Question & Answer

The chairman of the board of directors of the company for which you are chief accountant has told you that he has little use for accounting figures based on historical cost. He believes that replacement values are of far more significance to the board of directors than “out-of-date costs.” Present some arguments to convince him that accounting data should still be based on historical cost.

What is the nature of research and development costs?

Weisberg Corporation has 10,000 shares of $100 par value, 6%, preference shares and 50,000 ordinary shares of $10 par value outstanding at December 31, 2014. Instructions Answer the questions in each of the following independent situations. (a) If the preference shares are cumulative and dividends were last paid on the preference shares on December 31, 2011, what are the dividends in arrears that should be reported on the December 31, 2014, statement of financial position? How should these dividends be reported? (b) If the preference shares are convertible into seven shares of $10 par value ordinary shares and 3,000 shares are converted, what entry is required for the conversion, assuming the preference shares were issued at par value? (c) If the preference shares were issued at $107 per share, how should the preference shares be reported in the equity section?

Planning} Todd and Margo are seeking a divorce and no longer live together.  Margo has offered to pay Todd $42,000 per year for five years if Margo receives sole title to the art collection.  This collection cost them $100,000, but is now worth $360,000.  All other property is to be divided equally. a.       If Margo’s payments cease in the event of Todd’s death, how are the payments treated for tax purposes?  b.       How much of the gain would be taxed to Todd if Margo sells the art at the end of five years? c.       Compute the tax cost (benefit) to Todd (Margo) if the payments qualify as alimony.  Assume that Todd (Margo) has a marginal tax rate of 15 percent (35 percent) and ignore the time value of money. d.       How much more over the five year period should Todd demand in order to agree to allow the payments to cease in the event of his death?  (How much more will make him indifferent between receiving $42,000 a year in non alimony payments and receiving higher payments that are considered to be alimony?)

If the shares in a monopoly (such as a water company) were very widely distributed among the population, would the shareholders necessarily want the firm to use its monopoly power to make larger profits?

What factors could explain why some countries have a higher multiplier than others?

1.    : Consider the six characteristics of entrepreneurs described in this chapter. Which two traits do you think are most like those of managers in large companies? Which two are least like those of managers in large companies?

If Ollie were to consume more and more crisps, would his total utility ever (a) fall to zero; (b) become negative? Explain.

What are the tax advantages and disadvantages of converting a C corporation into an LLC taxed as a partnership?

War tends to cause significant reactions in financial markets. Why might a war in the Middle East place upward pressure on U.S. interest rates? Why might some investors expect a war like this to place downward pressure on U.S. interest rates? (LO2)

The following facts relate to Duncan Corporation. 1. Deferred tax liability, January 1, 2014, $60,000. 2. Deferred tax asset, January 1, 2014, $20,000. 3. Taxable income for 2014, $105,000. 4. Cumulative temporary difference at December 31, 2014, giving rise to future taxable amounts, $230,000. 5. Cumulative temporary difference at December 31, 2014, giving rise to future deductible amounts, $95,000. 6. Tax rate for all years, 40%. No permanent differences exist. 7. The company is expected to operate profitably in the future. Instructions (a) Compute the amount of pretax financial income for 2014. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014. (c) Prepare the income tax expense section of the income statement for 2014, beginning with the line “Income before income taxes.” (d) Compute the effective tax rate for 2014.

1.15     Relevant information Suppose you are responsible for ordering a replacement for your office photocopy machine. Part of your job is to decide whether to buy it or lease it.   Required (a)          Describe something that could be considered relevant information in this decision and explain why it is relevant. (b)          Describe something that could be considered irrelevant information in this decision and explain why it is irrelevant. (c)           Explain why it was important to distinguish between relevant and irrelevant information in this problem.

Connie Chung Corporation adopted the dollar-value LIFO retail inventory method on January 1, 2013. At that time the inventory had a cost of $54,000 and a retail price of $100,000. The following information is available.8 Year-End Inventory at Retail Current Year Cost—Retail % Year-End Price Index 2013 $118,720 57% 106 2014 138,750 60% 111 2015 125,350 61% 115 2016 162,500 58% 125 The price index at January 1, 2013, is 100. Instructions Compute the ending inventory at December 31 of the years 2013–2016. (Round to the nearest dollar.)

