Question & Answer

For what purposes do organisations need cost information?

Explain the process of executing a financial transaction with bitcoins. What are the advantages and disadvantages of such a transaction? (LO3)

Could bar charts or pie charts be used for representing time-series data?

The comparative balance sheets of ConstantineCavamanlis Inc. at the beginning and the end of the year 2014 are as follows.   Net income of $44,000 was reported, and dividends of $23,000 were paid in 2014. New equipment was purchased and none was sold. Instructions Prepare a statement of cash flows for the year 2014.

Daniel Perkins is the sole shareholder of Perkins Inc., which is currently under protection of the U.S. bankruptcy court. As a “debtor in possession,” he has negotiated the following revised loan agreement with United Bank. Perkins Inc.’s $600,000, 12%, 10-year note was refinanced with a $600,000, 5%, 10-year note. Instructions (a) What is the accounting nature of this transaction? (b) Prepare the journal entry to record this refinancing: (1) On the books of Perkins Inc. (2) On the books of United Bank. (c) Discuss whether generally accepted accounting principles provide the proper information useful to managers and investors in this situation.

Ansel purchased raw land three years ago for $200,000 to hold as an investment. After watching the value of the land drop to $150,000, he decided to contribute it to Mountainside Developers LLC in exchange for a 5 percent capital and profits interest. Mountainside plans to develop the property and will treat it as inventory, like all of the other real estate it holds. a. If Mountainside sells the property for $150,000 after holding it for one year, how much gain or loss does it recognize, and what is the character of its gain or loss? [Hint: See §724.] b. If Mountainside sells the property for $125,000 after holding it for two years, how much gain or loss does it recognize, and what is the character of the gain or loss? c. If Mountainside sells the property for $150,000 after holding it six years, how much gain or loss is recognized, and what is the character of the gain or loss?

Explain why private equity funds use a very high degree of financial leverage, and how this affects their risk and potential return on investment. (LO1)

How can investors using the primary T-bill market be assured that their bid will be accepted? Why do large corporations typically make competitive bids rather than noncompetitive bids for T-bills? (LO1)

A sheet metal steel part with surface area = 100 cm2 is to be zinc plated. What average plating thickness will result if 15 amps are applied for 12 minutes in a chloride electrolyte solution?

The financial records of LeRoi Jones Inc. were destroyed by fire at the end of 2014. Fortunately, the controller had kept certain statistical data related to the income statement as follows. 1. The beginning merchandise inventory was $92,000 and decreased 20% during the current year. 2. Sales discounts amount to $17,000. 3. 20,000 shares of common stock were outstanding for the entire year. 4. Interest expense was $20,000. 5. The income tax rate is 30%. 6. Cost of goods sold amounts to $500,000. 7. Administrative expenses are 20% of cost of goods sold but only 8% of gross sales. 8. Four-fifths of the operating expenses relate to sales activities. Instructions From the foregoing information prepare an income statement for the year 2014 in single-step form.

Killroy Company owns a trade name that was purchased in an acquisition of McClellan Company. The trade name has a book value of $3,500,000, but according to GAAP, it is assessed for impairment on an annual basis. To perform this impairment test, Killroy must estimate the fair value of the trade name. (You will learn more about intangible asset impairments in Chapter 12.) It has developed the following cash flow estimates related to the trade name based on internal information. Each cash flow estimate reflects Killroy’s estimate of annual cash flows over the next 8 years. The trade name is assumed to have no salvage value after the 8 years. (Assume the cash flows occur at the end of each year.) Probability Cash Flow Estimate Assessment $380,000 20% 630,000 50% 750,000 30% Instructions (a) What is the estimated fair value of the trade name? Killroy determines that the appropriate discount rate for this estimation is 8%. (b) Is the estimate developed for part (a) a Level 1 or Level 3 fair value estimate? Explain.

How does pulforming differ from pultrusion?

What are the main distinctions between a traditional financial instrument and a derivative financial instrument?

Charlie Brown, controller for Kelly Corporation, is preparing the company’s income statement at year-end. He notes that the company lost a considerable sum on the sale of some equipment it had decided to replace. Since the company has sold equipment routinely in the past, Brown knows the losses cannot be reported as extraordinary. He also does not want to highlight it as a material loss since he feels that will reflect poorly on him and the company. He reasons that if the company had recorded more depreciation during the assets’ lives, the losses would not be so great. Since depreciation is included among the company’s operating expenses, he wants to report the losses along with the company’s expenses, where he hopes it will not be noticed. Instructions (a) What are the ethical issues involved? (b) What should Brown do?

