Question & Answer

Identify and explain the three types of classifications for investments in debt securities.

See if you can identify two companies that are vertically integrated and what advantages they have from such integration.

Presented below are income statements prepared on a LIFO and FIFO basis for Kenseth Company, which started operations on January 1, 2013. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2014. The FIFO income statement is computed in accordance with the requirements of GAAP. Kenseth’s profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored. LIFO Basis FIFO Basis 2014 2013 2014 2013 Sales $3,000 $3,000 $3,000 $3,000 Cost of goods sold 1,130 1,000 1,100 940 Operating expenses 1,000 1,000 1,000 1,000 Income before profi t-sharing 870 1,000 900 1,060 Profi t-sharing expense 87 100 96 100 Net income $ 783 $ 900 $ 804 $ 960 Instructions Answer the following questions. (a) If comparative income statements are prepared, what net income should Kenseth report in 2013 and 2014? (b) Explain why, under the FIFO basis, Kenseth reports $100 in 2013 and $96 in 2014 for its profit-sharing expense. (c) Assume that Kenseth has a beginning balance of retained earnings at January 1, 2014, of $8,000 using the LIFO method. The company declared and paid dividends of $500 in 2014. Prepare the retained earnings statement for 2014, assuming that Kenseth has switched to the FIFO method.

Juanita paid $50,000 of interest on a mortgage on her home (loan of $1,000,000 at 5% interest rate to buy the residence in 2018; $1,200,000 original purchase price and value at purchase) and $6,500 of interest on a $100,000 home-equity loan on her home (loan proceeds were used to buy furniture). Juanita’s AGI is $600,000. How much interest expense can Juanita deduct as an itemized deduction?

Waterworld Company leased equipment from Costner Company. The lease term is 4 years and requires equal rental payments of $43,019 at the beginning of each year. The equipment has a fair value at the inception of the lease of $150,000, an estimated useful life of 4 years, and no salvage value. Waterworld pays all executory costs directly to third parties. The appropriate interest rate is 10%. Prepare Waterworld’s January 1, 2014, journal entries at the inception of the lease.

Shumway Oil uses successful-efforts accounting and also provides full-cost results as well. Under full-cost, Shumway Oil would have reported retained earnings of $42 million and net income of $4 million. Under successfulefforts, retained earnings were $29 million, and net income was $3 million. Explain the difference between full-costing and successful-efforts accounting.

How does Level 5 leadership differ from the concept of servant leadership? Do you believe that anyone has the potential to become a Level 5 leader? Discuss.

Explain how financial crowding out can reduce the effectiveness of fiscal policy. What determines the magnitude of crowding out?

What is an installment sale?  How do the tax laws ensure that taxpayers recognize all the gain they realize on an installment sale?  How is depreciation recapture treated in an installment sale?  Explain the gross profit ratio and how it relates to gains recognized under installment method sales.

Solve Problem 34.3, only use a wafer size of 257 mm whose processable area has a diameter = 250 mm. What is the percent increase in (a) wafer diameter, (b) processable wafer area, and (c) number of chips, compared to the values in the previous problem?

Use the information for Indiana Jones Corporation from BE21-9. Assume that for Lost Ark Company, the lessor, collectibility is reasonably predictable, there are no important uncertainties concerning costs, and the carrying amount of the equipment is $202,921. Prepare Lost Ark’s January 1, 2014, journal entries.

Briefly discuss the implications of the financial statement presentation project for the reporting of stockholders’ equity.

In what way is the provision of information a public good? Do all the examples above come into the category of public goods? Give some other examples of information which is a public good. (Clue: refer back to the characteristics of public goods in section 12.2 and do not confuse a public good with something merely provided by the government, which could also be provided by the private sector.)

Damarcus is a 50 percent owner of Rockit (a business entity). In the current year, Rockit reported a $100,000 business loss. Answer the following questions associated with each of the following alternative scenarios.

A rotational molding operation is to be used to mold a hollow playing ball out of polypropylene. The ball will be 1.25 ft in diameter and its wall thickness should be 3/32 in. What weight of PP powder should be loaded into the mold in order to meet these specifications? The specific gravity of the PP grade is 0.90, and the density of water is 62.4 lb/ft3 .

1.       : Can you think of potential drawbacks to retailers using labor-waste elimination systems based on scientific management principles, as described in the text? Do you believe that scientific management characteristics will ever cease to be a part of organizational life, since they are now about 100 years old? Discuss.

A hydraulic forging press is capable of exerting a maximum force = 1,000,000 N. A cylindrical workpart is to be cold upset forged. The starting part has diameter = 30 mm and height = 30 mm. The flow curve of the metal is defined by K = 400 MPa and n = 0.2. Determine the maximum reduction in height to which the part can be compressed with this forging press, if the coefficient of friction = 0.1. Use of a spreadsheet calculator is recommended

Has the problem of adverse regional multiplier effects been made better or worse by the adoption of a single European currency? (This issue is explored in section 26.3.) (Clue: without a single currency, how would the devaluation of the drachma (the former Greek currency) have affected a depressed Greek economy?)

Do tax-exempt organizations pay tax on dividends received from C corporations? Do tax-exempt organizations pay tax on business income earned? Explain.

Intangibles have either a limited useful life or an indefinite useful life. How should these two different types of intangibles be amortized?

What is truing, in reference to grinding wheels?

(Looking at the Maths) Assuming that the pre-tax equations were:       QD = 120 – 10P and QS = 10 + 5P What is (a) the consumer share of the tax and (b) the producer share?

Rania has a $68,000 basis in her 50 percent partnership interest in the KD Partnership before receiving a current distribution of $6,000 cash and land with a fair market value of $35,000 and a basis to the partnership of $18,000. a. What are the amount and character of Rania’s recognized gain or loss? b. What is Rania’s basis in the land? c. What is Rania’s remaining basis in her partnership interest?

Bonnie and Clyde were married this year. Bonnie has a steady job that will pay her about $37,000, while Clyde does odd jobs that will produce about $28,000 of income. They also have a joint savings account that will pay about $400 of interest. If Bonnie and Clyde reside in a community property state and file married-separate tax returns, how much gross income will they each report? Is there any difference if they reside in a common-law state? Explain.

What are the primary tax differences between traditional IRAs and Roth IRAs?