Question & Answer

: Explain social entrepreneurship as a vital part of today’s small-business environment.

Tiffany and Carlos decided to liquidate their jointly owned corporation, Royal Oak Furniture (ROF).  After liquidating its remaining inventory and paying off its remaining liabilities, ROF had the following tax accounting balance sheet.     FMV         Tax BasisAppreciation (Depreciation) Cash$  200,000$     200,000 Building      50,000         10,000       40,000 Land    150,000       200,000      (50,000) Total$  400,000$     410,000$    (10,000)

For 2012, Campbell Soup Company had pension expense of $73 million and contributed $71 million to the pension fund. Prepare Campbell Soup Company’s journal entry to record pension expense and funding.

Shetland Inc. had pretax financial income of $154,000 in 2014. Included in the computation of that amount is insurance expense of $4,000 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $10,000. Prepare Shetland’s journal entry to record 2014 taxes, assuming a tax rate of 45%.

To what extent do you consider the following items to be proper costs of the fixed asset? Give reasons for your opinions. (a) Overhead of a business that builds its own equipment. (b) Cash discounts on purchases of equipment. (c) Interest paid during construction of a building. (d) Cost of a safety device installed on a machine. (e) Freight on equipment returned before installation, for replacement by other equipment of greater capacity. (f) Cost of moving machinery to a new location. (g) Cost of plywood partitions erected as part of the remodeling of the office. (h) Replastering of a section of the building. (i) Cost of a new motor for one of the trucks.

What is the basic accounting problem created by the monetary unit assumption when there is significant inflation? What appears to be the FASB position on a stable monetary unit?

Carlos has located a regulation that appears to answer his tax research question.  He is concerned because the regulation is a temporary regulation.  Evaluate the authoritative weight of this type of regulation.  Should he feel more or less confident in his answer if the regulation is a proposed regulation?

Manilow Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Manilow’s Accounts Receivable account was $555,000 and Allowance for Doubtful Accounts had a credit balance of $40,000. The year-end balance reported in the balance sheet for Allowance for Doubtful Accounts will be based on the aging schedule shown below. Probability of Days Account Outstanding Amount Collection Less than 16 days $300,000 .98 Between 16 and 30 days 100,000 .90 Between 31 and 45 days 80,000 .85 Between 46 and 60 days 40,000 .80 Between 61 and 75 days 20,000 .55 Over 75 days 15,000 .00 Instructions (a) What is the appropriate balance for Allowance for Doubtful Accounts at year-end? (b) Show how accounts receivable would be presented on the balance sheet. (c) What is the dollar effect of the year-end bad debt adjustment on the before-tax income?

1. If there was a growth in the total number of worker hours because people worked longer hours, what would happen to GDP per hour worked and GDP per capita? 2. If people worked longer hours how would you assess whether the country was better or worse off?

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?

Gottschalk Company sponsors a defined benefit plan for its 100 employees. On January 1, 2014, the company’s actuary provided the following information. Accumulated other comprehensive loss (PSC) $150,000 Pension plan assets (fair value and market-related asset value) 200,000 Accumulated benefi t obligation 260,000 Projected benefi t obligation 380,000 The average remaining service period for the participating employees is 10 years. All employees are expected to receive benefits under the plan. On December 31, 2014, the actuary calculated that the present value of future benefits earned for employee services rendered in the current year amounted to $52,000; the projected benefit obligation was $490,000; fair value of pension assets was $276,000; the accumulated benefit obligation amounted to $365,000. The expected return on plan assets and the discount rate on the projected benefit obligation were both 10%. The actual return on plan assets is $11,000. The company’s current year’s contribution to the pension plan amounted to $65,000. No benefits were paid during the year. Instructions (a) Determine the components of pension expense that the company would recognize in 2014. (With only one year involved, you need not prepare a worksheet.) (b) Prepare the journal entry to record the pension expense and the company’s funding of the pension plan in 2014. (c) Compute the amount of the 2014 increase/decrease in gains or losses and the amount to be amortized in 2014 and 2015. (d) Indicate the pension amounts reported in the financial statement as of December 31, 2014.

