Question & Answer

Explain how you would decide whether to record each of the following expenditures as an asset or an expense. Assume all items are material. (a) Legal fees paid in connection with the purchase of land are $1,500. (b) Eduardo, Inc. paves the driveway leading to the office building at a cost of $21,000. (c) A meat market purchases a meat-grinding machine at a cost of $3,500. (d) On June 30, Monroe and Meno, medical doctors, pay 6 months’ office rent to cover the month of July and the next 5 months. (e) Smith’s Hardware Company pays $9,000 in wages to laborers for construction on a building to be used in the business. (f) Alvarez’s Florists pays wages of $2,100 for the month an employee who serves as driver of their delivery truck.

Hannah Tywin owns 100 shares of MM Inc. stock. She sells the stock on December 11 for $25 per share. She received the stock as a gift from her Aunt Pam on March 20 of this year when the fair market value of the stock was $18 per share. Aunt Pam originally purchased the stock seven years ago at a price of $12 per share. What are the amount and character of Hannah’s recognized gain or loss on the stock?

What is the purpose of a cash flow hedge?

Assume a calendar-year corporation has positive current E&P of $120 and a deficit in accumulated E&P of ($200). Under this circumstance, a cash distribution of $100 to the corporation’s sole shareholder at year-end will not be treated as a dividend because total E&P is negative. True or false? Explain.

What is an operating segment, and when can information about two operating segments be aggregated?

An extruder has diameter = 80 mm and length = 2.0 m. Its screw has a channel depth = 5 mm, flight angle = 18 degrees, and it rotates at 1 rev/sec. The plastic melt has a shear viscosity = 150 Pa-s. Determine the extruder characteristic by computing Qmax and pmax and then finding the equation of the straight line between them.

Supply tends to be more elastic in the long run than in the short run. Assume that a tax is imposed on a good that was previously untaxed. How will the incidence of this tax change as time passes? How will the incidence be affected if demand too becomes more elastic over time?

After securing lease commitments from several major stores, Auer Shopping Center, Inc. was organized and built a shopping center in a growing suburb. The shopping center would have opened on schedule on January 1, 2014, if it had not been struck by a severe tornado in December. Instead, it opened for business on October 1, 2014. All of the additional construction costs that were incurred as a result of the tornado were covered by insurance. In July 2013, in anticipation of the scheduled January opening, a permanent staff had been hired to promote the shopping center, obtain tenants for the uncommitted space, and manage the property. A summary of some of the costs incurred in 2013 and the first nine months of 2014 follows. January 1, 2014 through 2013 September 30, 2014 Interest on mortgage bonds $720,000 $540,000 Cost of obtaining tenants 300,000 360,000 Promotional advertising 540,000 557,000 The promotional advertising campaign was designed to familiarize shoppers with the center. Had it been known in time that the center would not open until October 2014, the 2013 expenditure for promotional advertising would not have been made. The advertising had to be repeated in 2014. All of the tenants who had leased space in the shopping center at the time of the tornado accepted the October occupancy date on condition that the monthly rental charges for the first 9 months of 2014 be canceled. Instructions Explain how each of the costs for 2013 and the first 9 months of 2014 should be treated in the accounts of the shopping center corporation. Give the reasons for each treatment.

Identify which basic principle of accounting is best described in each item below. (a) Norfolk Southern Corporation reports revenue in its income statement when the performance obligation is satisfied instead of when the cash is collected. (b) Yahoo! recognizes depreciation expense for a machine over the 2-year period during which that machine helps the company earn revenue. (c) Oracle Corporation reports information about pending lawsuits in the notes to its financial statements. (d) Eastman Kodak Company reports land on its balance sheet at the amount paid to acquire it, even though the estimated fair value is greater.

Five jobs are waiting to be scheduled on a machine. For order A, the remaining process time = 5 days, and the due date is day 8. For order B, the remaining process time = 7 days, and the due date is day 16. For order C, the remaining process time = 11 days, and the due date is day 22. For order D, the remaining process time = 9 days, and the due date is day 31. For order E, the remaining process time = 10 days, and the due date is day 26. Determine a production schedulebased on (a) shortest processing time, (b) earliest due date, (c) critical ratio, and (d) least slack time. All times are listed in days.

