Question & Answer

Why is austenitic stainless steel called by that name?

Hendricks Corporation purchased trading investment bonds for $50,000 at par. At December 31, Hendricks received annual interest of $2,000, and the fair value of the bonds was $47,400. Prepare Hendricks’ journal entries for (a) the purchase of the investment, (b) the interest received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.)

Assume the bonds in IFRS14-3 were issued for $644,636 and the effective-interest rate is 6%. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. (Round to the nearest dollar.)

The Z-score bankruptcy prediction model uses balance sheet and income information to arrive at a Z Score, which can be used to predict financial distress: Z 5 Working capital Total assets 3 1.2 1 Retained earnings Total assets 3 1.4 1 EBIT Total assets 3 3.3 1 Sales Total assets 3 .99 1 MV equity Total liabilities 3 0.6 EBIT is earnings before interest and taxes. MV equity is the market value of common equity, which can be determined by multiplying stock price by shares outstanding. Following extensive testing, it has been shown that companies with Z-scores above 3.0 are unlikely to fail; those with Z-scores below 1.81 are very likely to fail. While the original model was developed for publicly held manufacturing companies, the model has been modified to apply to companies in various industries, emerging companies, and companies not traded in public markets. Instructions (a) Use information in the financial statements of a company like Walgreens or Deere & Co. to compute the Z-score for the past 2 years. (b) Interpret your result. Where does the company fall in the financial distress range? (c) The Z-score uses EBIT as one of its elements. Why do you think this income measure is used?

Why do you consider that taxation authorities require an international             transfer price to be set based on an arm’s length transaction?

Estimate the real interest rate over the last year. If financial market participants overestimate inflation in a particular period, will real interest rates be relatively high or low? Explain. (LO2)

Crosley Corp. sold an investment on an installment basis. The total gain of $60,000 was reported for financial reporting purposes in the period of sale. The company qualifies to use the installment-sales method for tax purposes. The installment period is 3 years; one-third of the sale price is collected in the period of sale. The tax rate was 40% in 2014, and 35% in 2015 and 2016. The 35% tax rate was not enacted in law until 2015. The accounting and tax data for the 3 years is shown below. 2015 2016 2017 2018 2019 Taxable amounts $300 $300 $300 $ 300 $300 Deductible amount — — — (1,600) — 2015 2016 2017 2018 Taxable amounts $300 $300 $ 300 $300 Deductible amount — — (2,300) — Financial Tax Accounting Return 2014 (40% tax rate) Income before temporary difference $ 70,000 $70,000 Temporary difference 60,000 20,000 Income $130,000 $90,000 2015 (35% tax rate) Income before temporary difference $ 70,000 $70,000 Temporary difference –0– 20,000 Income $ 70,000 $90,000 2016 (35% tax rate) Income before temporary difference $ 70,000 $70,000 Temporary difference –0– 20,000 Income $ 70,000 $90,000 Instructions (a) Prepare the journal entries to record the income tax expense, deferred income taxes, and the income taxes payable at the end of each year. No deferred income taxes existed at the beginning of 2014. (b) Explain how the deferred taxes will appear on the balance sheet at the end of each year. (Assume Installment Accounts Receivable is classified as a current asset.) (c) Draft the income tax expense section of the income statement for each year, beginning with “Income before income taxes.”

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

Assume that the expected inflation rate has just been revised upward by the market. Would that change affect the return required by investors who invest in the stocks? Explain. (LO3)

Briefly describe the convergence efforts related to financial statement presentation.

The differences between the book basis and tax basis of the assets and liabilities of Castle Corporation at the end of 2013 are presented below. Book Basis Tax Basis Accounts receivable $50,000 $–0– Litigation liability 30,000 –0– It is estimated that the litigation liability will be settled in 2014. The difference in accounts receivable will result in taxable amounts of $30,000 in 2014 and $20,000 in 2015. The company has taxable income of $350,000 in 2013 and is expected to have taxable income in each of the following 2 years. Its enacted tax rate is 34% for all years. This is the company’s first year of operations. The operating cycle of the business is 2 years. Instructions (a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2013. (b) Indicate how deferred income taxes will be reported on the balance sheet at the end of 2013.

