Question & Answer

Ilya and Olga are brother and sister. Ilya owns 200 shares of stock in Parker Corporation. Is Olga deemed to own Ilya’s 200 shares under the family attribution rules that apply to stock redemptions?

Explain how TARP was expected to help resolve problems during the credit crisis. (LO6)

Allocation rates – update question (business name) DataShow’s IT support department budgets its costs at $40 000 per month plus $12 per hour. For November the following were the estimated and actual hours provided by the IT support department to three operating departments.   Required (a)          What is the support department’s allocation rate if estimated activity is the allocation base? (b)          What is the support department’s allocation rate if actual activity is the allocation base? (c)           List one advantage and one disadvantage for each type of allocation rate.

Explain why the credit crisis affected the ability of financial institutions to access short-term financing in the money markets. (LO1)

Explain why the market for auction-rate securities suffered in 2008. (LO4)

At December 31, 2014, Ashley Co. has outstanding purchase commitments for 150,000 gallons, at $6.20 per gallon, of a raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or market, whichever is lower. Assuming that the market price as of December 31, 2014, is $5.90, how would you treat this situation in the accounts?

What are the five basic parts of an internal research memo?

Explain how the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) reduced the perceived risk of savings institutions. (LO1)

Juanita, a Texas resident (5th Circuit), is researching a tax question and finds a 5th Circuit case ruling that is favorable and a 9th Circuit case that is unfavorable.  Which circuit case has more “authoritative weight” and why?  How would your answer change if Juanita were a Kentucky resident (6th Circuit)?

Using a graph similar to Figure 20.7, trace through the effect of a reduction in aggregate demand.

If a bank has more rate-sensitive liabilities than rate-sensitive assets, what will happen to its net interest margin during a period of rising interest rates? During a period of declining interest rates? (LO3)

Indicate the section of a multiple-step income statement in which each of the following is shown. (a) Loss on inventory write-down. (b) Loss from strike. (c) Bad debt expense. (d) Loss on disposal of a component of the business. (e) Gain on sale of machinery. (f) Interest revenue. (g) Depreciation expense. (h) Material write-offs of notes receivable.

What is reinsurance? (LO4)

What effect does intraperiod tax allocation have on reported net income?

In the movie Wall Street, Bud Fox is a broker who conducts trades for Gordon Gekko’s firm. Gekko purchases shares of firms that he believes are undervalued. Various scenes in the movie offer excellent examples of concepts discussed in this chapter. (LO3, LO4, LO6) a. Bud Fox comments to Gordon Gekko that a firm’s breakup value is twice its market price. What is Bud suggesting in this statement? How would employees of the firm respond to Bud’s statement? b. When Bud informs Gekko that another investor, Mr. Wildman, is secretly planning to acquire a target firm in Pennsylvania, Gekko tells Bud to buy a large amount of this stock. Why? c. Gekko says “Wonder why fund managers can’t beat the S&P 500? Because they are sheep.” What is Gekko’s point? How does it relate to market efficiency?

Missy is one of 100 unrelated shareholders of Dalmatian, an S corporation. She is considering selling her shares. Under the following alternative scenarios, would the S election be terminated? Why or why not?

How can the use of absorption costing lead managers to make dysfunctional decisions for the entity?

What are the basic tax-filing requirements imposed on partnerships?

Explain the role of the SEC, FINRA, and the stock exchanges in regulating the securities industry. (LO2)

A welding heat source is capable of transferring 150 Btu/min to the surface of a metal part. The heated area is approximately circular, and the heat intensity decreases with increasing radius as follows: 50% of the power is transferred within a circle of diameter = 0.1 inch and 75% is transferred within a concentric circle of diameter = 0.25 in. What are the power densities in (a) the 0.1-inch diameter inner circle and (b) the 0.25-inch diameter ring that lies around the inner circle? (c) Are these power densities sufficient for melting metal?

Read the following letter and help Shady Slim with his tax situation.  Assume that gross income is $172,900 (which consists only of salary) and filing status of single for purposes of this problem.

Explain the categories of task-oriented behavior and people-oriented behavior and how they are related to leader effectiveness in different situations and settings.

How does solidification of alloys differ from solidification of pure metals?

How could a bank generate higher income before tax (as a percentage of assets) when its net interest margin has decreased? (LO2)

The transactions listed below relate to Wainwright Inc. You are to assume that on the date on which each of the transactions occurred, the corporation’s accounts showed only common stock ($100 par) outstanding, a current ratio of 2.7:1, and a substantial net income for the year to date (before giving effect to the transaction concerned). On that date, the book value per share of stock was $151.53. Each numbered transaction is to be considered completely independent of the others, and its related answer should be based on the effect(s) of that transaction alone. Assume that all numbered transactions occurred during 2015 and that the amount involved in each case is sufficiently material to distort reported net income if improperly included in the determination of net income. Assume further that each transaction was recorded in accordance with generally accepted accounting principles and, where applicable, in conformity with the all-inclusive concept of the income statement. For each of the numbered transactions you are to decide whether it: (a) Increased the corporation’s 2015 net income. (b) Decreased the corporation’s 2015 net income. (c) Increased the corporation’s total retained earnings directly (i.e., not via net income). (d) Decreased the corporation’s total retained earnings directly. (e) Increased the corporation’s current ratio. (f) Decreased the corporation’s current ratio. (g) Increased each stockholder’s proportionate share of total stockholders’ equity. (h) Decreased each stockholder’s proportionate share of total stockholders’ equity. (i) Increased each stockholder’s equity per share of stock (book value). (j) Decreased each stockholder’s equity per share of stock (book value). (k) Had none of the foregoing effects. Instructions List the numbers 1 through 9. Select as many letters as you deem appropriate to reflect the effect(s) of each transaction as of the date of the transaction by printing beside the transaction number the letter(s) that identifies that transaction’s effect(s). Transactions _____ 1. In January, the board directed the write-off of certain patent rights that had suddenly and unexpectedly become worthless. _____ 2. The corporation sold at a profit land and a building that had been idle for some time. Under the terms of the sale, the corporation received a portion of the sales price in cash immediately, the balance maturing at 6-month intervals. _____ 3. Treasury stock originally repurchased and carried at $127 per share was sold for cash at $153 per share. _____ 4. The corporation wrote off all of the unamortized discount and issue expense applicable to bonds that it refinanced in 2015. _____ 5. The corporation called in all its outstanding shares of stock and exchanged them for new shares on a 2-for-1 basis, reducing the par value at the same time to $50 per share. _____ 6. The corporation paid a cash dividend that had been recorded in the accounts at time of declaration. _____ 7. Litigation involving Wainwright Inc. as defendant was settled in the corporation’s favor, with the plaintiff paying all court costs and legal fees. In 2012, the corporation had appropriately established a special contingency for this court action. (Indicate the effect of reversing the contingency only.) _____ 8. The corporation received a check for the proceeds of an insurance policy from the company with which it is insured against theft of trucks. No entries concerning the theft had been made previously, and the proceeds reduce but do not cover completely the loss. _____ 9. Treasury stock, which had been repurchased at and carried at $127 per share, was issued as a stock dividend. In connection with this distribution, the board of directors of Wainwright Inc. had authorized a transfer from retained earnings to permanent capital of an amount equal to the aggregate market value ($153 per share) of the shares issued. No entries relating to this dividend had been made previously.