Question & Answer

Your client, Cascade Company, is planning to invest some of its excess cash in 5-year revenue bonds issued by the county and in the stock of one of its suppliers, Teton Co. Teton’s shares trade on the over-the-counter market. Cascade plans to classify these investments as available-for-sale. They would like you to conduct some research on the accounting for these investments. 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) Since the Teton shares do not trade on one of the large stock markets, Cascade argues that the fair value of this investment is not readily available. According to the authoritative literature, when is the fair value of a security “readily determinable”? (b) How is an impairment of a security accounted for? (c) To avoid volatility in their financial statements due to fair value adjustments, Cascade debated whether the bond investment could be classified as held-to-maturity; Cascade is pretty sure it will hold the bonds for 5 years. How close to maturity could Cascade sell an investment and still classify it as heldto- maturity? (d) What disclosures must be made for any sale or transfer from securities classified as held-to-maturity?

As stated in the chapter, notes to the financial statements are the means of explaining the items presented in the main body of the statements. Common note disclosures relate to such items as accounting policies, segmented information, and interim reporting. The financial statements of P&G are presented in Appendix 5B. The company’s complete annual report, including the notes to the financial statements, can be accessed at the book’s companion website, www.wiley.com/college/kieso. Instructions Refer to P&G’s financial statements and the accompanying notes to answer the following questions. (a) What specific items does P&G discuss in its Note 1—Summary of Significant Accounting Policies? (List the headings only.) (b) For what segments did P&G report segmented information? Which segment is the largest? Who is P&G’s largest customer? (c) What interim information was reported by P&G?

Allie received a $50,000 distribution from her 401(k) account this year that she established while working for Big Stories, Inc. Assuming her marginal ordinary tax rate is 24 percent, how much tax and penalty will Allie pay on the distribution under the following circumstances?

Use the information in IFRS12-6. Assume that at the end of the year following the impairment (after recording amortization expense), the estimated recoverable amount for the patent is $130,000. Prepare Kenoly’s journal entry, if needed.

At the end of last year, Milena, a 35 percent partner in the five-person LAMEC Partnership, has an outside basis of $60,000, including her $30,000 share of LAMEC debt. On January 1 of the current year, Milena sells her partnership interest to MaryLynn for a cash payment of $45,000 and the assumption of her share of LAMEC’s debt. a. What are the amount and character of Milena’s recognized gain or loss on the sale? b. If LAMEC has $100,000 of unrealized receivables as of the sale date, what are the amount and character of Milena’s recognized gain or loss? c. What is MaryLynn’s initial basis in the partnership interest?

Solve Problem 19.7, only assume a cluster mill with working rolls of radius = 50 mm. Compare the results with the previous two problems, and note the important effect of roll radius on force, torque and power.

If an entity has a mixed cost function, a 10 per cent increase in sales volume should increase income by more than 10 per cent. Explain why.

Norman Co., a fast-growing golf equipment company, uses GAAP. It is considering the issuance of convertible bonds. The bonds mature in 10 years, have a face value of $400,000, and pay interest annually at a rate of 4%. The equity component of the bond issue has a fair value of $35,000. Greg Shark is curious as to the difference in accounting for these bonds if the company were to use IFRS. (a) Prepare the entry to record issuance of the bonds at par under GAAP. (b) Repeat the requirement for part (a), assuming application of IFRS to the bond issuance. (c) Which approach provides the better accounting? Explain.

What are some of the reasons why plastic shaping processes are important?

Are there any features of free-market capitalism which would discourage innovation?

Jessica’s friend Zachary once stated that he couldn’t understand why someone would take a tax course.  Why is this a rather naïve view?

1.       Why do you think there is a trend toward greater democracy and decentralization in organizations today? Would a radical decentralized system be effective with Gen Z employees? Why?

Distinguish between gross profit as a percentage of cost and gross profit as a percentage of sales price. Convert the following gross profit percentages based on cost to gross profit percentages based on sales price: 25% and 331/3%. Convert the following gross profit percentages based on sales price to gross profit percentages based on cost: 331/3% and 60%.

Kenoly Corporation owns a patent that has a carrying amount of $300,000. Kenoly expects future net cash flows from this patent to total $210,000 over its remaining life of 10 years. The recoverable amount of the patent is $110,000. Prepare Kenoly’s journal entry, if necessary, to record the loss on impairment.

