Question & Answer

Tony Bautista needs $25,000 in 4 years. What amount must he invest today if his investment earns 12% compounded annually? What amount must he invest if his investment earns 12% annual interest compounded quarterly?

Explain how the Fed uses the ample reserves framework to reduce the money supply. (LO2)

What is the key factor in shifting income from a business to its owners? What are some methods of shifting income in this context?

What are the benefits of peer-to-peer lending over bank lending, and how does it operate? (LO4)

1.      Describe the primary activities in the value chain for an accounting firm that issues audit reports. In your opinion, which primary activities create the most value?

What is a bond indenture? What is the function of a trustee with respect to the bond indenture? (LO2)

As a newly enrolled accounting major, you are anxious to better understand accounting institutions and sources of accounting literature. As a first step, you decide to explore the FASB Conceptual Framework. Instructions Go to the FASB website, http://www.fasb.org, to access the FASB Concepts Statements. When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following items. (Provide paragraph citations.) (a) What is the objective of financial reporting? (b) What other means are there of communicating information, besides financial statements? (c) Indicate some of the users and the information they are most directly concerned with in economic decision-making.

Explain the possible signal that would be transmitted to the market if a country abandoned its use of the euro. (LO1)

Explain how the Securities and Exchange Commission attempts to prevent violations of SEC regulations. (LO4)

Imagine that two countries, Richland and Poorland, can produce just two goods, computers and coal. Assume that for a given amount of land and capital, the output of these two products requires the following constant amounts of labour:                                 Richland Poorland 1 computer 2 4 100 tonnes of coal 4 5          Assume that each country has 20 million workers. (a)  Draw the production possibility curves for the two countries (on two separate diagrams). (b)  If there is no trade, and in each country 12 million workers produce computers and 8 million workers produce coal, how many computers and tonnes of coal much will each country produce? What will be the total production of each product? (c)  What is the opportunity cost of a computer in (i) Richland; (ii) Poorland? (d)  What is the opportunity cost of 100 tonnes of coal in (i) Richland; (ii) Poorland? (e)  Which country has a comparative advantage in which product? (f)   Assuming that price equals marginal cost, which of the following would represent possible exchange ratios? (i) 1 computer for 40 tonnes of coal; (ii) 2 computers for 140 tonnes of coal; (iii) 1 computer for 100 tonnes of coal; (iv) 1 computer for 60 tonnes of coal; (v) 4 computers for 360 tonnes of coal. (g)  Assume that trade now takes place and that 1 computer exchanges for 65 tonnes of coal. Both countries specialise completely in the product in which they have a comparative advantage. How much does each country produce of its respective product? (h)  The country producing computers sells 6 million domestically. How many does it export to the other country? (i)   How much coal does the other country consume? (j)   Construct a table like Table 24.4 to show the no-trade and with-trade positions of each country?

On January 2, 2014, MacCloud Co. issued a 4-year, $100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note. As a result, on January 2, 2014, MacCloud Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.7% for the first 6 months on $100,000. At each 6-month period, the variable rate will be reset. The variable rate is reset to 6.7% on June 30, 2014. Instructions (a) Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2014. (b) Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2014.

Explain how the credit crisis affected the credit risk premium in the commercial paper market. (LO1)