A certain piece of production equipment is used to produce various components for an assembled product. To keep in-process inventories low, it is desired to produce the components in batch sizes of 150 units. Demand for each product is 2500 units per year. Production downtime costs an estimated $200/hr. All of the components made on the equipment are of approximately equal unit cost, which is $9.00. Holding cost rate = 30%/yr. In how many minutes must the changeover between batches be completed in order for 150 units to be the economic order quantity?

Is a current-year net operating loss of a C corporation available to offset income from the corporation in other years? Explain.

Why is a preemptive right important?

Under what conditions should a provision be recorded?

Knowshon, sole owner of Moreno Inc., is contemplating electing S status for the corporation (Moreno Inc. is currently taxed as a C corporation). Provide recommendations related to Knowshon’s election under the following alternative scenarios: a. At the end of the current year, Moreno Inc. has a net operating loss of $800,000 carryover from 2023.  Beginning next year, the company expects to return to profitability.  Knowshon projects that Moreno will report profits of $400,000, $500,000, and $600,000 over the next three years.  What suggestions do you have regarding the timing of the S election?  Explain.

] Fergie has the choice between investing in a State of New York bond at 5 percent and a Surething Inc. bond at 8 percent.  Assuming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, in which bond should she invest?

Describe the factors that affect mortgage prices. (LO3)

If there have been clear benefits from the single market programme, why do individual member governments still try to erect barriers, such as new technical standards

Describe three uses for CVP analysis.

You have been asked by a client to review the records of Roberts Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business, and arrangements have been made for you to review the accounting records. Your examination reveals the following information. 1. Roberts Company commenced business on April 1, 2012, and has been reporting on a fiscal year ending March 31. The company has never been audited, but the annual statements prepared by the bookkeeper reflect the following income before closing and before deducting income taxes. Year Ended Income March 31 Before Taxes 2013 $ 71,600 2014 111,400 2015 103,580 2. A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On March 31 of each year, machines billed and in the hands of consignees amounted to: 2013 $6,500 2014 none 2015 5,590 Sales price was determined by adding 25% to cost. Assume that the consigned machines are sold the following year. 3. On March 30, 2014, two machines were shipped to a customer on a C.O.D. basis. The sale was not entered until April 5, 2014, when cash was received for $6,100. The machines were not included in the inventory at March 31, 2014. (Title passed on March 30, 2014.) 4. All machines are sold subject to a 5-year warranty. It is estimated that the expense ultimately to be incurred in connection with the warranty will amount to 1⁄2 of 1% of sales. The company has charged an expense account for warranty costs incurred. Sales per books and warranty costs were as follows. Warranty Expense Year Ended for Sales Made in March 31 Sales 2013 2014 2015 Total 2013 $ 940,000 $760 $ 760 2014 1,010,000 360 $1,310 1,670 2015 1,795,000 320 1,620 $1,910 3,850 5. Bad debts have been recorded on a direct write-off basis. Experience of similar enterprises indicates that losses will approximate 1⁄4 of 1% of sales. Bad debts written off were: Bad Debts Incurred on Sales Made in 2013 2014 2015 Total 2013 $750 $ 750 2014 800 $ 520 1,320 2015 350 1,800 $1,700 3,850 6. The bank deducts 6% on all contracts financed. Of this amount, 1⁄2% is placed in a reserve to the credit of Roberts Company that is refunded to Roberts as finance contracts are paid in full. (Thus, Roberts should have a receivable for these payments and should record revenue when the net balance is remitted each year.) The reserve established by the bank has not been reflected in the books of Roberts. The excess of credits over debits (net increase) to the reserve account with Roberts on the books of the bank for each fiscal year were as follows. 2013 $ 3,000 2014 3,900 2015 5,100 $12,000 7. Commissions on sales have been entered when paid. Commissions payable on March 31 of each year were as follows. 2013 $1,400 2014 900 2015 1,120 8. A review of the corporate minutes reveals the manager is entitled to a bonus of 1% of the income before deducting income taxes and the bonus. The bonuses have never been recorded or paid. Instructions (a) Present a schedule showing the revised income before income taxes for each of the years ended March 31, 2013, 2014, and 2015. (Make computations to the nearest whole dollar.) (b) Prepare the journal entry or entries you would give the bookkeeper to correct the books. Assume the books have not yet been closed for the fiscal year ended March 31, 2015. Disregard correction of income taxes.

Explain the process by which the price of houses would rise if there were a shortage.