Suppose you asked your favorite AI query tool the following question: “Are property taxes that refunded included in gross income for federal income tax purposes?”  The AI tool provided the following response:

Cardinal Paz Corp. carries an account in its general ledger called Investments, which contained debits for investment purchases, and no credits, with the following descriptions. Feb. 1, 2014 Sharapova Company common stock, $100 par, 200 shares $ 37,400 April 1 U.S. government bonds, 11%, due April 1, 2024, interest payable April 1 and October 1, 110 bonds of $1,000 par each 110,000 July 1 McGrath Company 12% bonds, par $50,000, dated March 1, 2014, purchased at 104 plus accrued interest, interest payable annually on March 1, due March 1, 2034 54,000 Instructions (Round all computations to the nearest dollar.) (a) Prepare entries necessary to classify the amounts into proper accounts, assuming that all the securities are classified as available-for-sale. (b) Prepare the entry to record the accrued interest and the amortization of premium on December 31, 2014, using the straight-line method. (c) The fair values of the investments on December 31, 2014, were: Sharapova Company common stock $ 31,800 U.S. government bonds 124,700 McGrath Company bonds 58,600 What entry or entries, if any, would you recommend be made? (d) The U.S. government bonds were sold on July 1, 2015, for $119,200 plus accrued interest. Give the proper entry.

How are asymmetric shocks dealt with within a country? To what extent can this process be mirrored within the eurozone?

A high-speed steel tool is used to turn a steel workpart that is 300 mm long and 80 mm in diameter. The parameters in the Taylor equation are: n = 0.13 and C = 75 (m/min) for a feed of 0.4 mm/rev. The operator and machine tool rate = $30.00/hr, and the tooling cost per cutting edge = $4.00. It takes 2.0 min to load and unload the workpart and 3.50 min to change tools. Determine (a) cutting speed for maximum production rate, (b) tool life in min of cutting, and (c) cycle time and cost per unit of product.

provides products and services to oil and natural gas exploration, production, transmission, and processing companies. The following is taken from a recent income statement. (Dollaramounts are in millions.) Sales revenue $2,697.0 Service revenue 1,933.9 Share of earnings of unconsolidated affi liates 92.4 Total revenues 4,723.3 Cost of sales 1,722.7 Cost of services 1,799.9 Total costs of sales and services 3,522.6 Gross earnings $1,200.7 Selling, engineering, administrative and general expenses (919.8) Special charges (70.0) Other income (deductions) Interest expense (47.4) Interest earned 19.1 Other, net 4.8 Earnings before income taxes and other items below 187.4 Income taxes (79.4) Noncontrolling interest (10.3) Earnings from continuing operations 97.7 Discontinued operations (35.3) Earnings before extraordinary items 62.4 Extraordinary items (6.3) Net earnings $ 56.1 Instructions Assume that 177,636,000 shares of stock were issued and outstanding. Prepare the per share portion of the income statement. Remember to begin with “Earnings from continuing operations.”

A face milling operation is to be performed on a cast iron part to finish the surface to 36 µ-in. The cutter uses four inserts and its diameter is 3.0 in. The cutter rotates at 475 rev/min. To obtain the best possible finish, a type of carbide insert with 4/64 in nose radius is to be used. Determine the required feed rate (in/min) that will achieve the 36 µ-in finish.

A 12-in wafer is processed over a circular area of diameter = 11.75 in. The density of point defects in the surface area is 0.018 defects/in2. The chips to be fabricated are square with an area of 0.16 in2 each. Determine an estimate of the number of good chips using the Bose-Einstein yield computation.

