Question & Answer

Sabonis Cosmetics Co. purchased machinery on December 31, 2013, paying $50,000 down and agreeing to pay the balance in four equal installments of $40,000 payable each December 31. An assumed interest of 8% is implicit in the purchase price. Instructions Prepare the journal entries that would be recorded for the purchase and for the payments and interest on the following dates. (Round answers to the nearest cent.) (a) December 31, 2013. (d) December 31, 2016. (b) December 31, 2014. (e) December 31, 2017. (c) December 31, 2015.

Harrisburg Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2014. Harrisburg expected to complete the building by December 31, 2014. Harrisburg has the following debt obligations outstanding during the construction period. Construction loan—12% interest, payable semiannually, issued December 31, 2013 $2,000,000Short-term loan—10% interest, payable monthly, and principal payable at maturity on May 30, 2015 1,400,000Long-term loan—11% interest, payable on January 1 of each year. Principal payable on January 1, 2018 1,000,000 Instructions (Carry all computations to two decimal places.) (a) Assume that Harrisburg completed the office and warehouse building on December 31, 2014, as planned at a total cost of $5,200,000, and the weighted-average amount of accumulated expenditures was $3,600,000. Compute the avoidable interest on this project. (b) Compute the depreciation expense for the year ended December 31, 2015. Harrisburg elected to depreciate the building on a straight-line basis and determined that the asset has a useful life of 30 years and a salvage value of $300,000.

One writer recently noted that 99.4 percent of all companiesprepare statements that are in accordance with GAAP. Why then is there such concern about fraudulentfinancial reporting?

What are hybrid securities? Give an example of a hybrid security.

What is the most important engineering property of copper that determines most of its applications?

For Warren Corporation, year-end plan assets were $2,000,000. At the beginning of the year, plan assets were $1,780,000. During the year, contributions to the pension fund were $120,000, and benefits paid were $200,000. Compute Warren’s actual return on plan assets.

In a turning operation on plain carbon steel whose Brinell hardness = 275 HB, the cutting speed is set at 200 m/min and depth of cut = 6.0 mm. The lathe motor is rated at 25 kW, and its mechanical efficiency = 90%. Using the appropriate specific energy value from Table 21.2, determine the maximum feed that can be set for this operation. Use of a spreadsheet calculator is recommended for the iterative calculations required in this problem.

In 2014, Amirante Corporation had pretax financial income of $168,000 and taxable income of $120,000. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 40%. Compute the amount to be reported as income taxes payable at December 31, 2014.

What are the major factors considered in determining what depreciation method to use?

On January 1, 2014, Aumont Company sold 12% bonds having a maturity value of $500,000 for $537,907.37, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2014, and mature January 1, 2019, with interest payable December 31 of each year. Aumont Company allocates interest and unamortized discount or premium on the effective-interest basis. Instructions (Round answers to the nearest cent.) (a) Prepare the journal entry at the date of the bond issuance. (b) Prepare a schedule of interest expense and bond amortization for 2014–2016. (c) Prepare the journal entry to record the interest payment and the amortization for 2014. (d) Prepare the journal entry to record the interest payment and the amortization for 2016.

The following information relates to the debt securities investments of Wildcat Company. 1. On February 1, the company purchased 10% bonds of Gibbons Co. having a par value of $300,000 at 100 plus accrued interest. Interest is payable April 1 and October 1. 2. On April 1, semiannual interest is received. 3. On July 1, 9% bonds of Sampson, Inc. were purchased. These bonds with a par value of $200,000 were purchased at 100 plus accrued interest. Interest dates are June 1 and December 1. 4. On September 1, bonds with a par value of $60,000, purchased on February 1, are sold at 99 plus accrued interest. 5. On October 1, semiannual interest is received. 6. On December 1, semiannual interest is received. 7. On December 31, the fair value of the bonds purchased February 1 and July 1 are 95 and 93, respectively. Instructions (a) Prepare any journal entries you consider necessary, including year-end entries (December 31), assuming these are available-for-sale securities. (b) If Wildcat classified these as held-to-maturity investments, explain how the journal entries would differ from those in part (a).

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?

Mary Tokar is comparing a GAAP-based company to a company that uses IFRS. Both companies report equity investments. The IFRS company reports unrealized losses on these investments under the heading “Reserves” in its equity section. However, Mary can find no similar heading in the GAAP-based company financial statements. Can Mary conclude that the GAAP-based company has no unrealized gains or losses on its non-trading equity investments? Explain

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.

How do corporations account for capital gains and losses for tax purposes?  How is this different from the way individuals account for capital gains and losses?

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)

Remmers Company manufactures desks. Most of the company’s desks are standard models and are sold on the basis of catalog prices. At December 31, 2014, the following finished desks appear in the company’s inventory. Finished Desks A B C D 2014 catalog selling price $450 $480 $900 $1,050 FIFO cost per inventory list 12/31/14 470 450 830 960 Estimated current cost to manufacture (at December 31, 2014, and early 2015) 460 430 610 1,000 Sales commissions and estimated other costs of disposal 50 60 80 130 2015 catalog selling price 500 540 900 1,200 The 2014 catalog was in effect through November 2014, and the 2015 catalog is effective as of December 1, 2014. All catalog prices are net of the usual discounts. Generally, the company attempts to obtain a 20% gross profit on selling price and has usually been successful in doing so. Instructions At what amount should each of the four desks appear in the company’s December 31, 2014, inventory, assuming that the company has adopted a lower-of-FIFO-cost-or-market approach for valuation of inventories on an individual-item basis?

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

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

What is clay, used in making ceramic products?

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?

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.