Question & Answer

Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%. Compute the issue price of the bonds.

Kraft Enterprises owns the following assets at December 31, 2014. Cash in bank—savings account 68,000 Checking account balance 17,000 Cash on hand 9,300 Postdated checks 750 Cash refund due from IRS 31,400 Certifi cates of deposit (180-day) 90,000 What amount should be reported as cash?

At December 31, 2014, Burr Corporation owes $500,000 on a note payable due February 15, 2015. (a) If Burr refinances the obligation by issuing a long-term note on February 14 and using the proceeds to pay off the note due February 15, how much of the $500,000 should be reported as a current liability at December 31, 2014? (b) If Burr pays off the note on February 15, 2015, and then borrows $1,000,000 on a long-term basis on March 1, how much of the $500,000 should be reported as a current liability at December 31, 2014, the end of the fiscal year?

The income statement of Vince Gill Company is shown below. VINCE GILL COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2014 Sales revenue $6,900,000 Cost of goods sold Beginning inventory $1,900,000 Purchases 4,400,000 Goods available for sale 6,300,000 Ending inventory 1,600,000 Cost of goods sold 4,700,000 Gross profi t 2,200,000 Operating expenses Selling expenses 450,000 Administrative expenses 700,000 1,150,000 Net income $1,050,000 Additional information: 1. Accounts receivable decreased $360,000 during the year. 2. Prepaid expenses increased $170,000 during the year. 3. Accounts payable to suppliers of merchandise decreased $275,000 during the year. 4. Accrued expenses payable decreased $100,000 during the year. 5. Administrative expenses include depreciation expense of $60,000. Instructions Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2014, for Vince Gill Company, using the indirect method.

What properties determine the quality of a sand mold for sand casting?

What are some of the reasons and defects that make rework an integral step in the PCB fabrication sequence?

Why are metals coated?

According to the video, what are four possible functions of the electrodes in resistance spot welding?

What differences are there between the trial balance before closing and the trial balance after closing with respect to the following accounts? (a) Accounts Payable. (b) Expense accounts. (c) Revenue accounts. (d) Retained Earnings account. (e) Cash.

This year Luke has calculated his gross tax liability at $1,800.  Luke is entitled to a $2,400 nonrefundable personal tax credit, a $1,500 business tax credit, and a $600 refundable personal tax credit.  In addition, Luke has had $2,300 of income taxes withheld from his salary.  What is Luke’s net tax due or refund?

What is a terpolymer?

In a laser beam welding process, what is the quantity of heat per unit time (J/sec) that is transferred to the material if the heat is concentrated in circle with a diameter of 0.2 mm? Assume the power density provided in Table 29.1.

At the balance sheet date, Clarkson Company held title to goods in transit amounting to $214,000. This amount was omitted from the purchases figure for the year and also from the ending inventory. What is the effect of this omission on the net income for the year as calculated when the books are closed? What is the effect on the company’s financial position as shown in its balance sheet? Is materiality a factor in determining whether an adjustment for this item should be made?

Suppose you asked your favorite AI learning tool “Do stock redemptions have an impact on a corporation's earnings and profits?” and the AI tool provided the following response:

a.       Elmer should include in gross income the $1,200 gross pay he received for the three days he was not required to work but still received compensation. b.       Amax employees should include the value of the furniture ($250) in gross income.

A press release announcing the appointment of the trustees of the new Financial Accounting Foundation stated that the Financial Accounting Standards Board (to be appointed by the trustees) “. . . will become the established authority for setting accounting principles under which corporations report to the shareholders and others” (AICPA news release July 20, 1972). Instructions (a) Identify the sponsoring organization of the FASB and the process by which the FASB arrives at a decision and issues an accounting standard. (b) Indicate the major types of pronouncements issued by the FASB and the purposes of each of these pronouncements.

Use the information for Rick Kleckner Corporation from BE21-3. Assume that at December 31, 2014, Kleckner made an adjusting entry to accrue interest expense of $29,530 on the lease. Prepare Kleckner’s January 1, 2015, journal entry to record the second lease payment of $53,920.

