Question & Answer

1. Trace through the effects in both factor and goods markets of the following:                (a) An increase in the productivity of a particular type of labour.                (b) An increase in the supply of a particular factor. 2. Show in each case how initially social efficiency will be destroyed and then how market adjustments will restore social efficiency.

Assume you asked your favorite AI learning tool “Would a taxpayer classify a car used for business as a capital asset for tax purposes?” and the AI tool responded as follows:

At December 31, 2014, Besler Corporation had a projected benefit obligation of $560,000, plan assets of $322,000, and prior service cost of $127,000 in accumulated other comprehensive income. Determine the pension asset/liability at December 31, 2014.

What constitutes “significant influence” when an investor’s financial interest is below the 50% level?

Explain the difference between ‘risk’ and ‘uncertainty’.

What are the two objectives of accounting for income taxes?

In January 2015, Janeway Inc. doubled the amount of its outstanding stock by selling on the market an additional 10,000 shares to finance an expansion of the business. You propose that this information be shown by a footnote on the balance sheet as of December 31, 2014. The president objects, claiming that this sale took place after December 31, 2014, and therefore should not be shown. Explain your position.

On September 30 of last year, Rex received some investment land from Holly as a gift. Holly’s basis was $50,000 and the land was valued at $40,000 at the time of the gift. Holly acquired the land five years ago. What are the amount and character of Rex’s recognized gain (loss) if he sells the land on May 12 this year at the following prices? a. $32,000 b. $70,000 c. $45,000   a. $8,000 short-term capital loss, computed as follows: Description Amount Explanation (1) Amount Realized$32,000 (2) Adjusted Basis 40,000 Rex’s basis is the fair market value of the land at the date of the gift. Gain (Loss) Recognized ($8,000) (1) – (2)

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 $ $ $

Fixed, variable, and mixed costs Bridges and Roads is an entity engaged in road construction. Some selected items from its chart of accounts are listed below.   Required For each account, indicate whether the account represents a fixed, variable, or mixed cost for the operation of road construction activity. If mixed, indicate whether it is predominantly fixed or variable. Explain your answers.   (a) Staff wages (f) Office supplies (b) Clerical wages (g) Professional dues (c) Rent (h) Professinal subscriptions (d) Licences (i) Property taxes (e) Insurance (j) Advertising   (LO2)   [Note about problem complexity: These are difficult questions because students will need to first visualise the costs (with very little information) and then apply chapter concepts. The Step 2 questions (A, B, and F) are the ones requiring significant assumptions to generate an answer.]

On January 1, 2011, Jackson Company purchased a building and equipment that have the following useful lives, salvage values, and costs. Building, 40-year estimated useful life, $50,000 salvage value, $800,000 cost Equipment, 12-year estimated useful life, $10,000 salvage value, $100,000 cost The building has been depreciated under the double-declining-balance method through 2014. In 2015, thecompany decided to switch to the straight-line method of depreciation. Jackson also decided to change the total useful life of the equipment to 9 years, with a salvage value of $5,000 at the end of that time. The equipment is depreciated using the straight-line method. Instructions (a) Prepare the journal entry(ies) necessary to record the depreciation expense on the building in 2015. (b) Compute depreciation expense on the equipment for 2015.

Longhaul Real Estate exchanged a parcel of land it held for sale in Bryan, Texas, for a warehouse in College Station, Texas. Will the exchange qualify for like-kind treatment?

Compute the percentage volumetric contraction of a polyethylene molded part, based on the value of shrinkage given in Table 13.1

68. Two years ago, Bethesda Corporation bought a delivery truck for $30,000 (not subject to the luxury auto depreciation limits). Bethesda used MACRS 200 percent declining balance and the half-year convention to recover the cost of the truck, but it did not elect §179 expensing and opted out of bonus depreciation. Answer the questions for the following alternative scenarios. a. Assuming Bethesda used the truck until it sold it in March of year 3, what depreciation expense can it claim on the truck for years 1 through 3?  b. Assume that Bethesda claimed $18,480 of depreciation expense on the truck before it sold it in year 3. What are the amount and character of the gain or loss if Bethesda sold the truck in year 3 for $17,000 and incurred $2,000 of selling expenses on the sale? c. Assume that Bethesda claimed $18,480 of depreciation expense on the truck before it sold it in year 3. What are the amount and character of the gain or loss if Bethesda sold the truck in year 3 for $35,000 and incurred $3,000 of selling expenses on the sale?

