Question & Answer

Johnny Football Shop began operations on January 2, 2014. The following stock record card for footballs was taken from the records at the end of the year. Units Unit Invoice Gross Invoice Date Voucher Terms Received Cost Amount 1/15 10624 Net 30 50 $20 $1,000 3/15 11437 1/5, net 30 65 16 1,040 6/20 21332 1/10, net 30 90 15 1,350 9/12 27644 1/10, net 30 84 12 1,008 11/24 31269 1/10, net 30 76 11 836 Totals 365 $5,234 A physical inventory on December 31, 2014, reveals that 100 footballs were in stock. The bookkeeper informs you that all the discounts were taken. Assume that Johnny Football Shop uses the invoice price less discount for recording purchases. Instructions (a) Compute the December 31, 2014, inventory using the FIFO method. (b) Compute the 2014 cost of goods sold using the LIFO method. (c) What method would you recommend to the owner to minimize income taxes in 2014, using the inventory information for footballs as a guide?

Marathon Inc. (a C corporation) reported $1,000,000 of taxable income in the current year. During the year, it distributed $100,000 as dividends to its shareholders as follows: • $5,000 to Guy, a 5 percent individual shareholder. • $15,000 to Little Rock Corp., a 15 percent shareholder (C corporation).  • $80,000 to other shareholders. a. How much of the dividend payment did Marathon deduct in determining its taxable income? b. Assuming Guy’s marginal ordinary tax rate is 37 percent, how much tax will he pay on the $5,000 dividend he received from Marathon Inc. (including the net investment income tax)?  c. What amount of tax will Little Rock Corp. pay on the $15,000 dividend it received from Marathon Inc. (50 percent dividends-received deduction)? d. Complete Form 1120 Schedule C for Little Rock Corp. to reflect its dividends-received deduction (use the most recent Form 1120 Schedule C available). e. On what line on page 1 of Little Rock Corp.’s Form 1120 is the dividend from Marathon Inc. reported, and on what line of Little Rock Corp.’s Form 1120 is its dividends-received deduction reported?

Aggie Corporation made a distribution of $500,000 to Rusty Cedar in partial liquidation of the company on December 31 of this year.  Rusty, an individual, owns 100 percent of Aggie Corporation. The distribution was in exchange for 50 percent of Rusty’s stock in the company. At the time of the distribution, the shares had a fair market value of $200 per share. Rusty’s tax basis in the shares was $50 per share. Aggie had E&P of $8,000,000 at the time of the distribution.

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

ELS Corporation reported gross receipts for 2021-2023 for Scenarios A, B, and C as follows:

Accounting information provides useful information about business transactions and events. Those who provide and use financial reports must often select and evaluate accounting alternatives. The FASB statement on qualitative characteristics of accounting information examines the characteristics of accounting information that make it useful for decision-making. It also points out that various limitations inherent in the measurement and reporting process may necessitate trade-offs or sacrifices among the characteristics of useful information. Instructions (a) Describe briefly the following characteristics of useful accounting information. (1) Relevance. (4) Comparability. (2) Faithful representation. (5) Consistency. (3) Understandability. (b) For each of the following pairs of information characteristics, give an example of a situation in which one of the characteristics may be sacrificed in return for a gain in the other. (1) Relevance and faithful representation. (3) Comparability and consistency. (2) Relevance and consistency. (4) Relevance and understandability. (c) What criterion should be used to evaluate trade-offs between information characteristics?

Solve Problem 41.9 except that the following is known in addition to the information given: scheduled receipts of M5 are 250 units in period (week) 3 and 50 units in period (week) 4.

Assume a savings institution has a large amount of fixed-rate mortgages and obtains most of its funds from short-term deposits. How could it use options on financial futures to hedge its exposure to interest rate movements? Would futures or options on futures be more appropriate if the institution is concerned that interest rates will decline, causing a large number of mortgage prepayments? (LO4, LO6)

The foreman in the injection molding department says that a polyethylene part produced in one of the operations has greater shrinkage than the calculations indicate it should have. The important dimension of the part is specified as 112.5 ±0.25 mm. However, the actual molded part measures 112.02 mm. (a) As a first step, the corresponding mold cavity dimension should be checked. Compute the correct value of the mold dimension, given that the shrinkage value for polyethylene is 0.025 (from Table 13.1). (b) What adjustments in process parameters could be made to reduce the amount of shrinkage?

