Question & Answer

Use the information presented in BE7-11 for Arness Woodcrafters but assume that the recourse liability has a fair value of $4,000, instead of $8,000. Prepare the journal entry and discuss the effects of this change in the value of the recourse liability on Arness’s financial statements

Tiffany is unmarried and has a 15-year-old qualifying child. Tiffany has determined her tax liability to be $3,525, and her employer has withheld $1,000 of federal taxes from her paycheck. Tiffany is allowed to claim a $2,000 child tax credit for her qualifying child. What amount of taxes will Tiffany owe (or what amount will she receive as a refund) when she files her tax return?

Craig Brokaw, newly appointed controller of STL, is considering ways to reduce his company’s expenditures on annual pension costs. One way to do this is to switch STL’s pension fund assets from First Security to NET Life. STL is a very well-respected computer manufacturer that recently has experienced a sharp decline in its financial performance for the first time in its 25-year history. Despite financial problems, STL still is committed to providing its employees with good pension and postretirement health benefits. Under its present plan with First Security, STL is obligated to pay $43 million to meet the expected value of future pension benefits that are payable to employees as an annuity upon their retirement from thecompany. On the other hand, NET Life requires STL to pay only $35 million for identical future pension benefits. First Security is one of the oldest and most reputable insurance companies in North America. NET Life has a much weaker reputation in the insurance industry. In pondering the significant difference in annual pension costs, Brokaw asks himself, “Is this too good to be true?” Instructions Answer the following questions. (a) Why might NET Life’s pension cost requirement be $8 million less than First Security’s requirement for the same future value? (b) What ethical issues should Craig Brokaw consider before switching STL’s pension fund assets? (c) Who are the stakeholders that could be affected by Brokaw’s decision?

Go through each of the arguments for restricting trade (both those of general validity and those having some validity for specific countries) and provide a counter-argument for not restricting trade.

Which of the following activities should be expensed currently as R&D costs? (a) Testing in search for or evaluation of product or process alternatives. (b) Engineering follow-through in an early phase of commercial production. (c) Legal work in connection with patent applications or litigation, and the sale or licensing of patents.

At the balance sheet date, Clarkson Company held title to goods in transit amounting to $214,000. This amount was omitted from the purchases figure for the year and also from the ending inventory. What is the effect of this omission on the net income for the year as calculated when the books are closed? What is the effect on the company’s financial position as shown in its balance sheet? Is materiality a factor in determining whether an adjustment for this item should be made?

You are the independent auditor engaged to audit Millay Corporation’s December 31, 2014, financial statements. Millay manufactures household appliances. During the course of your audit, you discovered the following contingent liabilities. 1. Millay began production of a new dishwasher in June 2014 and, by December 31, 2014, sold 120,000 to various retailers for $500 each. Each dishwasher is under a one-year warranty. The company estimates that its warranty expense per dishwasher will amount to $25. At year-end, the company had already paid out $1,000,000 in warranty expenses. Millay’s income statement shows warranty expenses of $1,000,000 for 2014. Millay accounts for warranty costs on the accrual basis. 2. In response to your attorney’s letter, Morgan Sondgeroth, Esq., has informed you that Millay has been cited for dumping toxic waste into the Kishwaukee River. Clean-up costs and fines amount to $2,750,000. Although the case is still being contested, Sondgeroth is certain that Millay will most probably have to pay the fine and clean-up costs. No disclosure of this situation was found in the financial statements. 3. Millay is the defendant in a patent infringement lawsuit by Megan Drabek over Millay’s use of a hydraulic compressor in several of its products. Sondgeroth claims that, if the suit goes against Millay, the loss may be as much as $5,000,000. However, Sondgeroth believes the loss of this suit to be only reasonably possible. Again, no mention of this suit is made in the financial statements. As presented, these contingencies are not reported in accordance with GAAP, which may create problems in issuing a favorable audit report. You feel the need to note these problems in the work papers. Instructions Heading each page with the name of the company, balance sheet date, and a brief description of the problem, write a brief narrative for each of the above issues in the form of a memorandum to be incorporated in the audit work papers. Explain what led to the discovery of each problem, what the problem really is, and what you advised your client to do (along with any appropriate journal entries) in order to bring thesecontingencies in accordance with GAAP.

