Question & Answer

An entry to record Purchases and related Accounts Payable of $13,000 for merchandise purchased on December 23, 2015, was recorded in January 2016. This merchandise was not included in inventory at December 31, 2015. What effect does this error have on reported net income for 2015? What entry should be made to correct for this error, assuming that the books are not closed for 2015?

On January 3, 2013, Martin Company purchased for $500,000 cash a 10% interest in Renner Corp. On that date, the net assets of Renner had a book value of $3,700,000. The excess of cost over the underlying equity in net assets is attributable to undervalued depreciable assets having a remaining life of 10 years from the date of Martin’s purchase. The fair value of Martin’s investment in Renner securities is as follows: December 31, 2013, $560,000, and December 31, 2014, $515,000. On January 2, 2015, Martin purchased an additional 30% of Renner’s stock for $1,545,000 cash when the book value of Renner’s net assets was $4,150,000. The excess was attributable to depreciable assets having a remaining life of 8 years. During 2013, 2014, and 2015, the following occurred. Renner Dividends Paid by Net Income Renner to Martin 2013 $350,000 $15,000 2014 450,000 20,000 2015 550,000 70,000 Instructions On the books of Martin Company, prepare all journal entries in 2013, 2014, and 2015 that relate to its investment in Renner Corp., reflecting the data above and a change from the fair value method to the equity method.

Cost function using multiple regression (appendix 2A) Refer to the data and requirements of Problem 2.23.   Required (a)          Perform multiple regression using all three cost drivers. Compare the adjusted R-squares and cost functions for the multiple regression with the results of simple regressions for each potential cost driver. (b)          Which cost drivers do the best job of explaining manufacturing overhead costs? Explain. (c)           Select only the cost drivers that do the best job of explaining manufacturing overhead costs. Perform multiple regression analysis for those cost drivers and write the cost function. (d)          Explain why more than one cost driver is plausible for manufacturing overhead costs. (a)     Multiple regression with all three potential cost drivers:   Regression Statistics Multiple R 0.9092294 R Square 0.8266982 Adjusted R Square 0.8067018 Standard Error 4832.5558 Observations 30     Coefficients Standard Error t Stat P-value Intercept 60988.489 10361.2349 5.886218 3.3E-06 Labour Hours -0.1959303 3.333162437 -0.05878 0.953575 Machine Hours 48.778501 5.291558412 9.218173 1.12E-09 Raw Materials 82.976635 10.10654585 8.210187 1.08E-08   Comparison of simple and multiple regression results: (b)     Labour hours does not appear to be a cost driver when using either simple regression or multiple regression; its coefficient is not significantly different from zero in either regression. Also, its coefficient is negative rather than positive in the multiple regression. Thus, labour hours can be eliminated as a potential cost driver.   Both machine hours and raw materials are positive and significantly different from zero when using simple regression and also when using multiple regression. The adjusted R-Square is far higher in the multiple regression (0.806) than in either of the simple regressions (0.352 and 0.226) for these two cost drivers. A combination of cost drivers does a much better job of explaining the variation in manufacturing overhead costs than either cost driver alone.   (c)     Multiple regression using machine hours and raw materials as cost drivers:   Regression Statistics Multiple R 0.90921678 R Square 0.82667515 Adjusted R Square 0.81383627 Standard Error 4742.5348 Observations 30     Coefficients Standard Error t Stat P-value Intercept 60677.5902 8743.664851 6.939606 1.86E-07 Machine Hours 48.7422519 5.157604083 9.450561 4.71E-10 Raw Materials 82.925842 9.881964042 8.391636 5.29E-09   The cost function is: TC = $60 678 + $48.74×Machine hours + $82.93×Raw materials   (d)    Manufacturing can be a complex activity requiring a number of different tasks. Each task includes different activities. Costs for these activities are likely related to specific cost drivers. In this example, machine hours and raw materials explain different activity costs, such as machining work on units, and materials handling for the units. A better understanding of the manufacturing process improves the ability to determine the types and number of cost drivers that can be used in a more complete cost function.

Are the tax consequences to the corporation the same whether a shareholder contributes property to a corporation in a §351 transaction or as a capital contribution? Explain.

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.

Crowe Company purchased a heavy-duty truck on July 1, 2011, for $30,000. It was estimated that it would have a useful life of 10 years and then would have a trade-in value of $6,000. The company uses the straight-line method. It was traded on August 1, 2015, for a similar truck costing $42,000; $16,000 was allowed as trade-in value (also fair value) on the old truck and $26,000 was paid in cash. A comparison of expected cash flows for the trucks indicates the exchange lacks commercial substance. What is the entry to record the trade-in?

Presented below are three revenue recognition situations. (a) Grupo sells goods to MTN for $1,000,000, payment due at delivery. (b) Grupo sells goods on account to Grifols for $800,000, payment due in 30 days. (c) Grupo sells goods to Magnus for $500,000, payment due in two installments: the first installment payable in 6 months and the second payment due 3 months later. Instructions Indicate how each of these transactions is reported.

Another type of strategy firms can follow in a repeated game is the ’tit-for-tat’ strategy. What is the tit-for-tat strategy? What impact will it have on the most likely outcome in a repeated game?

Pretax financial income for Lake Inc. is $300,000, and its taxable income is $100,000 for 2015. Its only temporary difference at the end of the period relates to a $70,000 difference due to excess depreciation for tax purposes. If the tax rate is 40% for all periods, compute the amount of income tax expense to report in 2015. No deferred income taxes existed at the beginning of the year.

