Question & Answer

Distinguish between common and preferred stock.

Jack operates a large home repair business as a sole proprietorship. Besides providing services, Jack also sells home repair supplies to homeowners. However, these sales constitute a relatively small portion of Jack’s income. Describe the conditions under which Jack would need to account for sales and purchases of plumbing supplies using the accrual method. (Hint: Read §471(c) and Reg. §1.471-1.)

Fred Moss, owner of Moss Interiors, is negotiating for the purchase of Zweifel Galleries. The balance sheet of Zweifel is given in an abbreviated form below.   Moss and Zweifel agree that: 1. Land is undervalued by $30,000. 2. Equipment is overvalued by $5,000. Zweifel agrees to sell the gallery to Moss for $350,000. Instructions Prepare the entry to record the purchase of Zweifel Galleries on Moss’s books.

Jack and Jill are owners of UpAHill, an S corporation. They own 25 and 75 percent, respectively.  a. What amount of ordinary income and separately stated items are allocated to them for years 1 and 2 based on the information above?  Assume that UpAHill Corporation has $100,000 of qualified property (unadjusted basis) in both years.

Which type of entities would be suited to the use of a standard cost  system?

Discuss why many financial institutions have expanded internationally in recent years. What advantages can be obtained through an international merger of financial institutions? (LO3)

Does a rise in potential real income result in a fall in the natural rate of unemployment?

On December 31, 2010, Beckford Company issues 150,000 stockappreciation rights to its officers entitling them to receive cash for the difference between the market price of its stock and a pre-established price of $10. The fair value of the SARs is estimated to be $4 per SAR on December 31, 2011; $1 on December 31, 2012; $10 on December 31, 2013; and $9 on December 31, 2014. The service period is 4 years, and the exercise period is 7 years. Instructions (a) Prepare a schedule that shows the amount of compensation expense allocable to each year affected by the stock-appreciation rights plan. (b) Prepare the entry at December 31, 2014, to record compensation expense, if any, in 2014. (c) Prepare the entry on December 31, 2014, assuming that all 150,000 SARs are exercised.

How can target measures be used to promote either short-term or long-            term performance?

Why should caution be exercised in the use of the net income figure derived in an income statement? What are the objectives of generally accepted accounting principles in their application to the income statement?

EVA for segments Following is information for the Fulcrum Company’s three business segments located in Europe.       Fulcrum’s applicable tax rate for the segments is 30 per cent, and its weighted average cost of capital for each segment is 10 per cent.   Required Determine the segment with the highest EVA.

How do different cost structures affect the breakeven point and operating leverage?

Perez Company reported an increase in inventories in the past year. Discuss the effect of this change on the current ratio (current assets 4 current liabilities). What does this tell a statement user about Perez Company’s liquidity?

Explain the impact of a decline in interest rates on: a. An investor’s required rate of return, b. The present value of existing bonds, c. The prices of existing bonds. (LO1).

: Describe the manager’s role in using social media and personal networks to improve organizational communication.

Explain the guidelines for credit rating agencies that resulted from the Financial Reform Act of 2010. (LO2)

How are the interest rate, the required rate of return on a stock, and the valuation of a stock related? (LO3)

Describe the flash crash on May 6, 2010, and explain why it caused so much concern among investors and regulators. (LO3)

If an entity has a mixed cost function, a 10 per cent increase in sales volume should increase income by more than 10 per cent. Explain why.

Why is the distinction between paid-in capital and retained earnings important?

How should consolidated financial statements be reported this year when statements of individual companies were presented last year?

Picasso Company is a wholesale distributor of professional equipment and supplies. The company’s sales have averaged about $900,000 annually for the 3-year period 2012–2014. The firm’s total assets at the end of 2014 amounted to $850,000. The president of Picasso Company has asked the controller to prepare a report that summarizes the financial aspects of the company’s operations for the past 3 years. This report will be presented to the board of directors at their next meeting. In addition to comparative financial statements, the controller has decided to present a number of relevant financial ratios which can assist in the identification and interpretation of trends. At the request of the controller, the accounting staff has calculated the following ratios for the 3-year period 2012–2014. 2012 2013 2014 Current ratio 1.80 1.89 1.96 Acid-test (quick) ratio 1.04 0.99 0.87 Accounts receivable turnover 8.75 7.71 6.42 Inventory turnover 4.91 4.32 3.42 Debt to assets 51.0% 46.0% 41.0% Long-term debt to assets 31.0% 27.0% 24.0% Sales to fi xed assets (fi xed asset turnover) 1.58 1.69 1.79 Sales as a percent of 2012 sales 1.00 1.03 1.07 Gross margin percentage 36.0% 35.1% 34.6% Net income to sales 6.9% 7.0% 7.2% Return on assets 7.7% 7.7% 7.8% Return on common stock equity 13.6% 13.1% 12.7% In preparation of the report, the controller has decided first to examine the financial ratios independent of any other data to determine if the ratios themselves reveal any significant trends over the 3-year period. Instructions (a) The current ratio is increasing while the acid-test (quick) ratio is decreasing. Using the ratios provided, identify and explain the contributing factor(s) for this apparently divergent trend. (b) In terms of the ratios provided, what conclusion(s) can be drawn regarding the company’s use of financial leverage during the 2012–2014 period? (c) Using the ratios provided, what conclusion(s) can be drawn regarding the company’s net investment in plant and equipment?

What are some of the techniques of disclosure for the balance sheet?

Why do some financial institutions remain exposed to interest rate risk, even when they believe that the use of interest rate futures could reduce their exposure? (LO2)

1. What other reasons can you think of why perfect competition is so rare? 2. Why does the market for fresh vegetables approximate to perfect competition, whereas that for aircraft does not?