Why are marginal external benefits typically likely to decline as output increases? Why is some cases might marginal external benefits be constant at all levels of output or even increase as more is produced?

Kehoe, Inc. owes $40,000 to Ritter Company. How much would Kehoe have to pay each year if the debt is retired through four equal payments (made at the end of the year), given an interest rate on the debt of 12%? (Round to two decimal places.)

When is the stated interest rate of a debt instrument presumed to be fair?

BCS Corporation is a calendar-year, accrual-method taxpayer. BCS was formed and started its business activities on January 1 of this year. It reported the following information for the year. Indicate BCS’s deductible amount for this year in each of the following alternative scenarios.  a) BCS provides two-year warranties on products it sells to customers. For its current year sales, BCS estimated and accrued $200,000 in warranty expense for financial accounting purposes. During this year, BCS spent $30,000 repairing its product under the warranty.  b) BCS accrued an expense for $50,000 for amounts it anticipated it would be required to pay under the workers’ compensation act. During the year, BCS actually paid $10,000 for workers’ compensation-related liabilities. c) In June of this year, a display of BCS’s product located in its showroom fell and injured a customer. The customer sued BCS for $500,000. The case is scheduled to go to trial next year. BCS anticipates that it will lose the case and this year accrued a $500,000 expense on its financial statements. d) Assume the same facts as in (c) except that BCS was required to pay $500,000 to a court-appointed escrow fund this year. If BCS loses the case next year, the money from the escrow fund will be transferred to the customer suing BCS. e) On December 1 of this year, BCS acquired equipment from Equip Company. As part of the purchase, BCS signed a separate contract which provided that Equip would warranty the equipment for two years (starting on December 1 of this year). The extra cost of the warranty was $12,000, which BCS finally paid to Equip in January of next year.

How would each of the following items be reported on the balance sheet? (a) Accrued vacation pay. (j) Premium offers outstanding. (b) Estimated taxes payable. (k) Discount on notes payable. (c) Service warranties on appliance sales. (l) Personal injury claim pending. (d) Bank overdraft. (m) Current maturities of long-term (e) Employee payroll deductions unremitted. debts to be paid from current assets. (f) Unpaid bonus to officers. (n) Cash dividends declared but unpaid. (g) Deposit received from customer to guarantee (o) Dividends in arrears on preferred performance of a contract. stock. (h) Sales taxes payable. (p) Loans from officers. (i) Gift certificates sold to customers but not yet redeemed.

This year, Leron and Sheena sold their home for $750,000 after all selling costs. Under the following scenarios, how much taxable gain does the home sale generate for Leron and Sheena? Assume the couple is married filing jointly.

Andrew Bogut just received a signing bonus of $1,000,000. His plan is to invest this payment in a fund that will earn 8%, compounded annually. Instructions (a) If Bogut plans to establish the AB Foundation once the fund grows to $1,999,000, how many years until he can establish the foundation? (b) Instead of investing the entire $1,000,000, Bogut invests $300,000 today and plans to make 9 equal annual investments into the fund beginning one year from today. What amount should the payments be if Bogut plans to establish the $1,999,000 foundation at the end of 9 years?

Assume that on February 1, Procter & Gamble (P&G) paid $720,000 in advance for 2 years’ insurance coverage. Prepare P&G’s February 1 journal entry and the annual adjusting entry on June 30.

Assume the same information as in E14-4, except that Celine Dion Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%. Instructions Prepare the journal entries to record the following. (Round to the nearest dollar.) (a) The issuance of the bonds. (b) The payment of interest and related amortization on July 1, 2014. (c) The accrual of interest and the related amortization on December 31, 2014.

Michael Bolton Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis. Item No. Quantity Cost per Unit Cost to Replace Estimated Selling Price Cost of Completion and Disposal Normal Profi t 1320 1,200 $3.20 $3.00 $4.50 $0.35 $1.25 1333 900 2.70 2.30 3.50 0.50 0.50 1426 800 4.50 3.70 5.00 0.40 1.00 1437 1,000 3.60 3.10 3.20 0.25 0.90 1510 700 2.25 2.00 3.25 0.80 0.60 1522 500 3.00 2.70 3.80 0.40 0.50 1573 3,000 1.80 1.60 2.50 0.75 0.50 1626 1,000 4.70 5.20 6.00 0.50 1.00 Instructions From the information above, determine the amount of Bolton Company inventory.

Will the industry supply be zero below a price of P5 in Figure 7.3?