Question & Answer

What is the full disclosure principle in accounting? Why has disclosure increased substantially in the last 10 years?

What are hybrid securities? Give an example of a hybrid security.

Discuss at least two items that are important to the value of companies like Intel or IBM but that are not recorded in their balance sheets. What are some reasons why these items are not recorded in the balance sheet?

1.              : Ask the Muslim workers to delay their sunset prayers until a regularly scheduled break occurs, pointing out that North Waters is primarily a place of business, not a house of worship.

: Define the components of strategic management and the three levels of strategy.

Tones Industries has the following patents on its December 31, 2013, balance sheet. Patent Item Initial Cost Date Acquired Useful Life at Date Acquired Patent A $30,600 3/1/10 17 years Patent B $15,000 7/1/11 10 years Patent C $14,400 9/1/12 4 years The following events occurred during the year ended December 31, 2014. 1. Research and development costs of $245,700 were incurred during the year. 2. Patent D was purchased on July 1 for $36,480. This patent has a useful life of 9½ years. 3. As a result of reduced demands for certain products protected by Patent B, a possible impairment of Patent B’s value may have occurred at December 31, 2014. The controller for Tones estimates the expected future cash flows from Patent B will be as follows. Year Expected Future Cash Flows 2015 $2,000 2016 2,000 2017 2,000 The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.) Instructions (a) Compute the total carrying amount of Tones’ patents on its December 31, 2013, balance sheet. (b) Compute the total carrying amount of Tones’ patents on its December 31, 2014, balance sheet.

1.      : Continue NIX’s zero-tolerance policy toward shoplifting. It’s the right thing to do—and it will pay off in the end in higher profitability because the chain’s reputation for being tough on crime will reduce overall losses from theft.

What are some steps taken by both the FASB and IASB to move to fair value measurement for financial instruments? In what ways have some of the approaches differed?

As compared with the FIFO method of costing inventories, does the LIFO method result in a larger or smaller net income in a period of rising prices? What is the comparative effect on net income in a period of falling prices?

What is the difference between an open mold and a closed mold?

If MUX/MUY were greater than PX/PY, how would consumers behave? What would bring consumption back to equilibrium where MUX/MUY = PX/PY?

Identify some advantages of CUs. Identify disadvantages of CUs that relate to their common bond requirement. (LO7)

Compare and contrast realization of income with recognition of income.

1.    : Walt Disney Company has four major strategic business units: movies (including Pixar and Touchstone), theme parks (Walt Disney World and Disneyland), consumer products (the Disney Store), and television (the ABC/Disney Television Group and ESPN). Place each of these SBUs on the BCG matrix based on your knowledge of them.

Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors will affect both the balance sheets and income statements for a number of years. Instructions For each of the following items, indicate whether the expenditure should be capitalized (C) or expensed (E) in the period incurred. (a) __________ Improvement. (b) __________ Replacement of a minor broken part on a machine. (c) __________ Expenditure that increases the useful life of an existing asset. (d) __________ Expenditure that increases the efficiency and effectiveness of a productive asset but does not increase its salvage value. (e) __________ Expenditure that increases the efficiency and effectiveness of a productive asset and increases the asset’s salvage value. (f) __________ Expenditure that increases the quality of the output of the productive asset. (g) __________ Improvement to a machine that increased its fair market value and its productioncapacity by 30% without extending the machine’s useful life. (h) __________ Ordinary repairs.

Dierdorf Inc., a closely held corporation, has decided to go public. The controller, Ed Floyd, is concerned with presenting interim data when an inventory write-down is recorded. What problems are encountered with inventories when quarterly data are presented?

Assume that SUNY Bank plans to liquidate its Treasury security holdings and use the proceeds for small business loans. Explain how this strategy will affect the different income statement items. Also identify any income statement items for which the effects of this strategy are more difficult to estimate. (LO2)

Classify the following items as (1) operating, (2) investing, (3) financing, or (4) significant non-cash investing and financing activities, using the direct method. (a) Cash payments to employees. (b) Redemption of bonds payable. (c) Sale of building at book value. (d) Cash payments to suppliers. (e) Exchange of equipment for furniture. (f) Issuance of preferred stock. (g) Cash received from customers. (h) Purchase of treasury stock. (i) Issuance of bonds for land. (j) Payment of dividends. (k) Purchase of equipment. (l) Cash payments for operating expenses.

Alfonso began the year with a tax basis in his partnership interest of $30,000. His share of partnership liabilities at the beginning and end of the year consists of $4,000 of recourse liabilities and $6,000 of nonrecourse liabilities. During the year, he was allocated $40,000 of partnership ordinary business loss. Alfonso does not materially participate in this partnership, and he has $1,000 of passive income from other sources. a. How much of Alfonso’s loss is limited by his tax basis? b. How much of Alfonso’s loss is limited by his at-risk amount? c. How much of Alfonso’s loss is limited by the passive activity loss rules?

Discuss how the international landscape is changing, including the growing influence of China and India.

Is it a valid criticism of perfect competition to argue that it is incompatible with economies of scale?

What is the relationship between current assets and current liabilities?

1.       : Can intuition and evidence-based decision making coexist as valid approaches within an organization? How might managers combine their intuition with a rational, data-driven, evidence-based approach?

Laserwords Inc. is a book distributor that had been operating in its original facility since 1987. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Laserwords since 2009. Laserwords’ original facility became obsolete by early 2014 because of the increased sales volume and the fact that Laserwords now carries CDs in addition to books. On June 1, 2014, Laserwords contracted with Black Construction to have a new building constructed for $4,000,000 on land owned by Laserwords. The payments made by Laserwords to Black Construction are shown in the schedule below. Date Amount July 30, 2014 $ 900,000 January 30, 2015 1,500,000 May 30, 2015 1,600,000 Total payments $4,000,000 Construction was completed and the building was ready for occupancy on May 27, 2015. Laserwords had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2015, the end of its fiscal year. 10%, 5-year note payable of $2,000,000, dated April 1, 2011, with interest payable annually on April 1. 12%, 10-year bond issue of $3,000,000 sold at par on June 30, 2007, with interest payable annually on June 30. Instructions For each of the four independent situations, prepare the journal entries to record the exchange on the booksof each company.

1.      : Give the job to the candidate with the highest score. You don’t need to make enemies on the Civil Service Board, and, although it is a bureaucratic procedure, the test is an objective way to select a permanent placement.