Question & Answer

Pacific Airlines Co. awards members of its Frequent Fliers Club one free round-trip ticket, anywhere on its flight system, for every 50,000 miles flown on its planes. How would you account for the free ticket award?

On December 31, 2013, the inventory of Powhattan Company amounts to $800,000. During 2014, the company decides to use the dollar-value LIFO method of costing inventories. On December 31, 2014, the inventory is $1,053,000 at December 31, 2014, prices. Using the December 31, 2013, price level of 100 and the December 31, 2014, price level of 108, compute the inventory value at December 31, 2014, under the dollar-value LIFO method.

Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position. (a) The fundamental qualitative characteristics that make accounting information useful are relevance and verifiability. (b) Relevant information only has predictive value, confirmatory value, or both. (c) Information that is a faithful representation is characterized as having predictive or confirmatory value. (d) Comparability pertains only to the reporting of information in a similar manner for different companies. (e) Verifiability is solely an enhancing characteristic for faithful representation. (f) In preparing financial reports, it is assumed that users of the reports have reasonable knowledge of business and economic activities.

Assume that a bank expects to attract most of its funds through short-term CDs and would prefer to use most of its funds to provide long-term loans. How could it follow this strategy and still reduce interest rate risk? (LO3)

Given a large volume of metallic powders, all of which are perfectly spherical and having the same exact diameter, what is the maximum possible packing factor that the powders can take?

Lee is 30 years old and single. Lee paid all the costs of maintaining his household for the entire year. Determine Lee’s filing status in each of the following alternative situations: a. Lee is Ashton’s uncle. Ashton is 15 years old and has gross income of $6,000. Ashton lived in Lee’s home from April 1 through the end of the year. b. Lee is Ashton’s uncle. Ashton is 20 years old, is not a full-time student, and has gross income of $7,000. Ashton lived in Lee’s home from April 1 through the end of the year. c. Lee is Ashton’s uncle. Ashton is 22 years old and was a full-time student from January through April. Ashton’s gross income was $6,000. Ashton lived in Lee’s home from April 1 through the end of the year. d. Lee is Ashton’s cousin. Ashton is 18 years old, has gross income of $3,000, and is not a full-time student. Ashton lived in Lee’s home from April 1 through the end of the year. e. Lee and Ashton are cousins. Ashton is 18 years old, has gross income of $3,000, and is not a full-time student. Ashton lived in Lee’s home for the entire year.

Cost drivers; value chain; strategy; organisational structure Australian fashion designer Sean Ashby commenced his men’s swimwear and clothing business aussieBum in 2001. A keen swimmer and surfer, he was unable to find a good pair of men’s cossies and used his life savings of $20 000 to make a series of prototypes, buy materials and commence manufacturing in Australia. Despite rejection from local retailers who did not see the potential for aussieBum to compete with international brands, Ashby has proven critics wrong. He had no choice but to take his business online, with instant exposure to the international market. It now takes thousands of orders a day.   Since the company’s inception, Ashby says that aussieBum has ‘taken on its own little cult revolution’, with celebrities such as Ewan McGregor, Billy Connolly and David Beckham fans of the aussieBum brand. Even Kylie Minogue’s male dancers wore aussieBum cossies in the film clip for her song ‘Slow’. The marketing thrust behind Ashby’s aussieBum is to live the dream — ‘the dream to be independent and present our gear in a way that gets noticed. We don’t apologise for pushing the boundaries . . . We have a saying at aussieBum — If you doubt yourself, wear something else’.   The company doubled in size every year in its first five years and continued to grow by 20 per cent every quarter. By 2005, aussieBum earned more than $5 million in sales and carried no debt. The aussieBum brand now takes pride of place in stores such as Selfridges in the UK; Brown Thomas in Ireland; La Maison Stores in Canada; Alpha Male in Melrose Drive, Los Angeles; KaDeWa in Germany; as well as others in Spain, The Netherlands, Sweden, Poland and Russia. As well as direct department store sales, aussieBum’s internet retail orders are booming, with aussieBum being distributed to more than 70 countries. It now has over 200 000 consumers ordering direct via its custom built e-commerce site.   Most of the raw materials are sourced from Italy and China. By manufacturing in Australia, aussieBum hopes to promote Australia’s culture and relaxed lifestyle as well as eliminate restrictions that might come with outsourcing production to other countries. Moreover, producing locally (through independent manufacturers) provides flexibility and a reduced timeframe in getting new products to market. With a heavy emphasis on innovative product design, aussieBum pays close attention to the design phase of the product process.   Two recent examples of aussieBum’s flexibility and innovative approach to product development and marketing are worthy of note. First, it was able to capitalise on the consumer backlash against competitor Bonds when that company transferred more of its manufacturing offshore. Ashby estimates that aussieBum’s sales grew by at least 40 per cent as a result. Second, aussieBum was able to achieve continued growth during the global financial crisis. The company continues to avoid debt and own all its assets outright.       Required (a) With reference to the information provided, distinguish between structural and executional cost drivers. (b) Illustrate and describe the industry and organisational value chain in which aussieBum operates. (c) Classify aussieBum’s likely strategy as low cost or product differentiation. Explain. (d) Classify aussieBum’s organisational structure as centralised or decentralised. Explain. (e) With reference to disruptive innovation, do you consider aussieBum to be a disruptor to the traditional garment industry value chain? Discuss why or why not.