1.    : How has Ken Byers shaped the sales culture at Hull Engineering? Do you consider this culture to be at a preconventional, conventional, or postconventional level of ethical development? Why?

Jim recently joined the Austin Barter Club, an organization that facilitates the exchange of services between its members. This year Jim provided lawn-mowing services to other club members. Jim received the following from the barter club. Determine the amount, if any, Jim should include in his gross income in each of the following situations:

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.

Why is it difficult to predict the size of the accelerator?

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).

Ferreri Company received the following selected information from its pension plan trustee concerning the operation of the company’s defined benefit pension plan for the year ended December 31, 2014. January 1, December 31, 2014 2014 Projected benefi t obligation $1,500,000 $1,527,000 Market-related and fair value of plan assets 800,000 1,130,000 Accumulated benefi t obligation 1,600,000 1,720,000 Accumulated OCI (G/L)—Net gain –0– (200,000) The service cost component of pension expense for employee services rendered in the current year amounted to $77,000 and the amortization of prior service cost was $120,000. The company’s actual funding (contributions) of the plan in 2014 amounted to $250,000. The expected return on plan assets and the actual rate were both 10%; the interest/discount (settlement) rate was 10%. Accumulated other comprehensive income (PSC) had a balance of $1,200,000 on January 1, 2014. Assume no benefits paid in 2014. Instructions (a) Determine the amounts of the components of pension expense that should be recognized by the company in 2014. (b) Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2014. (c) Indicate the pension-related amounts that would be reported on the income statement and the balance sheet for Ferreri Company for the year 2014.

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?

Twelve cars were inspected after final assembly. The number of defects found ranged between 87 and 139 defect per car with an average of 116. Determine the center and upper and lower control limits for the c chart that might be used in this situation.

Jamareo has found a “favorable” authority directly on point for his tax question.  If the authority is an administrative authority, which specific type of authority would he prefer to answer his question?  Which administrative authority would he least prefer to answer his question?

What is the danger of issuing too much stock? What is the role of the securities firm that serves as the underwriter, and how can it ensure that the firm does not issue too much stock? (LO2, LO4)

Pacific Crossburgers Inc. charges an initial franchise fee of $70,000. Upon the signing of the agreement, a payment of $28,000 is due. Thereafter, three annual payments of $14,000 are required. The credit rating of the franchisee is such that it would have to pay interest at 10% to borrow money. Instructions Prepare the entries to record the initial franchise fee on the books of the franchisor under the following assumptions. (Round to the nearest dollar.) (a) The down payment is not refundable, no future services are required by the franchisor, and collection of the note is reasonably assured. (b) The franchisor has substantial services to perform, the down payment is refundable, and the collection of the note is very uncertain. (c) The down payment is not refundable, collection of the note is reasonably certain, the franchisor has yet to perform a substantial amount of services, and the down payment represents a fair measure of the services already performed.

The following facts apply to the pension plan of Boudreau Inc. for the year 2014. Plan assets, January 1, 2014 $490,000 Projected benefi t obligation, January 1, 2014 490,000 Settlement rate 8% Service cost 40,000 Contributions (funding) 25,000 Actual and expected return on plan assets 49,700 Benefi ts paid to retirees 33,400 Instructions  Using the preceding data, compute pension expense for the year 2014. As part of your solution, prepare a pension worksheet that shows the journal entry for pension expense for 2014 and the year-end balances in the related pension accounts.

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.

Draw a diagram similar to Figure 21.11 and illustrate the effect of a positive demand shock, showing how the effect differs according to whether a simple inflation rule is followed or a Taylor rule. Again assume that the weight attached to controlling inflation is the same with the simple rule and the Taylor rule.