Question & Answer

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)

Assume that on January 1, 2014, Kimberly-Clark Corp. signs a 10-year noncancelable lease agreement to lease a storage building from Sheffield Storage Company. The following information pertains to this lease agreement. 1. The agreement requires equal rental payments of $72,000 beginning on January 1, 2014. 2. The fair value of the building on January 1, 2014 is $440,000. 3. The building has an estimated economic life of 12 years, with an unguaranteed residual value of $10,000. Kimberly-Clark depreciates similar buildings on the straight-line method. 4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor. 5. Kimberly-Clark’s incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by Kimberly-Clark. 6. The yearly rental payment includes $2,471 of executory costs related to taxes on the property. Instructions Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2014 and 2015. Kimberly-Clark’s corporate year-end is December 31.

What federal income-related taxes are (or might) taxpayers (be) required to pay? In general terms, what is the tax base for each of these other taxes on income?

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.

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for investments.

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)

Given the data in Problem 13.14, except that the flight angle of the extruder screw is a variable instead of a constant 17.7°. Use a spreadsheet calculator to determine the value of the flight angle that maximizes the volumetric flow rate Qx. Explore values of flight angle between 10° and 20°. Determine the optimum value to the nearest tenth of a degree.

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?

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.

Define proof strength as the term applies in threaded fasteners.

Define drawing in the context of sheet metalworking

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?

What are the differences, if any, between the legal and tax classifications of business entities?

Rick Kleckner Corporation recorded a finance lease at $300,000 on January 1, 2014. The interest rate is 12%. Kleckner Corporation made the first lease payment of $53,920 on January 1, 2014. The lease requires eight annual payments. The equipment has a useful life of 8 years with no residual value. Prepare Kleckner Corporation’s December 31, 2014, adjusting entries.

On December 31, 2014, Grando Company sells production equipment to Fargo Inc. for $50,000. Grando includes a 1-year warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2014. Grando estimates the prices to be $48,800 for the equipment and $1,200 for the warranty. Instructions (a) Prepare the journal entry to record this transaction on December 31, 2014. (b) Indicate how much (if any) revenue should be recognized on January 31, 2015, and for the year 2015.

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

A specimen with 6.0 in starting gage length is subjected to a tensile test in which the grips holding the end of the test specimen are moved with a relative velocity = 1.0 in/sec. Construct a plot of the strain rate as a function of length as the specimen is pulled to a length = 8.0 in

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

On January 1, 2014, Norma Smith and Grant Wood formed a computersales and service company in Soapsville, Arkansas, by investing $90,000 cash. The new company,Arkansas Sales and Service, has the following transactions during January. 1. Pays $6,000 in advance for 3 months’ rent of office, showroom, and repair space. 2. Purchases 40 personal computers at a cost of $1,500 each, 6 graphics computers at a cost of $2,500 each, and 25 printers at a cost of $300 each, paying cash upon delivery. 3. Sales, repair, and office employees earn $12,600 in salaries and wages during January, of which $3,000 was still payable at the end of January. 4. Sells 30 personal computers at $2,550 each, 4 graphics computers for $3,600 each, and 15 printers for $500 each; $75,000 is received in cash in January, and $23,400 is sold on a deferred payment basis. 5. Other operating expenses of $8,400 are incurred and paid for during January; $2,000 of incurred expenses are payable at January 31. Instructions (a) Using the transaction data above, prepare (1) a cash-basis income statement and (2) an accrual-basis income statement for the month of January. (b) Using the transaction data above, prepare (1) a cash-basis balance sheet and (2) an accrual-basis balance sheet as of January 31, 2014. (c) Identify the items in the cash-basis financial statements that make cash-basis accounting inconsistent with the theory underlying the elements of financial statements.

What is meant by “past service cost”? When is past service cost recognized as pension expense?

1. Assume that you wanted the following information. In which cases could you (i) buy perfect information, (ii) buy imperfect information, (iii) be able to obtain information without paying for it, (iv) not be able to obtain information? (a)  Which washing machine is the most reliable? (b)  Which of two vacant jobs is more satisfying? (c)  Which builder will repair my roof most cheaply? (d)  Which builder is best value for money? (e)  How big a mortgage would it be wise for me to take out? (f)   Should I take a degree or get a full-time job? (g)  What brand of washing powder washes whiter? (h)  Will a house need any work done on it over the next few years? In which cases are there non-monetary costs to you of finding out the information? How can you know whether the information you acquire is accurate or not? 2. Make a list of pieces of information a firm might want to know, and consider whether it could buy the information and how reliable that information might be. 3. What has been the impact of the Internet on the provision of information?

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