Why might pension funds be exposed to interest rate risk? How can pension funds reduce their exposure to interest rate risk? (LO7)

Define proof strength as the term applies in threaded fasteners.

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 IASB’s Framework for the Preparation and Presentation of Financial Statements. Instructions Access the IASB Framework at the IASB website (http://eifrs.iasb.org/ ). (Click on the IFRS tab and then register for free eIFRS access if necessary.) 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.

Liquid phase sintering is used for WC-Co compacts, even though the sintering temperatures are below the melting points of either WC or Co. How is this possible?

In a chemical blanking operation, stock thickness of the aluminum sheet is 0.015 in. The pattern to be cut out of the sheet is a hole pattern, consisting of a matrix of 0.100 in diameter holes. If photochemical machining is used to cut these holes, and contact printing is used to make the resist (maskant) pattern, determine the diameter of the holes that should be used in the pattern.

A horizontal true centrifugal casting process is used to make lead pipe for chemical plants. The pipe has length = 0.5 m, outside diameter = 70 mm, and wall thickness = 6.0 mm. Determine the rotational speed that will provide a G-factor = 60.

Why does exchange rate overshooting occur? What determines its magnitude?

Explain how liabilities of an LLC (taxed as a partnership) or an S corporation affect the amount of tax losses from the entity that limited liability company members and S corporation shareholders may deduct. Do the tax rules favor LLCs or S corporations?

Identify the four generic perspectives for a balanced scorecard and         explain how they are related.

If everyone’s incomes rose in line with inflation, would it matter if inflation were 100 per cent or even 1000 per cent per annum?

Metro Corp. traded building A for building B. Metro originally purchased building A for $50,000, and building A’s adjusted basis was $25,000 at the time of the exchange. What is Metro’s realized gain or loss, recognized gain or loss, and adjusted basis in building B in each of the following alternative scenarios?  a.  The fair market value of building A and of building B is $40,000 at the time of the exchange. The exchange does not qualify as a like-kind exchange. b.  The fair market value of building A and of building B is $40,000. The exchange qualifies as a like-kind exchange c. The fair market value of building A is $35,000, and building B is valued at $40,000. Metro exchanges building A and $5,000 cash for building B. building A and building B are like-kind property. d. The fair market value of building A is $45,000, and Metro trades building A for building B valued at $40,000 and $5,000 cash. Building A and building B are like-kind property.

Distortion (warping) is a serious problem in fusion welding, particularly arc welding. What are some of the techniques that can be taken to reduce the incidence and extent of distortion?

What is a modified accelerated cost recovery system (MACRS)? Speculate as to why this system is now required for tax purposes.

Solve the previous problem, except that the metal to be welded is aluminum, and the corresponding melting factor is half the value for steel.

What is the feature that distinguishes glass from the traditional and new ceramics?

Villa Company has experienced tough competition, leading it to seek concessions from its employees in the company’s pension plan. In exchange for promises to avoid layoffs and wage cuts, the employees agreed to receive lower pension benefits in the future. As a result, Villa amended its pension plan on January 1, 2014, and recorded negative past service cost of $125,000. Current service cost for 2014 is $26,000. Interest expense is $9,000, and interest revenue is $2,500. Actual return on assets in 2012 is $1,500. Compute Villa’s pension expense in 2014.

This year, Sooner Corporation reports a deficit in current E&P of ($300,000).  Its accumulated E&P at the beginning of the year was $200,000. Sooner distributed $400,000 to its sole shareholder, Boomer, on June 30 of this year. Boomer’s tax basis in his Sooner stock before the distribution is $75,000.

The power source in a particular welding operation generates 125 Btu/min, which is transferred to the work surface with heat transfer factor = 0.8. The melting point for the metal to be welded = 1800°F and its melting factor = 0.5. A continuous fillet weld is to be made with a cross-sectional area = 0.04 in2. Determine the travel speed at which the welding operation can be accomplished.