Angela Corporation issues 2,000 convertible bonds at January 1, 2013. The bonds have a 3-year life, and are issued at par with a face value of $1,000 per bond, giving total proceeds of $2,000,000. Interest is payable annually at 6%. Each bond is convertible into 250 ordinary shares (par value of $1). When the bonds are issued, the market rate of interest for similar debt without the conversion option is 8%. Instructions (a) Compute the liability and equity component of the convertible bond on January 1, 2013. (b) Prepare the journal entry to record the issuance of the convertible bond on January 1, 2013. (c) Prepare the journal entry to record the repurchase of the convertible bond for cash at January 1, 2016, its maturity date.

Why is the MCL curve horizontal?

The earning of revenue by a business enterprise is recognized for accounting purposes when the transaction is recorded. In some situations, revenue is recognized approximately as it is earned in the economic sense. In other situations, however, accountants have developed guidelines for recognizing revenue by other criteria, such as at the point of sale. Instructions (Ignore income taxes.) (a) Explain and justify why revenue is often recognized as earned at time of sale. (b) Explain in what situations it would be appropriate to recognize revenue as the productive activity takes place. (c) At what times, other than those included in (a) and (b) above, may it be appropriate to recognize revenue? Explain.

Shannon, Inc., changed from the LIFO cost flow assumption to the FIFO cost flow assumption in 2014. The increase in the prior year’s income before taxes is $1,200,000. The tax rate is 40%. Prepare Shannon’s 2014 journal entry to record the change in accounting principle.

Corp. had $100,000 of 7%, $20 par value preferred stock and 12,000 shares of $25 par value common stock outstanding throughout 2014. (a) Assuming that total dividends declared in 2014 were$64,000, and that the preferred stock is not cumulative but is fully participating, common stockholders should receive 2014 dividends of what amount? (b) Assuming that total dividends declared in 2014 were $64,000, and that the preferred stock is fully participating and cumulative with preferred dividends in arrears for 2013, preferred stockholders should receive 2014 dividends totaling what amount? (c) Assuming that total dividends declared in 2014 were $30,000, that the preferred stock is cumulative, nonparticipating, and was issued on January 1, 2013, and that $5,000 of preferred dividends were declared and paid in 2013, the common stockholders should receive 2014 dividends totaling what amount?

Describe the exchange-rate path if there were a single shock that caused interest rates to fall. What determines the magnitude and speed of changes in the exchange rate in such a scenario?

Jamel and Jennifer have been married 30 years and have filed a joint return every year of their marriage. Their three daughters, Jade, Lindsay, and Abbi are ages 12, 17, and 22 respectively, and all live at home. None of the daughters provides more than half of her own support. Abbi is a full-time student at a local university and does not have any gross income.  a. Which, if any, of the daughters qualify as dependents of Jamel and Jennifer?

: Describe how unconscious bias can contribute to an environment that limits the advancement of women, people of color, and other underrepresented employees.

Compare a centralized database system to a decentralized, distributed blockchain system. (LO2)

Corrs Company began operations in 2013 and determined its ending inventory at cost and at lower-of-cost-or-market at December 31, 2013, and December 31, 2014. This information is presented below. Cost Lower-of-Cost-or-Market 12/31/13 $346,000 $327,000 12/31/14 410,000 395,000 Instructions (a) Prepare the journal entries required at December 31, 2013, and December 31, 2014, assuming that the inventory is recorded at market, and a perpetual inventory system (direct method) is used. (b) Prepare journal entries required at December 31, 2013, and December 31, 2014, assuming that the inventory is recorded at cost and an allowance account is adjusted at each year-end under a perpetual system. (c) Which of the two methods above provides the higher net income in each year?

Describe some ways in which taxes affect the political process in the United States.

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 these financial statements and the accompanying notes to answer the following questions. (a) What was P&G’s 2011 short-term debt and related weighted-average interest rate on this debt? (b) What was P&G’s 2011 working capital, acid-test ratio, and current ratio? Comment on P&G’s liquidity. (c) What types of commitments and contingencies has P&G’s reported in its financial statements? What is management’s reaction to these contingencies?

John Adams Company’s record of transactions for the month of April was as follows. Purchases Sales April 1 (balance on hand) 600 @ $ 6.00 April 3 500 @ $10.00 4 1,500 @ 6.08 9 1,400 @ 10.00 8 800 @ 6.40 11 600 @ 11.00 13 1,200 @ 6.50 23 1,200 @ 11.00 21 700 @ 6.60 27 900 @ 12.00 29 500 @ 6.79 4,600 5,300 Instructions (a) Assuming that periodic inventory records are kept in units only, compute the inventory at April 30 using (1) LIFO and (2) average-cost. (b) Assuming that perpetual inventory records are kept in dollars, determine the inventory using (1) FIFO and (2) LIFO. (c) Compute cost of goods sold assuming periodic inventory procedures and inventory priced at FIFO. (d) In an inflationary period, which inventory method—FIFO, LIFO, average-cost—will show the highest net income?

Under what conditions should a short-term obligation be excluded from current liabilities?

Jupiter Company sells goods on January 1 that have a cost of $500,000 to Danone Inc. for $700,000, with payment due in 1 year. The cash price for these goods is $610,000, with payment due in 30 days. If Danone paid immediately upon delivery, it would receive a cash discount of $10,000. Instructions (a) Prepare the journal entry to record this transaction at the date of sale. (b) How much revenue should Jupiter report for the entire year?

Bedard Corporation reported net income of $300,000 in 2014 and had 200,000 shares of common stock outstanding throughout the year. Also outstanding all year were 45,000 options to purchase common stock at $10 per share. The average market price of the stock during the year was $15. Compute diluted earnings per share.