How do general and limited partners treat their share of ordinary business income for self-employment tax purposes?

The records for the Clothing Department of Sharapova’s Discount Store are summarized below for the month of January. Inventory, January 1: at retail $25,000; at cost $17,000 Purchases in January: at retail $137,000; at cost $82,500 Freight-in: $7,000 Purchase returns: at retail $3,000; at cost $2,300 Transfers in from suburban branch: at retail $13,000; at cost $9,200 Net markups: $8,000 Net markdowns: $4,000 Inventory losses due to normal breakage, etc.: at retail $400 Sales revenue at retail: $95,000 Sales returns: $2,400 Instructions (a) Compute the inventory for this department as of January 31, at retail prices. (b) Compute the ending inventory using lower-of-average-cost-or-market.

On April 1, 2014, Dougherty Inc. entered into a costplus- fixed-fee contract to construct an electric generator for Altom Corporation. At the contract date, Dougherty estimated that it would take 2 years to complete the project at a cost of $2,000,000. The fixed fee stipulated in the contract is $450,000. Dougherty appropriately accounts for this contract under the percentage-of-completion method. During 2014, Dougherty incurred costs of $800,000 related to the project. The estimated cost at December 31, 2014, to complete the contract is $1,200,000. Altom was billed $600,000 under the contract. Instructions Prepare a schedule to compute the amount of gross profit to be recognized by Dougherty under the contract for the year ended December 31, 2014. Show supporting computations in good form.

For what reasons is the median hourly wage rate of women some 16 per cent lower than that of men in the UK, and the average gross weekly pay, including overtime, more than 21 per cent less?

Presented below is information related to Langston Hughes Corporation. Price Index LIFO Cost Retail Inventory on December 31, 2014, when dollar-value LIFO is adopted 100 $36,000 $ 74,500 Inventory, December 31, 2015 110 ? 100,100 Instructions Compute the ending inventory under the dollar-value LIFO method at December 31, 2015. The cost-toretail ratio for 2015 was 60%.

Nicole is a calendar-year taxpayer who accounts for her business using the cash method. On average, Nicole sends out bills for about $12,000 of her services at the first of each month. The bills are due by the end of the month, and typically 70 percent of the bills are paid on time and 98 percent are paid within 60 days.

Use the information for Rode Inc. given in BE19-13. Assume that it is more likely than not that the entire net operating loss carryforward will not be realized in future years. Prepare all the journal entries necessary at the end of 2014.

King Company is contemplating the purchase of a smaller company, which is a distributor of King’s products. Top management of King is convinced that the acquisition will result in significant synergies in its selling and distribution functions. The financial management group (of which you are a part) has been asked to prepare some analysis of the effects of the acquisition on the combined company’s financial statements. This is the first acquisition for King, and some of the senior staff insist that based on their recollection of goodwill accounting, any goodwill recorded on the acquisition will result in a “drag” on future earnings for goodwill amortization. Other younger members on the staff argue that goodwill accounting has changed. Your supervisor asks you to research this issue. Instructions If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses. (a) Identify the accounting literature that addresses goodwill and other intangible assets. (b) Define goodwill. (c) Is goodwill subject to amortization? Explain. (d) When goodwill is recognized by a subsidiary, should it be tested for impairment at the consolidated level or the subsidiary level? Discuss.

Explain the process by which the price of houses would rise if there were a shortage.

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

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.

Before Gordon Corporation engages in the treasury stock transactions listed below, its general ledger reflects, among others, the following account balances (par value of its stock is $30 per share). Paid-in Capital in Excess of Par—Common Stock Common Stock Retained Earnings $99,000 $270,000 $80,000 Instructions Record the treasury stock transactions (given below) under the cost method of handling treasury stock; use the FIFO method for purchase-sale purposes. (a) Bought 380 shares of treasury stock at $40 per share. (b) Bought 300 shares of treasury stock at $45 per share. (c) Sold 350 shares of treasury stock at $42 per share. (d) Sold 110 shares of treasury stock at $38 per share.