Most securities firms experience poor profit performance during periods in which the stock market performs poorly. Given what you know about securities firms, offer some possible reasons for these reduced profits. (LO3)

What are the two forms of sandwich structure among laminar composite structures? Briefly describe each

Outline the accounting procedures involved in applying the operating lease method by a lessee.

The volume rate of flow of molten metal into the downsprue from the pouring cup is 50 in3 /sec. At the top where the pouring cup leads into the downsprue, the cross-sectional area = 1.0 in2 . Determine what the area should be at the bottom of the sprue if its length = 8.0 in. It is desired to maintain a constant flow rate, top and bottom, in order to avoid aspiration of the liquid metal

In what ways was it felt that the pronouncements issuedby the Financial Accounting Standards Board would carrygreater weight than the opinions issued by the AccountingPrinciples Board?

What is clay, used in making ceramic products?

What other items might be included as basic needs?

The inspection department in an automobile final assembly plant inspects cars coming off the production line against 55 quality features considered important to customer satisfaction. The department counts the number of defects found per 100 cars, which is the same type of metric used by a national consumer advocate agency. During a one-month period, a total of 16,582 cars rolled off the assembly line. These cars included a total of 6045 defects of the 55 features, which translates to 36.5 defects per 100 cars. In addition, a total of 1955 cars had one or more of the defects during this month. Determine DPMO, DPM, and DUPM in a Six Sigma program for these data and convert each to its corresponding sigma level.

What is the difference between fixed routing and variable routing in material transport systems?

Describe how collateralized mortgage obligations (CMOs) are used and explain why they have been popular. (LO4)

Monat Construction Company, Inc., entered into a firm fixed-price contract with Hyatt Clinic on July 1, 2014, to construct a four-story office building. At that time, Monat estimated that it would take between 2 and 3 years to complete the project. The total contract price for construction of the building is $4,400,000. Monat appropriately accounts for this contract under the completedcontract method in its financial statements and for income tax reporting. The building was deemed substantially completed on December 31, 2016. Estimated percentage of completion, accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to the Hyatt Clinic under the contract are shown below. At At At December December December 31, 2014 31, 2015 31, 2016 Percentage of completion 30% 70% 100% Contract costs incurred $1,140,000 $3,290,000 $4,800,000 Estimated costs to complete the contract $2,660,000 $1,410,000 –0– Billings to Hyatt Clinic $1,400,000 $2,500,000 $4,300,000 Instructions (a) Prepare schedules to compute the amount to be shown as “Cost in excess of billings” or “Billings in excess of costs” at December 31, 2014, 2015, and 2016. (Ignore income taxes.) Show supporting computations in good form. (b) Prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2014, 2015, and 2016. (Ignore income taxes.) Show supporting computations in good form.

Mishima, Inc. indicated in a recent annual report that approximately $19 million of merchandise was received on consignment. Should Mishima, Inc. report this amount on its balance sheet? Explain.

Cardinal Paz Corp. carries an account in its general ledger called Investments, which contained debits for investment purchases, and no credits, with the following descriptions. Feb. 1, 2014 Sharapova Company common stock, $100 par, 200 shares $ 37,400 April 1 U.S. government bonds, 11%, due April 1, 2024, interest payable April 1 and October 1, 110 bonds of $1,000 par each 110,000 July 1 McGrath Company 12% bonds, par $50,000, dated March 1, 2014, purchased at 104 plus accrued interest, interest payable annually on March 1, due March 1, 2034 54,000 Instructions (Round all computations to the nearest dollar.) (a) Prepare entries necessary to classify the amounts into proper accounts, assuming that all the securities are classified as available-for-sale. (b) Prepare the entry to record the accrued interest and the amortization of premium on December 31, 2014, using the straight-line method. (c) The fair values of the investments on December 31, 2014, were: Sharapova Company common stock $ 31,800 U.S. government bonds 124,700 McGrath Company bonds 58,600 What entry or entries, if any, would you recommend be made? (d) The U.S. government bonds were sold on July 1, 2015, for $119,200 plus accrued interest. Give the proper entry.

Explain how the downgrading of bonds for a particular corporation affects the prices of those bonds, the return to investors who currently hold these bonds, and the potential return to other investors who may invest in the bonds in the near future. (LO2)

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?

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to cash flow reporting.

Under what circumstances would the market demand for renting a type of capital equipment be (a) elastic; (b) inelastic?

What are the three basic steps in the conventional powder metallurgy shaping process?