,200 1/1/14 Revenues 100,000 1,000 Write-offs Write-offs 1,000 1,840 Bad debt expense 90,000 Collections 12/31/14 29,000 2,040 12/31/14 Prepare Loveless’s cash flows from operating activities section of the statement of cash flows using (a) the direct method and (b) the indirect method.

ROI; residual income; breakeven point; contribution margin Mirror Industries laminating division, BrightShine, incurred the following costs and expenses in the last period.       During the period, BrightShine produced 300 000 units of industrial photo prints, which were sold for $2 each. Mirrors’s investment in BrightShine was $500 000 and $700 000 at the beginning and ending of the year, respectively. BrightShine’s weighted average cost of capital is 15 per cent.   Required (a)        Determine BrightShine’s return on investment for the year. (b)        Compute BrightShine’s residual income (loss) for the year. (c)        How many industrial photo print units did BrightShine have to sell during the year to break even? (d)        What was BrightShine’s contribution margin for the year?

Explain the difference between operating departments and support departments

A prototype of a part is to be fabricated using stereolithography. The part is shaped like a right triangle whose base = 36 mm, height = 48 mm, and thickness = 25 mm. In application, the part will stand on its base, which is 36 mm by 25 mm. In the stereolithography process, the layer thickness = 0.20 mm. The diameter of the laser beam (“spot size”) = 0.15 mm, and the beam is moved across the surface of the photopolymer at a velocity of 400 mm/s. Compute the minimum possible time required to build the part, if 8 sec are lost each layer to lower the height of the platform that holds the part. Neglect the time for postcuring.

Based on the definition of gross income in §61 and related regulations, what is the general presumption regarding the taxability of income realized?

How do volume discounts from suppliers affect our assumption that the cost function is linear? Explain how we incorporate this type of cost into a CVP analysis.

Identify the following items as (1) operating, (2) investing, or (3) financing activities: purchase of land, payment of dividends, cash sales, and purchase of treasury stock.

Woolard Supplies (a sole proprietorship) has taxable income in 2024 of $240,000 before any depreciation deductions (§179, bonus, or MACRS) and placed some office furniture into service during the year. The furniture does not qualify for bonus depreciation.

Tim Mattke Company began operations in 2012 and for simplicity reasons, adopted weighted-average pricing for inventory. In 2014, in accordance with other companies in its industry, Mattke changed its inventory pricing to FIFO. The pretax income data is reported below. Weighted- Year Average FIFO 2012 $370,000 $395,000 2013 390,000 430,000 2014 410,000 450,000 Instructions (a) What is Mattke’s net income in 2014? Assume a 35% tax rate in all years. (b) Compute the cumulative effect of the change in accounting principle from weighted-average to FIFO inventory pricing. (c) Show comparative income statements for Tim Mattke Company, beginning with income before income tax, as presented on the 2014 income statement.

Assume you asked your favorite AI learning tool “What accounting method choices are linked to the gross receipts test?” and the AI tool responded as follows: Is the AI answer to the question correct?  Explain.

Describe the shared-appreciation mortgage. (LO2)

What effect does this have on the injections (J) line in the simple Keynesian model?

On a diagram similar to Figure 7.4, show the long-run equilibrium for both firm and industry under perfect competition. Now assume that the demand for the product falls. Show the short-run and long-run effects.

On December 31, 2014, Conchita Martinez Company signed a $1,000,000 note to Sauk City Bank. The market interest rate at that time was 12%. The stated interest rate on the note was 10%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, Conchita Martinez’s financial situation worsened. On December 31, 2016, Sauk City Bank determined that it was probable that the company would pay back only $600,000 of the principal at maturity. However, it was considered likely that interest would continue to be paid, based on the $1,000,000 loan. Instructions (a) Determine the amount of cash Conchita Martinez received from the loan on December 31, 2014. (b) Prepare a note amortization schedule for Sauk City Bank up to December 31, 2016. (c) Determine the loss on impairment that Sauk City Bank should recognize on December 31, 2016.