There are 17 correct answers in the following multiple choice questions (some questions have multiple answers that are correct). To attain a perfect score on the quiz, all correct answers must be given. Each correct answer is worth 1 point. Each omitted answer or wrong answer reduces the score by 1 point, and each additional answer beyond the correct number of answers reduces the score by 1 point. Percentage score on the quiz is based on the total number of correct answers. 7.1 Which one of the following is the most common element in the earth's crust: (a) aluminum, (b) calcium, (c) iron, (d) oxygen, or (e) silicon? 7.2 Glass products are based primarily on which one of the following minerals: (a) alumina, (b) corundum, (c) feldspar, (d) kaolinite, or (e) silica? 7.3 Which of the following contains significant amounts of aluminum oxide (three correct answers): (a) alumina, (b) bauxite, (c) corundum, (d) feldspar, (e) kaolinite, (f) quartz, (g) sandstone, and (h) silica? 7.4 Which of the following ceramics are commonly used as abrasives in grinding wheels (two best answers): (a) aluminum oxide, (b) calcium oxide, (c) carbon monoxide, (d) silicon carbide, and (e) silicon dioxide? 7.5 Which one of the following is generally the most porous of the clay-based pottery ware: (a) china, (b) earthenware, (c) porcelain, or (d) stoneware? 7.6 Which one of the following is fired at the highest temperatures: (a) china, (b) earthenware, (c) porcelain, or (d) stoneware? 7.7 Which one of the following comes closest to expressing the chemical composition of clay: (a) Al2O3, (b) Al2(Si2O5)(OH)4, (c) 3AL2O3-2SiO2, (d) MgO, or (e) SiO2? 7.8 Glass ceramics are polycrystalline ceramic structures that have been transformed into the glassy state: (a) true or (b) false? 7.9 Which one of the following materials is closest to diamond in hardness: (a) aluminum oxide, (b) carbon dioxide, (c) cubic boron nitride, (d) silicon dioxide, or (e) tungsten carbide? 7.10 Which of the following best characterizes the structure of glass-ceramics: (a) 95% polycrystalline, (b) 95% vitreous, or (b) 50% polycrystalline? 7.11 Properties and characteristics of the glass-ceramics include which of the following (two best answers): (a) efficiency in processing, (b) electrical conductor, (c) high thermal expansion, and (d) strong, relative to other glasses? 7.12 Diamond is the hardest material known: (a) true or (b) false? 7.13 Synthetic diamonds date to (a) ancient times, (b) 1800s, (c) 1950s, or (d) 1980.

If XYZ Corporation is a shareholder of BCD Corporation, how many times will  BCD’s before-tax income potentially be taxed? Has Congress provided any tax relief for this result? Explain.

As economic conditions change, how do banks adjust their asset portfolio? (LO4)

Explain how and why high-frequency trading affects spreads. (LO3)

Describe how you would determine the MACRS recovery period for an asset if you did not already know it.

Under what circumstances would a transaction be recorded as a troubled-debt restructuring by only one of the two parties to the transaction?

The December 31, 2014, balance sheet of Kepler Corp. is as follows. 10% callable, convertible bonds payable (semiannual interest dates April 30 and October 31; convertible into 6 shares of $25 par value common stock per $1,000 of bond principal; maturity date April 30, 2020) $500,000 Discount on bonds payable 10,240 $489,760 On March 5, 2015, Kepler Corp. called all of the bonds as of April 30 for the principal plus interest through April 30. By April 30, all bondholders had exercised their conversion to common stock as of the interest payment date. Consequently, on April 30, Kepler Corp. paid the semiannual interest and issued shares of common stock for the bonds. The discount is amortized on a straight-line basis. Kepler uses the book value method. Instructions Prepare the entry(ies) to record the interest expense and conversion on April 30, 2015. Reversing entries were made on January 1, 2015. (Round to the nearest dollar.)

The foreman in the drawing section of the shop brings to you several samples of parts that have been drawn in the shop. The samples have various defects. One has ears, another has wrinkles, and still a third has torn sections at its base. What are the causes of each of these defects and what remedies would you propose?

According to the FASB conceptual framework, the objective of financial reporting for business enterprises is based on the needs of the users of financial statements. Explain the level of sophistication that the Board assumes about the users of financial statements.

Explain why a credit crisis in one country may be transmitted to other countries. (LO5)

Why was the Federal Reserve concerned about systemic risk due to the financial problems of Bear Stearns? (LO5)

Soundgarden Company sold 200 color laser copiers in 2014 for $4,000 apiece, together with a one-year warranty. Maintenance on each copier during the warranty period averages $330. Instructions (a) Prepare entries to record the sale of the copiers and the related warranty costs, assuming that the accrual method is used. Actual warranty costs incurred in 2014 were $17,000. (b) On the basis of the data above, prepare the appropriate entries, assuming that the cash-basis method is used.

What is the representativeness heuristic? Explain how the gamblers and hot-hand fallacies are examples of the representativeness heuristic.