Assume that the yield curves in the United States, France, and Japan are flat. If the U.S. yield curve suddenly becomes positively sloped, do you think the yield curves in France and Japan would be affected? If so, how? (LO3)

Lady Gaga Co. recently made an investment in the bonds issued by Chili Peppers Inc. Lady Gaga’s business model for this investment is to profit from trading in response to changes in market interest rates. How should this investment be classified by Lady Gaga? Explain.

Using the facts in problem 41, if Scot and Vidia earn an additional $70,000 of taxable income, what is their marginal tax rate on this income?  How would your answer differ if they, instead, had $70,000 of additional deductions?

Sandra would like to organize LAB (a legal corporation) as either an S corporation or a C corporation for tax purposes. In either form, the entity is expected to generate an 8 percent annual before-tax return on a $500,000 investment. Sandra’s marginal income tax rate is 37 percent and her tax rate on qualified dividends and net capital gains is 20 percent. LAB’s income is not qualified business income (QBI) so Sandra is not allowed to claim the QBI deduction. Assume that LAB will distribute all of its earnings after entity-level taxes every year. Ignore the additional Medicare tax and the net investment income tax when computing your answers.   a. How much cash after taxes would Sandra receive from her investment in the first year if LAB is organized as either an S corporation or a C corporation?  b. What is the overall tax rate on LAB’s income in first year if LAB is organized as an S corporation or as a C corporation? c. At a high level, explain the differences between entity types in after-tax cash flow and overall tax rate on business income.

Explain (using intuition instead of math) why stock prices may decrease in response to a higher risk-free rate according to the CAPM. In some periods, the risk-free rate rises in response to higher economic growth. Explain (using intuition instead of math) why stock prices may increase in this situation even though the risk-free rate increases. (LO2)

Arantxa Corporation made the following cash purchases of securities during 2014, which is the first year in which Arantxa invested in securities. 1. On January 15, purchased 10,000 shares of Sanchez Company’s common stock at $33.50 per share plus commission $1,980. 2. On April 1, purchased 5,000 shares of Vicario Co.’s common stock at $52.00 per share plus commission $3,370. 3. On September 10, purchased 7,000 shares of WTA Co.’s preferred stock at $26.50 per share plus commission $4,910. On May 20, 2014, Arantxa sold 4,000 shares of Sanchez Company’s common stock at a market price of $35 per share less brokerage commissions, taxes, and fees of $3,850. The year-end fair values per share were Sanchez $30, Vicario $55, and WTA $28. In addition, the chief accountant of Arantxa told you that Arantxa Corporation plans to hold these securities for the long term but may sell them in order to earn profits from appreciation in prices. Instructions (a) Prepare the journal entries to record the above three security purchases. (b) Prepare the journal entry for the security sale on May 20. (c) Compute the unrealized gains or losses and prepare the adjusting entries for Arantxa on December 31, 2014.

In the movie Wall Street, Bud Fox is a broker who conducts trades for Gordon Gekko’s firm. Gekko purchases shares of firms that he believes are undervalued. Various scenes in the movie offer excellent examples of concepts discussed in this chapter. (LO3, LO4, LO6) a. Bud Fox comments to Gordon Gekko that a firm’s breakup value is twice its market price. What is Bud suggesting in this statement? How would employees of the firm respond to Bud’s statement? b. When Bud informs Gekko that another investor, Mr. Wildman, is secretly planning to acquire a target firm in Pennsylvania, Gekko tells Bud to buy a large amount of this stock. Why? c. Gekko says “Wonder why fund managers can’t beat the S&P 500? Because they are sheep.” What is Gekko’s point? How does it relate to market efficiency?

Zach Taylor is settling a $20,000 loan due today by making 6 equal annual payments of $4,727.53. Determine the interest rate on this loan, if the payments begin one year after the loan is signed.