Question & Answer

Calvin reviewed his canceled checks and receipts this year (2024) for charitable contributions, which included an antique painting and IBM stock. He has owned the IBM stock and the painting since 2005. Calculate Calvin’s charitable contribution deduction and carryover (if any) under the following circumstances. Donee Item Cost FMV Hobbs Medical Center IBM stock $ 5,000 $ 22,000 State Museum antique painting 5,000 3,000 A needy family food and clothes 400 250 United Way Cash 8,000 8,000 a.              Calvin’s AGI is $100,000. b.             Calvin’s AGI is $100,000, but the State Museum told Calvin that it plans to sell the painting. c.              Calvin’s AGI is $50,000. d.             Calvin’s AGI is $100,000 and Hobbs is a nonoperating private foundation. e.              Calvin’s AGI is $100,000, but the painting is worth $10,000.

If an entity has a mixed cost function, a 10 per cent increase in sales volume should increase income by more than 10 per cent. Explain why.

Risk classification Regal Foods is a multi-divisional company operating in a range of locations around the globe. Its product-based divisions are: Ice Cream and Associated Dairy Products, Confectionery, Nutrition, and Prepared Food. Regal has total sales in excess of $10 billion. The CEO, Ruby Day, recently undertook a company review, which identified the following strategies and objectives: • optimising product performance through strong research and development, product innovation and market share growth • enhancing financial performance through financial discipline and targeted capital expenditure.   Divisional managers have traditionally been allowed significant autonomy in line with the decentralised divisional structure. CFO Paul Falkenberg has recently introduced relative performance evaluation (RPE) at the divisional level to promote competitiveness, with the objective of growing the company.   Ice Cream and Associated Dairy Products Division The Ice Cream and Associated Dairy Products Division focuses on such products as ice cream, yoghurt, milk and cheeses. The current divisional manager is Alette Rennie, who has been in the position for the past three years. In that time, Alette has achieved average annual divisional revenue growth of 6 per cent. However, there are concerns about some of the exposures the division has. For example in a recent email to the CFO and CEO, Alette expressed concerns about some of the division’s exposures to the agricultural industry, the increasing global competition in dairy products, and the lack of bargaining power of the company in the local milk price wars.   Nutrition Division The Nutrition Division focuses on health-related products. Historically, the Nutrition Division has been an excellent contributor to group performance, with annual growth rates of up to 12 per cent for the period 2006 to 2012, and revenues exceeding $2 billion. However, divisional manager Bruce Buncle has found it increasingly difficult to maintain growth. An increasingly crowded market for health and nutritional products seems to be the main driver of these difficulties. As a consequence, debt levels of the division seem to be rising. However, Buncle is conscious that he needs to develop new products and markets in line with company objectives.   Buncle and his management team have been considering a range of investment opportunities and have decided on a major investment in the bottled water industry. While the industry has its challenges (for example, environmental opposition to the use of plastic bottles, tightening environmental regulations and the expectation of reduced carbon emissions), Buncle and his management team see a lot of potential with such a strategic move. However, where significant capital expenditure is required, Buncle finds the company investment decision-making processes frustrating.   The management team within the Nutrition Division has identified a new spring water source in a regional area. The local authorities are in favour of the springs being used to supply the Nutrition Division with spring water for a new water bottling plant to be built in the region. In fact, the local authorities are willing to forgo local taxes and provide subsidies to Regal to ensure the plant is built. The region has experienced relatively high levels of unemployment in recent years and the new plant will generate some 100 local new jobs. While there is some local opposition to the new facility on environmental grounds, Buncle considers these to be manageable. While he knows the project’s financial benefit is mainly after the third year, he knows that the investment is a good strategic move for his division.   Required Using the risk classification framework (strategic, operational, legal and regulatory, and financial) identify the key risks to which Regal and its divisions are exposed. (LO6)

If banks operated a rigid 5 per cent cash ratio and the government reduced the supply of cash by £1 million, how much must credit contract? What is the bank deposits multiplier?

Under what conditions will weighted average and FIFO process costing consistently produce similar equivalent unit costs?

Why are both the price elasticity of demand and the price elasticity of supply likely to be greater in the long run?