How does a confidence shock differ from the idea of confidence as an amplifier?

How is materiality (or immateriality) related to the proper presentation of financial statements? What factors and mea-sures should be considered in assessing the materiality of a misstatement in the presentation of a financial statement?

Assume that if the U.S. dollar strengthens, it can place downward pressure on U.S. inflation. Based on this information, how might expectations of a strong dollar affect the demand for loanable funds in the United States and U.S. interest rates? Is there any reason to think that expectations of a strong dollar could also affect the supply of loanable funds? Explain. (LO1, LO2)

A Wall Street Journal article discussed a $1.8 billion charge to income made by General Electric for postretirement benefit costs. It was attributed to previously unrecognized healthcare and life insurance cost. As financial vice president and controller for Peake, Inc., you found this article interesting because the president recently expressed interest in adopting a postemployment benefit program for Peake’s employees, to complement the company’s existing defined benefit plan. The president, Martha Beyerlein, wants to know  the expense on the new plan will be determined and what impact the accounting for the plan will have on Peake’s financial statements. Instructions (a) As financial vice president and controller of Peake, Inc., explain the calculation of postemployment benefit expense under GAAP, and indicate how the accounting for the plan will affect Peake’s financial statements. (b) Discuss the similarities and differences in the accounting for the other postemployment benefit plan relative to the accounting for the defined benefit plan.

Assume that inflation is expected to decline in the near future. How could this affect future bond prices? Would you recommend that financial institutions increase or decrease their concentration in long-term bonds based on this expectation? Explain. (LO2)

A vertical true centrifugal casting process is used to produce bushings that are 200 mm long and 200 mm in outside diameter. If the rotational speed during solidification is 500 rev/min, determine the inside diameter at the top of the bushing if the inside diameter at the bottom is 150 mm.

How are financial accountants challenged in their work tomake ethical decisions? Is technical mastery of GAAP not sufficient to the practice of financial accounting?

1.   Call the local environmental advocacy group and get the group to stage a protest of the company.

Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2014 information related to P. Bride Company ($000 omitted). Administrative expense Offi cers’ salaries $ 4,900 Depreciation of offi ce furniture and equipment 3,960 Cost of goods sold 60,570 Rent revenue 17,230 Selling expense Delivery expense 2,690 Sales commissions 7,980 Depreciation of sales equipment 6,480 Sales revenue 96,500 Income tax 9,070 Interest expense 1,860 Instructions (a) Prepare an income statement for the year 2014 using the multiple-step form. Common shares outstanding for 2014 total 40,550 (000 omitted). (b) Prepare an income statement for the year 2014 using the single-step form. (c) Which one do you prefer? Discuss.

What are some of the general considerations that product designers must keep in mind when designing components out of plastics?

The FASB requires a reconciliation between the effective tax rate and the federal government’s statutory rate. Of what benefit is such a disclosure requirement?

Dean supports Leicester City football club and has paid £80 for a ticket to watch them play in a cup final. The maximum amount he is willing to pay for the ticket is £200. Another Leicester City supporter offers him £400 for the ticket. Even though there are no restrictions on the resale of the tickets, Dean decides not to sell. Is his decision consistent with the predictions of rational decision making in standard economic theory? Explain your answer.

What is an industrial robot?

The extrusion die for a polyethylene parison used in blow molding has a mean diameter of 18.0 mm. The size of the ring opening in the die is 2.0 mm. The mean diameter of the parison is observed to swell to a size of 21.5 mm after exiting the die orifice. If the diameter of the blow molded container is to be 150 mm, determine (a) the corresponding wall thickness of the container and (b) the wall thickness of the parison.

A product is made to stock. Annual demand is 86,000 units. Each unit costs $9.50 and the annual holding cost rate is 22%. Setup cost to produce this product is $800. Determine (a) economic order quantity and (b) total inventory costs for this situation.

Explain what it means to say that a married couple filing a joint tax return has joint and several liability for the taxes associated with the return?