As part of the year-end accounting process for your company, you are preparing the statement of cash flows according to IFRS. One of your team, a finance major, believes the statement should be prepared to report the change in working capital because analysts many times use working capital in ratio analysis. Your supervisor would like research conducted to verify the basis for preparing the statement of cash flows. Instructions Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.) (a) What is the primary objective for the statement of cash flows? Is working capital the basis for meetingthis objective? (b) What information is provided in a statement of cash flows? (c) List some of the typical cash inflows and outflows from operations.

What are the two main categories of printed circuit board assemblies, as distinguished by the method of attaching components to the board?

Explain why an employee should be concerned about whether his employer reimburses business expenses using an “accountable” plan?

Garison Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Garison uses two sales promotion techniques—warranties and premiums—to attract customers. Musical instruments and sound equipment are sold with a one-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 2% of sales. The premium is offered on the recorded and sheet music. Customers receive a coupon for each dollar spent on recorded music or sheet music. Customers may exchange 200 coupons and $20 for a digital MP3 player. Garison pays $32 for each player and estimates that 60% of the coupons given to customers will be redeemed. Garison’s total sales for 2014 were $7,200,000—$5,700,000 from musical instruments and sound reproduction equipment and $1,500,000 from recorded music and sheet music. Replacement parts and labor for warranty work totaled $164,000 during 2014. A total of 6,500 players used in the premium program were purchased during the year and there were 1,200,000 coupons redeemed in 2014. The accrual method is used by Garison to account for the warranty and premium costs for financial reporting purposes. The balances in the accounts related to warranties and premiums on January 1, 2014, were as shown below. Inventory of Premiums $ 37,600 Premium Liability 44,800 Warranty Liability 136,000 Instructions Garison Music Emporium is preparing its financial statements for the year ended December 31, 2014. Determine the amounts that will be shown on the 2014 financial statements for the following. (a) Warranty Expense. (d) Inventory of Premiums. (b) Warranty Liability. (e) Premium Liability. (c) Premium Expense.

Have unemployment rates generally risen or fallen over the decades or is there no discernible pattern? Does the answer vary by country?

Some accountants have said that politicization in the development and acceptance of generally accepted accounting principles (i.e., rule-making) is taking place. Some use the term “politicization” in a narrow sense to mean the influence by governmental agencies, particularly the Securities and Exchange Commission, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromise that results when the bodies responsible for developing generally accepted accounting principles are pressured by interest groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Management Accountants, financial analysts, bankers, lawyers, and so on). Instructions (a) The Committee on Accounting Procedure of the AICPA was established in the mid- to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the first two indicate an increasing politicization (as the term is used in the broad sense) of accounting standard-setting? Explain your answer by indicating how the CAP, the APB, and the FASB operated or operate. Cite specific developments that tend to support your answer. (b) What arguments can be raised to support the “politicization” of accounting rule-making? (c) What arguments can be raised against the “politicization” of accounting rule-making?

Monat Construction Company, Inc., entered into a firm fixed-price contract with Hyatt Clinic on July 1, 2014, to construct a four-story office building. At that time, Monat estimated that it would take between 2 and 3 years to complete the project. The total contract price for construction of the building is $4,400,000. Monat appropriately accounts for this contract under the completedcontract method in its financial statements and for income tax reporting. The building was deemed substantially completed on December 31, 2016. Estimated percentage of completion, accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to the Hyatt Clinic under the contract are shown below. At At At December December December 31, 2014 31, 2015 31, 2016 Percentage of completion 30% 70% 100% Contract costs incurred $1,140,000 $3,290,000 $4,800,000 Estimated costs to complete the contract $2,660,000 $1,410,000 –0– Billings to Hyatt Clinic $1,400,000 $2,500,000 $4,300,000 Instructions (a) Prepare schedules to compute the amount to be shown as “Cost in excess of billings” or “Billings in excess of costs” at December 31, 2014, 2015, and 2016. (Ignore income taxes.) Show supporting computations in good form. (b) Prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2014, 2015, and 2016. (Ignore income taxes.) Show supporting computations in good form.