Question & Answer

Late in 2011, Joan Seceda and four other investors took the chain of Becker Department Stores private, and the company has just completed its third year of operations under the ownership of the investment group. Andrea Selig, controller of Becker Department Stores, is in the process of preparing the year-end financial statements. Based on the preliminary financial statements, Seceda has expressed concern over inventory shortages, and she has asked Selig to determine whether an abnormal amount of theft and breakage has occurred. The accounting records of Becker Department Stores contain the following amounts on November 30, 2014, the end of the fiscal year. Cost Retail Beginning inventory $ 68,000 $100,000 Purchases 255,000 400,000 Net markups 50,000 Net markdowns 110,000 Sales revenue 320,000 According to the November 30, 2014, physical inventory, the actual inventory at retail is $115,000. Instructions (a) Describe the circumstances under which the retail inventory method would be applied and the advantages of using the retail inventory method. (b) Assuming that prices have been stable, calculate the value, at cost, of Becker Department Stores’ ending inventory using the last-in, first-out (LIFO) retail method. Be sure to furnish supporting calculations. (c) Estimate the amount of shortage, at retail, that has occurred at Becker Department Stores during the year ended November 30, 2014. (d) Complications in the retail method can be caused by such items as (1) freight-in costs, (2) purchase returns and allowances, (3) sales returns and allowances, and (4) employee discounts. Explain how each of these four special items is handled in the retail inventory method.

How will an increased mobility of savings and other capital between institutions affect this argument?

A single-point HSS tool with a 3/64 in nose radius is used in a shaping operation on a ductile steel workpart. The cutting speed is 120 ft/min. The feed is 0.014 in/pass and depth of cut is 0.135 in. Determine the surface roughness for this operation.

Assume that Best Buy made a December 31 adjusting entry to debit Salaries and Wages Expense and credit Salaries and Wages Payable for $4,200 for one of its departments. On January 2, Best Buy paid the weekly payroll of $7,000. Prepare Best Buy’s (a) January 1 reversing entry; (b) January 2 entry (assuming the reversing entry was prepared); and (c) January 2 entry (assuming the reversing entry was not prepared).

Explain why the rise of e-commerce might increase the number of firms engaging in person-specific pricing.

Will the envelope curve be tangential to the bottom of each of the short-run average cost curves? Explain why it should or should not be.

Determine the shape factor for each of the extrusion die orifice shapes in Figure P19.32.

Explain how the Securities and Exchange Commission attempts to prevent violations of SEC regulations. (LO4)

Identify the characteristics of universal life insurance. (LO3)

The following is a record of Pervis Ellison Company’s transactions for Boston Teapots for the month of May 2014. May 1 Balance 400 units @ $20 May 10 Sale 300 units @ $38 12 Purchase 600 units @ $25 20 Sale 540 units @ $38 28 Purchase 400 units @ $30 Instructions (a) Assuming that perpetual inventories are not maintained and that a physical count at the end of the month shows 560 units on hand, what is the cost of the ending inventory using (1) FIFO and (2) LIFO? (b) Assuming that perpetual records are maintained and they tie into the general ledger, calculate the ending inventory using (1) FIFO and (2) LIFO.

Why is it important for long-term debt securities to have an active secondary market? (LO2)

The board of directors of Ichiro Corporation is considering whether or not it should instruct the accounting department to shift from a first-in, first-out (FIFO) basis of pricing inventories to a last-in, first-out (LIFO) basis. The following information is available. Sales 21,000 units @ $50 Inventory, January 1 6,000 units @ 20 Purchases 6,000 units @ 22 10,000 units @ 25 7,000 units @ 30 Inventory, December 31 8,000 units @ ? Operating expenses $200,000 Instructions Prepare a condensed income statement for the year on both bases for comparative purposes.

In conventional sheet metalworking operations, (a) what is the name of the tooling and (b) what is the name of the machine tool used in the operations?

Holyfield Corporation wishes to exchange a machine used in its operations. Holyfield has received the following offers from other companies in the industry. 1. Dorsett Company offered to exchange a similar machine plus $23,000. (The exchange has commercial substance for both parties.) 2. Winston Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.) 3. Liston Company offered to exchange a similar machine, but wanted $3,000 in addition to Holyfield’s machine. (The exchange has commercial substance for both parties.) In addition, Holyfield contacted Greeley Corporation, a dealer in machines. To obtain a new machine, Holyfield must pay $93,000 in addition to trading in its old machine. Date Amount July 30, 2014 $ 900,000 January 30, 2015 1,500,000 May 30, 2015 1,600,000 Total payments $4,000,000 Holyfield Dorsett Winston Liston Greeley Machine cost $160,000 $120,000 $152,000 $160,000 $130,000 Accumulated depreciation 60,000 45,000 71,000 75,000 –0– Fair value 92,000 69,000 92,000 95,000 185,000 Instructions For each of the four independent situations, prepare the journal entries to record the exchange on the books of each company.