Rodriguez Corporation includes the following items in its liabilities at December 31, 2014. 1. Notes payable, $25,000,000, due June 30, 2015. 2. Deposits from customers on equipment ordered by them from Rodriguez, $6,250,000. 3. Salaries and wages payable, $3,750,000, due January 14, 2015. Instructions Indicate in what circumstances, if any, each of the three liabilities above would be excluded from current liabilities.

Explain how cash-basis accounting for pension plans differs from accrual-basis accounting for pension plans. Why is cash-basis accounting generally considered unacceptable for pension plan accounting?

Differentiate between an originating temporary difference and a reversing difference.

A hot upset forging operation is performed in an open die. The initial size of the workpart is: Do = 25 mm, and ho = 50 mm. The part is upset to a diameter = 50 mm. The work metal at this elevated temperature yields at 85 MPa (n = 0). Coefficient of friction at the die-work interface = 0.40. Determine (a) final height of the part, and (b) maximum force in the operation.

At January 1, 2014, Hennein Company had plan assets of $280,000 and a projected benefit obligation of the same amount. During 2014, service cost was $27,500, the settlement rate was 10%, actual and expected return on plan assets were $25,000, contributions were $20,000, and benefits paid were $17,500. Prepare a pension worksheet for Hennein Company for 2014.

Explain each of the following terms: authorized ordinary shares, unissued ordinary shares, issued ordinary shares, outstanding ordinary shares, and treasury shares

What are closing entries and why are they necessary?

How does austenite differ from ferrite?

The federal income tax scores very high on the economy criterion because the current IRS budget is relatively low compared to the costs of a typical collection agency.”  Explain why this statement may be considered wrong.

Explain how purchasers of financial futures contracts can offset their position. How is their gain or loss determined? What is the maximum loss to a purchaser of a futures contract? (LO1)

Tomba Corporation had 300,000 shares of common stock outstanding on January 1, 2014. On May 1, Tomba issued 30,000 shares. (a) Compute the weighted-average number of shares outstanding if the 30,000 shares were issued for cash. (b) Compute the weighted-average number of shares outstanding if the 30,000 shares were issued in a stock dividend.

What is a private pension plan? How does a contributory pension plan differ from a noncontributory plan?

Ragatz, Inc., a drug company, reported the following information. The company prepares its financial statements in accordance with GAAP. 2014 (,000) Current liabilities $ 554,114 Convertible subordinated debt 648,020 Total liabilities 1,228,313 Stockholders’ equity 176,413 Net income 58,333 Analysts attempting to compare Ragatz to drug companies that issue debt with detachable warrants may face a challenge due to differences in accounting for convertible debt. Instructions (a) Compute the following ratios for Ragatz, Inc. (Assume that year-end balances approximate annual averages.) (1) Return on assets. (2) Return on common stock equity. (3) Debt to assets ratio. (b) Briefly discuss the operating performance and financial position of Ragatz. Industry averages for these ratios in 2014 were ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis, would you make an investment in the company’s 5% convertible bonds? Explain. (c) Assume you want to compare Ragatz to an IFRS company like Merck (which issues nonconvertible debt with detachable warrants). Assuming that the fair value of the equity component of Ragatz’s convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Ragatz and Merck?

At December 31, 2014, Redmond Company has outstanding three long-term debt issues. The first is a $2,000,000 note payable which matures June 30, 2017. The second is a$6,000,000 bond issue which matures September 30, 2018. The third is a $12,500,000 sinking fund debenture with annual sinking fund payments of $2,500,000 in each of the years 2016 through 2020. Instructions Prepare the required note disclosure for the long-term debt at December 31, 2014.

At December 31, 2014, Fell Corporation had a deferred tax liability of $680,000, resulting from future taxable amounts of $2,000,000 and an enacted tax rate of 34%. In May 2015, a new income tax act is signed into law that raises the tax rate to 40% for 2015 and future years. Prepare the journal entry for Fell to adjust the deferred tax liability.