The bookkeeper for Geronimo Company has prepared the following balance sheet as of July 31, 2014.   The following additional information is provided. 1. Cash includes $1,200 in a petty cash fund and $15,000 in a bond sinking fund. 2. The net accounts receivable balance is comprised of the following two items: (a) accounts receivable $44,000 and (b) allowance for doubtful accounts $3,500. 3. Inventory costing $5,300 was shipped out on consignment on July 31, 2014. The ending inventory balance does not include the consigned goods. Receivables in the amount of $5,300 were recognized on these consigned goods. 4. Equipment had a cost of $112,000 and an accumulated depreciation balance of $28,000. 5. Income taxes payable of $6,000 were accrued on July 31. Geronimo Company, however, had set up a cash fund to meet this obligation. This cash fund was not included in the cash balance but was offset against the income taxes payable amount. Instructions Prepare a corrected classified balance sheet as of July 31, 2014, from the available information, adjusting the account balances using the additional information.

Zhang incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation’s stock. The property transferred to the corporation had the following fair market values and adjusted tax bases.       FMV       Adjusted Tax Basis Inventory$    20,000$        10,000 Building    150,000        100,000 Land    230,000        300,000 Total$  400,000$      410,000   The corporation also assumed a mortgage (liability) of $100,000 attached to the building and land. The fair market value of the corporation’s stock received in the exchange was $300,000. The transaction met the requirements to be tax-deferred under §351.

Use the information presented in BE7-15 for Horton Corporation. Prepare any entries necessary to make Horton’s accounting records correct and complete.

Chemical milling is used in an aircraft plant to create pockets in wing sections made of an aluminum alloy. The starting thickness of one workpart of interest is 20 mm. A series of rectangular-shaped pockets 12 mm deep are to be etched with dimensions 200 mm by 400 mm. The corners of each rectangle are radiused to 15 mm. The part is an aluminum alloy and the etchant is NaOH. The penetration rate for this combination is 0.024 mm/min and the etch factor is 1.75. Determine (a) metal removal rate in mm3/min, (b) time required to etch to the specified depth, and (c) required dimensions of the opening in the cut and peel maskant to achieve the desired pocket size on the part.

Laserwords Inc. is a book distributor that had been operating in its original facility since 1987. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Laserwords since 2009. Laserwords’ original facility became obsolete by early 2014 because of the increased sales volume and the fact that Laserwords now carries CDs in addition to books. On June 1, 2014, Laserwords contracted with Black Construction to have a new building constructed for $4,000,000 on land owned by Laserwords. The payments made by Laserwords to Black Construction are shown in the schedule below. Date Amount July 30, 2014 $ 900,000 January 30, 2015 1,500,000 May 30, 2015 1,600,000 Total payments $4,000,000 Construction was completed and the building was ready for occupancy on May 27, 2015. Laserwords had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2015, the end of its fiscal year. 10%, 5-year note payable of $2,000,000, dated April 1, 2011, with interest payable annually on April 1. 12%, 10-year bond issue of $3,000,000 sold at par on June 30, 2007, with interest payable annually on June 30. Instructions For each of the four independent situations, prepare the journal entries to record the exchange on the booksof each company.

What are some possible disadvantages to investors who invest in stocks listed on a private stock market? (LO5)

Falcetto Company acquired equipment on January 1, 2013, for $12,000. Falcetto elects to value this class of equipment using revaluation accounting. This equipment is being depreciated on a straightline basis over its 6-year useful life. There is no residual value at the end of the 6-year period. The appraised value of the equipment approximates the carrying amount at December 31, 2013 and 2015. On December 31, 2014, the fair value of the equipment is determined to be $7,000. Instructions (a) Prepare the journal entries for 2013 related to the equipment. (b) Prepare the journal entries for 2014 related to the equipment. (c) Determine the amount of depreciation expense that Falcetto will record on the equipment in 2015.

