Question & Answer

Who regulates credit unions? What are the regulators’ powers? Where do CUs obtain deposit insurance? (LO7)

Presented below are two independent situations. (a) On January 1, 2014, Robin Wright Inc. purchased land that had an assessed value of $350,000 at the time of purchase. A $550,000, zero-interest-bearing note due January 1, 2017, was given in exchange. There was no established exchange price for the land, nor a ready fair value for the note. The interest rate charged on a note of this type is 12%. Determine at what amount the land should be recorded at January 1, 2014, and the interest expense to be reported in 2014 related to this transaction. (b) On January 1, 2014, Field Furniture Co. borrowed $5,000,000 (face value) from Gary Sinise Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was zerointerest- bearing, Field Furniture agreed to sell furniture to this customer at lower than market price. A 10% rate of interest is normally charged on this type of loan. Prepare the journal entry to record this transaction and determine the amount of interest expense to report for 2014.

1.       : A Gallup survey showed that highly educated workers are significantly less likely to be engaged than are those with a high school diploma or less. What might be some reasons for this lower level of engagement among more-educated employees?

Explain how the expected interest rate in 1 year depends on your expectation of economic growth and inflation. (LO2)

Assume that Amazon.com has a stock-option plan for top management. Each stock option represents the right to purchase a share of Amazon $1 par value common stock inthe future at a price equal to the fair value of the stock at the date of the grant. Amazon has 5,000 stock options outstanding, which were granted at the beginning of 2014. The following data relate to the option grant. Exercise price for options $40 Market price at grant date (January 1, 2014) $40 Fair value of options at grant date (January 1, 2014) $6 Service period 5 years Instructions (a) Prepare the journal entry(ies) for the first year of the stock-option plan. (b) Prepare the journal entry(ies) for the first year of the plan assuming that, rather than options, 700 shares of restricted stock were granted at the beginning of 2014. (c) Now assume that the market price of Amazon stock on the grant date was $45 per share. Repeat the requirements for (a) and (b). (d) Amazon would like to implement an employee stock-purchase plan for rank-and-file employees, but it would like to avoid recording expense related to this plan. Which of the following provisions must be in place for the plan to avoid recording compensation expense? (1) Substantially all employees may participate. (2) The discount from market is small (less than 5%). (3) The plan offers no substantive option feature. (4) There is no preferred stock outstanding.

Why is the profit-maximising price under monopoly greater than marginal cost? In what way can this be seen as inefficient?

The specified dimension = 225.00 mm for a certain injection molded part made of ABS. Compute the corresponding dimension to which the mold cavity should be machined, using the value of shrinkage given in Table 13.1

During 2014, Pretenders Furniture Company purchases a carload of wicker chairs. The manufacturer sells the chairs to Pretenders for a lump sum of $59,850 because it is discontinuing manufacturing operations and wishes to dispose of its entire stock. Three types of chairs are included in the carload. The three types and the estimated selling price for each are listed below. Type No. of Chairs Estimated Selling Price Each Lounge chairs 400 $90 Armchairs 300 80 Straight chairs 700 50 During 2014, Pretenders sells 200 lounge chairs, 100 armchairs, and 120 straight chairs. Instructions What is the amount of gross profit realized during 2014? What is the amount of inventory of unsold straight chairs on December 31, 2014?

Businesses valued at less than $50 million or so rarely go public. Explain the limitations to such businesses if they did go public. (LO3)

Explain how foreign stock exchanges have reduced transactions costs. (LO2, LO5)

On June 1, year 1, Jasper Corporation’s S election was involuntarily terminated.  What is the earliest Jasper may be taxed as an S corporation again?  Are there any exceptions to the general rule?  Explain.

The following comment appeared in the financial press: “Inadequate financial disclosure, particularly with respect to how management views the future and its role in the marketplace, has always been a stone in the shoe. After all, if you don’t know how a company views the future, how can you judge the worth of its corporate strategy?” What are some arguments for reporting earnings forecasts?

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

Describe the procedure(s) involved in classifying deferred tax amounts on the statement of financial position under IFRS.