One of the major groups that has been involved in the standardsetting process is the American Institute of Certified Public Accountants. Initially, it was the primary organization that established accounting principles in the United States. Subsequently, it relinquished its power to the FASB. Instructions (a) Identify the two committees of the AICPA that established accounting principles prior to the establishment of the FASB. (b) Speculate as to why these two organizations failed. In your answer, identify steps the FASB has taken to avoid failure. (c) What is the present role of the AICPA in the rule-making environment?

If two or more firms are charging similar prices, does this imply that collusion is taking place? What evidence would you need to determine the existence of collusion?

The following is a summary of all relevant transactions of Vicario Corporation since it was organized in 2014. In 2014, 15,000 shares were authorized and 7,000 shares of common stock ($50 par value) were issued at a price of $57. In 2015, 1,000 shares were issued as a stock dividend when the stock was selling for $60. Three hundred shares of common stock were bought in 2016 at a cost of $64 per share. These 300 shares are still in the company treasury. In 2015, 10,000 preferred shares were authorized and the company issued 5,000 of them ($100 par value) at $113. Some of the preferred stock was reacquired by the company and later reissued for $4,700 more than it cost the company. The corporation has earned a total of $610,000 in net income after income taxes and paid out a total of $312,600 in cash dividends since incorporation. Instructions Prepare the stockholders’ equity section of the balance sheet in proper form for Vicario Corporation as of December 31, 2016. Account for treasury stock using the cost method.

Distinguish among depreciation, depletion, and amortization.

An entity has one machine through which is drawn a standard type of wire to make nails. With minor adjustments, different sized nails are produced with different sized wire. Would you recommend that the entity employ job or process costing methods?

Are taxpayers allowed to deduct any from AGI deductions that are not itemized deductions?  Explain.

In 2013, Chirac Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares of common stock. Chirac had revenues of $17,500 and expenses other than interest and taxes of $8,400 for 2014. (Assume that the tax rate is 40%.) Throughout 2014, 2,000 shares of common stock were outstanding; none of the bonds was converted or redeemed. Instructions (a) Compute diluted earnings per share for 2014. (b) Assume the same facts as those assumed for part (a), except that the 60 bonds were issued on September 1, 2014 (rather than in 2013), and none have been converted or redeemed. (c) Assume the same facts as assumed for part (a), except that 20 of the 60 bonds were actually converted on July 1, 2014.

Matt Broderick Company began operations on January 2, 2013. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows. Actual Hourly Vacation Days Used Sick Days Used Wage Rate by Each Employee by Each Employee 2013 2014 2013 2014 2013 2014 $10 $11 0 9 4 5 Matt Broderick Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned. Instructions (a) Prepare journal entries to record transactions related to compensated absences during 2013 and 2014. (b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2013 and 2014.

Sandburg Company requires additional cash for its business. Sandburg has decided to use its accounts receivable to raise the additional cash and has asked you to determine the income statement effects of the following contemplated transactions. 1. On July 1, 2014, Sandburg assigned $400,000 of accounts receivable to Keller Finance Company. Sandburg received an advance from Keller of 80% of the assigned accounts receivable less a commission of 3% on the advance. Prior to December 31, 2014, Sandburg collected $220,000 on the assigned accounts receivable, and remitted $232,720 to Keller, $12,720 of which represented interest on the advance from Keller. 2. On December 1, 2014, Sandburg sold $300,000 of net accounts receivable to Wunsch Company for $270,000. The receivables were sold outright on a without recourse basis. 3. On December 31, 2014, an advance of $120,000 was received from First Bank by pledging $160,000 of Sandburg’s accounts receivable. Sandburg’s first payment to First Bank is due on January 30, 2015. Instructions Prepare a schedule showing the income statement effects for the year ended December 31, 2014, as a result of the above facts.

The partner in charge of the Kappeler Corporation audit comes by your desk and leaves a letter he has started to the CEO and a copy of the cash flow statement for the year ended December 31, 2014. Because he must leave on an emergency, he asks you to finish the letter by explaining: (1) the disparity between net income and cash flow, (2) the importance of operating cash flow, (3) the renewable source(s) of cash flow, and (4) possible suggestions to improve the cash position.   Date President Kappeler, CEO Kappeler Corporation 125 Wall Street Middleton, Kansas 67458 Dear Mr. Kappeler: I have good news and bad news about the financial statements for the year ended December 31, 2014. The good news is that net income of $100,000 is close to what we predicted in the strategic plan last year, indicating strong performance this year. The bad news is that the cash balance is seriously low. Enclosed is the Statement of Cash Flows, which best illustrates how both of these situations occurred simultaneously . . . Instructions Complete the letter to the CEO, including the four components requested by your boss.

What is the nature of research and development costs?