Question & Answer

Indicate how the following items are recorded in the accounting records in the current year of Coronet Co. (a) Impairment of goodwill. (b) A change in depreciating plant assets from accelerated to the straight-line method. (c) Large write-off of inventories because of obsolescence. (d) Change from the cash basis to accrual basis of accounting. (e) Change from LIFO to FIFO method for inventory valuation purposes.

Rasheed Wallace Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. The corporation’s books disclosed the following. Beginning inventory $170,000 Sales revenue $650,000 Purchases for the year 390,000 Sales returns 24,000 Purchase returns 30,000 Rate of gross profi t on net sales 40% Merchandise with a selling price of $21,000 remained undamaged after the fire. Damaged merchandise with an original selling price of $15,000 had a net realizable value of $5,300. Instructions Compute the amount of the loss as a result of the fire, assuming that the corporation had no insurance coverage.

Jon Seceda Furnace Corp. purchased machinery for $315,000 on May 1, 2014. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2015, Seceda Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units. Instructions From the information given, compute the depreciation charge for 2015 under each of the following methods. (Round to the nearest dollar.) (a) Straight-line. (d) Sum-of-the-years’-digits. (b) Units-of-output. (e) Declining-balance (use 20% as the annual rate). (c) Working hours.

When a corporation has NOL carryovers arising in different years, can it choose which NOL carryover to deduct first in a given year? Explain.

Leontyne Price Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2013, the company expends $325,000 on a research project, but by the end of 2013 it is impossible to determine whether any benefit will be derived from it. Instructions (a) What account should be charged for the $325,000, and how should it be shown in the financial statements? (b) The project is completed in 2014, and a successful patent is obtained. The R&D costs to complete the project are $110,000. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2014 total $16,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2014. (c) In 2015, the company successfully defends the patent in extended litigation at a cost of $47,200, thereby extending the patent life to December 31, 2022. What is the proper way to account for this cost?Also, record patent amortization (full year) in 2015. (d) Additional engineering and consulting costs incurred in 2015 required to advance the design of a product to the manufacturing stage total $60,000. These costs enhance the design of the product considerably. Discuss the proper accounting treatment for this cost.

What are the main goals of the Federal Open Market Committee? How does it attempt to achieve these goals? (LO1)

Do any groups of people gain from inflation?

In recent years there have been a number of changes in planning laws to make it easier for commercial properties to be converted to housing. What would be the impact on property values?

Kevan, Jerry, and Dave formed Albee LLC. Jerry and Dave each contributed $245,000 in cash. Kevan contributed the following assets:  Kevan: Basis Fair Market Value Cash $ 15,000 $ 15,000 Land* 120,000 440,000 Totals $ 135,000 $ 455,000

Jake is a retired jockey who takes monthly trips to Las Vegas to gamble on horse races. So far this year, Jake has won almost $47,500 during his trips to Las Vegas while spending $27,250 on travel expenses and incurring $62,400 of gambling losses. Explain how Jake’s gambling winnings and related costs will be treated for tax purposes.

Distinguish between roll bending and roll forming.

Use the information for Kemper Company from BE9-5. In 2015, Kemper paid $1,000,000 to obtain the raw materials which were worth $950,000. Prepare the entry to record the purchase.

Organic Growth Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right of return to these products if not fully satisfied. The right of return extends for 4 months. Organic Growth sells these seeds on account for $1,500,000 on January 2, 2014. Companies are required to pay the full amount due by March 15, 2014. Instructions (a) Prepare the journal entry for Organic Growth at January 2, 2014, assuming Organic Growth estimates returns of 20% based on prior experience. (Ignore cost of goods sold.) (b) Assume that one customer returns the seeds on March 1, 2014, due to unsatisfactory performance. Prepare the journal entry to record this transaction, assuming this customer purchased $100,000 of seeds from Organic Growth. (c) Briefly describe the accounting for these sales, if Organic Growth is unable to reliably estimate returns.

Using the facts from the previous problem, how would your answer change if Isabel’s after-tax rate of return were 8 percent?