Metheny Corporation’s lease arrangements qualify as sales-type leases at the time of entering into the transactions. How should the corporation recognize revenues and costs in these situations?

How might a savings and loan association use Treasury bond futures to hedge its fixed-rate mortgage portfolio (assuming that its main source of funds is short-term deposits)? Explain how prepayments on mortgages can limit the effectiveness of the hedge. (LO2)

What is earnings management?

The following is a summary of all relevant transactions of Vicario Corporation since it was organized in 2014. In 2014, 15,000 shares were authorized and 7,000 shares of common stock ($50 par value) were issued at a price of $57. In 2015, 1,000 shares were issued as a stock dividend when the stock was selling for $60. Three hundred shares of common stock were bought in 2016 at a cost of $64 per share. These 300 shares are still in the company treasury. In 2015, 10,000 preferred shares were authorized and the company issued 5,000 of them ($100 par value) at $113. Some of the preferred stock was reacquired by the company and later reissued for $4,700 more than it cost the company. The corporation has earned a total of $610,000 in net income after income taxes and paid out a total of $312,600 in cash dividends since incorporation. Instructions Prepare the stockholders’ equity section of the balance sheet in proper form for Vicario Corporation as of December 31, 2016. Account for treasury stock using the cost method.

Explain the dilemma of stock analysts who work for securities firms and assign ratings to large corporations. Why might they prefer not to assign low ratings to weak but large corporations? (LO6)

Harriet and Harry Combs (both 37 years old) are married and both want to contribute to a Roth IRA. In the current year, their AGI before any IRA contribution deductions is $50,000. Harriet earned $46,000 and Harry earned $4,000. a. How much can Harriet contribute to her Roth IRA if they file a joint return? b. How much can Harriet contribute if she files a separate return? c. How much can Harry contribute to his Roth IRA if they file separately?

Explain how circuit breakers are used to reduce the likelihood of a large stock market crash. (LO4)

Assume the yield curve experiences a sudden shift such that the new yield curve is higher and more steeply sloped today than it was yesterday. If a firm issues new bonds today, would its bonds sell for higher or lower prices than if it had issued the bonds yesterday? Explain. (LO2)

Nitai, who is single and has no dependents, was planning on spending the weekend repairing his car. On Friday, Nitai’s employer called and offered him $500 in overtime pay if he would agree to work over the weekend. Nitai could get his car repaired over the weekend at Autofix for $400. If Nitai works over the weekend, he will have to pay the $400 to have his car repaired, but he will earn $500. Assume Nitai’s marginal tax rate is 12 percent.

1.      Georgio owns a 20 percent profits and capital interest in Rain Tree LLC. For the current year, Rain Tree had the following revenues, expenses, gains, and losses: Sales revenue $70,000 Gain on sale of land (§1231) $11,000 Cost of goods sold ($26,000) Depreciation - MACRS ($3,000) §179 deduction* ($10,000) Employee wages ($11,000) Nondeductible fines and penalties ($3,000) Municipal bond interest $6,000 Short-term capital gains $4,000 Guaranteed payment to Sandra ($3,000)

You are the vice president of finance of Sandy Alomar Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March 31, 2014. These schedules appear below. Sales Cost of Gross ($5 per unit) Goods Sold Margin Schedule 1 $150,000 $124,900 $25,100 Schedule 2 150,000 129,400 20,600 The computation of cost of goods sold in each schedule is based on the following data. Cost Total Units per Unit Cost Beginning inventory, January 1 10,000 $4.00 $40,000 Purchase, January 10 8,000 4.20 33,600 Purchase, January 30 6,000 4.25 25,500 Purchase, February 11 9,000 4.30 38,700 Purchase, March 17 11,000 4.40 48,400 Jane Torville, the president of the corporation, cannot understand how two different gross margins can be computed from the same set of data. As the vice president of finance, you have explained to Ms. Torville that the two schedules are based on different assumptions concerning the flow of inventory costs, i.e., FIFO and LIFO. Schedules 1 and 2 were not necessarily prepared in this sequence of cost flow assumptions. Instructions Prepare two separate schedules computing cost of goods sold and supporting schedules showing the composition of the ending inventory under both cost flow assumptions.