A cemented carbide tool is used to turn a part with a length of 14.0 in and diameter = 4.0 in. The parameters in the Taylor equation are: n = 0.25 and C = 1000 (ft/min). The rate for the operator and machine tool = $45.00/hr, and the tooling cost per cutting edge = $2.50. It takes 2.5 min to load and unload the workpart and 1.50 min to change tools. The feed = 0.015 in/rev. Determine (a) cutting speed for maximum production rate, (b) tool life in min of cutting, and (c) cycle time and cost per unit of product.

What impact might the balance sheets of economic agents have on the influence of interest rates in affecting aggregate expenditure?

Explain how the uniform capital requirements established by the Basel Accord can discourage banks from taking excessive risk. (LO3)

Tonkawa Company purchased land for use as its corporate headquarters. A small factory that was on the land when it was purchased was torn down before construction of the office building began. Furthermore, a substantial amount of rock blasting and removal had to be done to the site before construction of the building foundation began. Because the office building was set back on the land far from the public road, Tonkawa Company had the contractor construct a paved road that led from the public road to the parking lot of the office building. Three years after the office building was occupied, Tonkawa Company added four stories to the office building. The four stories had an estimated useful life of 5 years more than the remaining estimated useful life of the original office building. Ten years later, the land and building were sold at an amount more than their net book value, and Tonkawa Company had a new office building constructed in another state for use as its new corporate headquarters. Instructions (a) Which of the expenditures above should be capitalized? How should each be depreciated or amortized? Discuss the rationale for your answers. (b) How would the sale of the land and building be accounted for? Include in your answer an explanation of how to determine the net book value at the date of sale. Discuss the rationale for your answer.

On January 2, 2009, Banno Corporation issued $1,500,000 of 10% bonds at 97 due December 31, 2018. Legal and other costs of $24,000 were incurred in connection with the issue. Interest on the bonds is payable annually each December 31. The $24,000 issue costs are being deferred and amortized on a straight-line basis over the 10-year term of the bonds. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (Straight-line is not materially different in effect from the preferable “interest method.”) The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, 2014, Banno called $900,000 face amount of the bonds and redeemed them. Instructions Ignoring income taxes, compute the amount of loss, if any, to be recognized by Banno as a result of retiring the $900,000 of bonds in 2014 and prepare the journal entry to record the redemption.

Assume a financial institution has more rate-sensitive assets than rate-sensitive liabilities. Would it be more likely to be adversely affected by an increase or decrease in interest rates? Should it purchase or sell interest rate futures contracts in order to hedge its exposure? (LO2)

A vertical boring mill is used to bore the inside diameter of a large batch of tube-shaped parts. The diameter = 28.0 in and the length of the bore = 14.0 in. Current cutting conditions are: speed = 200 ft/min, feed = 0.015 in/rev, and depth = 0.125 in. The parameters of the Taylor equation for the cutting tool in the operation are: n = 0.23 and C = 850 (ft/min). Tool change time = 3.0 min, and tooling cost = $3.50 per cutting edge. The time required to load and unload the parts = 12.0 min, and the cost of machine time on this boring mill = $42.00/hr. Management has decreed that the production rate must be increased by 25%. Is that possible? Assume that feed must remain unchanged in order to achieve the required surface finish. What is the current production rate and the maximum possible production rate for this job?

Explain the liquidity premium theory. (LO3)

What are some of the simple measures used to assess the feasibility of a proposed cup-drawing operation?

As indicated in Section 23.4, the effect of a cutting fluid is to increase the value of C in the Taylor tool life equation. In a certain machining situation using HSS tooling, the C value is increased from C = 200 to C = 225 due to the use of the cutting fluid. The n value is the same with or without fluid at n = 0.125. Cutting speed used in the operation is v = 125 ft/min. Feed = 0.010 in/rev and depth = 0.100 in. The effect of the cutting fluid can be to either increase cutting speed (at the same tool life) or increase tool life (at the same cutting speed). (a) What is the cutting speed that would result from using the cutting fluid if tool life remains the same as with no fluid? (b) What is the tool life thatwould result if the cutting speed remained at 125 ft/min? (c) Economically, which effect is better, given that tooling cost = $2.00 per cutting edge, tool change time = 2.5 min, and operator and machine rate = $30/hr? Justify you answer with calculations, using cost per cubic in of metal machined as the criterion of comparison. Ignore effects of workpart handling time.

} Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship.  In late December she received a $20,000 bill from her accountant for consulting services related to her small business.  Reese can pay the $20,000 bill any time before January 30 of next year without penalty.  Assume Reese’s marginal tax rate is 30 percent this year and will be 40 percent next year, and that she can earn an after-tax rate of return of 12 percent on her investments.  When should she pay the $20,000 bill—this year or next?