Dimitri Company, a manufacturer of small tools, provided the following information from its accounting records for the year ended December 31, 2014. Inventory at December 31, 2014 (based on physical count of goods in Dimitri’s plant, at cost, on December 31, 2014) $1,520,000 Accounts payable at December 31, 2014 1,200,000 Net sales (sales less sales returns) 8,150,000 Additional information is as follows. 1. Included in the physical count were tools billed to a customer f.o.b. shipping point on December 31, 2014. These tools had a cost of $31,000 and were billed at $40,000. The shipment was on Dimitri’s loading dock waiting to be picked up by the common carrier. 2. Goods were in transit from a vendor to Dimitri on December 31, 2014. The invoice cost was $76,000, and the goods were shipped f.o.b. shipping point on December 29, 2014. 3. Work in process inventory costing $30,000 was sent to an outside processor for plating on December 30, 2014. 4. Tools returned by customers and held pending inspection in the returned goods area on December 31, 2014, were not included in the physical count. On January 8, 2015, the tools costing $32,000 were inspected and returned to inventory. Credit memos totaling $47,000 were issued to the customers onthe same date. 5. Tools shipped to a customer f.o.b. destination on December 26, 2014, were in transit at December 31, 2014, and had a cost of $26,000. Upon notification of receipt by the customer on January 2, 2015, Dimitri issued a sales invoice for $42,000. 6. Goods, with an invoice cost of $27,000, received from a vendor at 5:00 p.m. on December 31, 2014, were recorded on a receiving report dated January 2, 2015. The goods were not included in the physical count, but the invoice was included in accounts payable at December 31, 2014. 7. Goods received from a vendor on December 26, 2014, were included in the physical count. However, the related $56,000 vendor invoice was not included in accounts payable at December 31, 2014, because the accounts payable copy of the receiving report was lost. 8. On January 3, 2015, a monthly freight bill in the amount of $8,000 was received. The bill specifically related to merchandise purchased in December 2014, one-half of which was still in the inventory at December 31, 2014. The freight charges were not included in either the inventory or in accounts payable at December 31, 2014. Instructions Using the format shown below, prepare a schedule of adjustments as of December 31, 2014, to the initial amounts per Dimitri’s accounting records. Show separately the effect, if any, of each of the eight transactions on the December 31, 2014, amounts. If the transactions would have no effect on the initial amount shown, enter NONE. Accounts Net Inventory Payable Sales Initial amounts $1,520,000 $1,200,000 $8,150,000 Adjustments—increase (decrease) 1 2 3 4 5 6 7 8 Total adjustments Adjusted amounts $ $ $

As an illustration of the difficulty in identifying monopolies, try to decide which of the following are monopolies: BT; a local evening newspaper; food sold in a university outlet; a village post office; Interflora; the London Underground; ice creams in the cinema; Guinness; the board game ‘Monopoly’. (As you will quickly realise in each case, it depends how you define the industry.)

Explain the argument that the deductions for charitable contributions and home mortgage interest represent indirect subsidies for these activities.

Draw a diagram like that in Figure 6.21. Now illustrate the effect of a rise in demand for the product. Mark the new profit-maximising price and output. Will the profit-maximising output, price, average cost and profit necessarily be higher than before?

On January 1, 2014, Gottlieb Corporation issued $4,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into eight shares of Gottlieb Corporation $100 par value common stock after December 31, 2015. On January 1, 2016, $400,000 of debentures are converted into common stock, which is then selling at $110. An additional $400,000 of debentures are converted on March 31, 2016. The market price of the common stock is then $115. Accrued interest at March 31 will be paid on the next interest date. Bond premium is amortized on a straight-line basis. Instructions Make the necessary journal entries for: (a) December 31, 2015. (c) March 31, 2016. (b) January 1, 2016. (d) June 30, 2016. Record the conversions using the book value method.

If MCX/MCY were greater than PX/PY how would firms behave? What would bring production back into equilibrium where MCX/MCY = PX/PY?

Marvin Company is a subsidiary of Hughes Corp. The controller believes that the yearly allowance for doubtful accounts for Marvin should be 2% of net credit sales. Given the recession and the high interest rate environment, the president, nervous that the parent company might expect the subsidiary to sustain its 10% growth rate, suggests that the controller increase the allowance for doubtful accounts to 3% yearly. The president thinks that the lower net income, which reflects a 6% growth rate, will be a more sustainable rate for Marvin Company. Instructions (a) In a recessionary environment with tight credit and high interest rates: (1) Identify steps Marvin Company might consider to improve the accounts receivable situation. (2) Then evaluate each step identified in terms of the risks and costs involved. (b) Should the controller be concerned with Marvin Company’s growth rate in estimating the allowance? Explain your answer. (c) Does the president’s request pose an ethical dilemma for the controller? Give your reasons.

What is the most important heat treatment for hardening steels?

Assuming that Y rises each year as a result of increases in productivity, can money supply rise without causing inflation? Would this destroy the validity of the quantity theory?

What is meant by the ‘steady-state economic growth path’? What determines its slope?

What is the purpose of FASB Staff Positions?

A shaper is used to reduce the thickness of a 50 mm part to 45 mm. The part is made of cast iron and has a tensile strength of 270 MPa and a Brinell hardness of 165 HB. The starting dimensions of the part are 750 mm x 450 mm x 50 mm. The cutting speed is 0.125 m/sec and the feed is 0.40mm/pass. The shaper ram is hydraulically driven and has a return stroke time that is 50% of the cutting stroke time. An extra 150 mm must be added before and after the part for acceleration and deceleration to take place. Assuming the ram moves parallel to the long dimension of the part, how long will it take to machine?