Imagine that a country can produce just two things: goods and services. Assume that over a given period it could produce any of the following combinations:                   Units of goods 0 10 20 30 40 50 60 70 80 90 100 Units of services 80 79 77 74 70 65 58 48 35 19 0  (a)         Draw the country’s production possibility curve. (b)         Assuming that the country is currently producing 40 units of goods and 70 units of services, what is the opportunity cost of producing another 10 units of goods?  (c)         Explain how the figures illustrate the principle of increasing opportunity cost. (d)         Now assume that technical progress leads to a 10 per cent increase in the output of goods for any given amount of resources. Draw the new production possibility curve. How has the opportunity cost of producing extra units of services altered?

In 2014, Elbert Corporation had net cash provided by operating activities of $531,000; net cash used by investing activities of $963,000; and net cash provided by financing activities of $585,000. At January 1, 2014, the cash balance was $333,000. Compute December 31, 2014, cash

Under this system how would you expect countries to respond to a balance of payments surplus? Would a revaluation benefit such countries?

Draw a utility/value function that illustrates the concepts of reference dependent preferences, loss aversion and diminishing marginal sensitivity to gains/losses.

How many times is income from a C corporation taxed if a retirement fund is the owner of the corporation’s stock? Explain.

What is an actuator in an automated system?

Gheorghe Moresan Lumber Company handles three principal lines of merchandise with these varying rates of gross profit on cost. Lumber 25% Millwork 30% Hardware and fi ttings 40% On August 18, a fire destroyed the office, lumber shed, and a considerable portion of the lumber stacked in the yard. To file a report of loss for insurance purposes, the company must know what the inventories were immediately preceding the fire. No detail or perpetual inventory records of any kind were maintained. The only pertinent information you are able to obtain are the following facts from the general ledger, which was kept in a fireproof vault and thus escaped destruction. Lumber Millwork Hardware Inventory, Jan. 1, 2014 $ 250,000 $ 90,000 $ 45,000 Purchases to Aug. 18, 2014 1,500,000 375,000 160,000 Sales revenue to Aug. 18, 2014 2,080,000 533,000 210,000 Instructions Submit your estimate of the inventory amounts immediately preceding the fire.

Peter Henning Tool Company’s December 31 year-end financial statements contained the following errors. December 31, 2014 December 31, 2015 Ending inventory $9,600 understated $8,100 overstated Depreciation expense $2,300 understated — An insurance premium of $66,000 was prepaid in 2014 covering the years 2014, 2015, and 2016. The entire amount was charged to expense in 2014. In addition, on December 31, 2015, fully depreciated machinery was sold for $15,000 cash, but the entry was not recorded until 2016. There were no other errors during 2014 or 2015, and no corrections have been made for any of the errors. (Ignore income tax considerations.) Instructions (a) Compute the total effect of the errors on 2015 net income. (b) Compute the total effect of the errors on the amount of Henning’s working capital at December 31, 2015. (c) Compute the total effect of the errors on the balance of Henning’s retained earnings at December 31, 2015.

Lucy and Ricky Ricardo live in Los Angeles, California.  After they were married, they started a business named ILL Corporation (a C corporation).  For state law purposes, the shares of stock in ILL Corp. are listed under Ricky’s name only.  Ricky signed the Form 2553 electing to have ILL taxed as an S corporation for federal income tax purposes, but Lucy did not sign.  Given that California is a community property state, is the S election for ILL Corp. valid?

Explain how the financial sector could amplify the effects of shocks to the economy, such as those from the COVID-19 pandemic.

The asset-liability approach for recording deferred income taxes is an integral part of generally accepted accounting principles. Instructions (a) Indicate whether each of the following independent situations should be treated as a temporary difference or as a permanent difference, and explain why. (1) Estimated warranty costs (covering a 3-year warranty) are expensed for financial reporting purposes at the time of sale but deducted for income tax purposes when paid. (2) Depreciation for book and income tax purposes differs because of different bases of carrying the related property, which was acquired in a trade-in. The different bases are a result of different rules used for book and tax purposes to compute the basis of property acquired in a trade-in. (3) A company properly uses the equity method to account for its 30% investment in another company. The investee pays dividends that are about 10% of its annual earnings. (4) A company reports a gain on an involuntary conversion of a nonmonetary asset to a monetary asset. The company elects to replace the property within the statutory period using the total proceeds so the gain is not reported on the current year’s tax return. (b) Discuss the nature of the deferred income tax accounts and possible classifications in a company’s balance sheet. Indicate the manner in which these accounts are to be reported.