Question & Answer

Ballard Company rents a warehouse on a month-to-month basis for the storage of its excess inventory. The company periodically must rent space whenever its production greatly exceeds actual sales. For several years, the company officials have discussed building their own storage facility, but this enthusiasm wavers when sales increase sufficiently to absorb the excess inventory. What is the nature of this type of lease arrangement, and what accounting treatment should be accorded it?

Compare the secondary market activity for mortgages to the activity for other capital market instruments (such as stocks and bonds). Provide a general explanation for the difference in the activity level. (LO4)

This year William provided $4,200 of services to a large client on credit. Unfortunately, this client has recently encountered financial difficulties and has been unable to pay William for the services. Moreover, William does not expect to collect for his services. William has “written off” the account and would like to claim a deduction for tax purposes.   a) What amount of deduction for bad debt expense can William claim this year if he uses the accrual method? b) What amount of deduction for bad debt expense can William claim this year if he uses the cash method?

1.      : Do you think a more participative and open culture can be imposed on managers with value statements and training sessions? Why or why not?

Derive an expression for the reduction r in drawing as a function of drawing ratio DR.

Tawana owns and operates a sole proprietorship and has a 40 percent marginal tax rate.  She provides her son, Jonathon, $8,000 a year for college expenses.  Jonathon works as a pizza delivery person every fall and has a marginal tax rate of 15 percent.  a. What could Tawana do to reduce her family tax burden?  b.How much pretax income does it currently take Tawana to generate the $8,000 after-taxes given to Jonathon?  c. If Jonathon worked for his mother’s sole proprietorship, what salary would she have to pay him to generate $8,000 after taxes (ignoring any Social Security, Medicare, or self-employment tax issues)?  d.How much money would this strategy save?

At January 1, 2014, Hennein Company had plan assets of $280,000 and a projected benefit obligation of the same amount. During 2014, service cost was $27,500, the settlement rate was 10%, actual and expected return on plan assets were $25,000, contributions were $20,000, and benefits paid were $17,500. Prepare a pension worksheet for Hennein Company for 2014.

Frank paid $3,700 in fees for an accountant to tabulate business information (Frank operates as a self-employed contractor and files a Schedule C). The accountant also spent time tabulating Frank’s income from his investments and determining Frank’s personal itemized deductions. Explain to Frank whether or not he can deduct the $3,700 as a business expense or as an itemized deduction, and provide a citation to an authority that supports your conclusion.

When the accounts of Daniel Barenboim Inc. are examined, the adjusting data listed below are uncovered on December 31, the end of an annual fiscal period. 1. The prepaid insurance account shows a debit of $5,280, representing the cost of a 2-year fire insurance policy dated August 1 of the current year. 2. On November 1, Rent Revenue was credited for $1,800, representing revenue from a subrental for a 3-month period beginning on that date. 3. Purchase of advertising materials for $800 during the year was recorded in the Advertising Expense account. On December 31, advertising materials of $290 are on hand. 4. Interest of $770 has accrued on notes payable. Instructions Prepare the following in general journal form. (a) The adjusting entry for each item. (b) The reversing entry for each item where appropriate.

Offer an argument for why the terrorist attack on the United States on September 11, 2001, could have placed downward pressure on U.S. interest rates. Offer an argument for why those attacks could have placed upward pressure on U.S. interest rates. (LO1, LO2)

Indicate how unrealized holding gains and losses should be reported for investments classified as trading and held for-collection.

} Rashaun (62 years old) retired and planned on immediately receiving distributions (making withdrawals) from his traditional IRA account. The balance of his IRA account is $160,000 (before reducing it for withdrawals ∕ distributions described below). Over the years, Rashaun has contributed $40,000 to the IRA. Of his $40,000 contributions, $30,000 was nondeductible and $10,000 was deductible. Assume Rashaun did not make any contributions to the account during the year. a. If Rashaun currently withdraws $20,000 from the IRA, how much tax will he be required to pay on the withdrawal if his marginal tax rate is 24 percent? b. If Rashaun currently withdraws $70,000 from the IRA, how much tax will he be required to pay on the withdrawal if his marginal tax rate is 28 percent? c. Using the information provided in part (b), complete Form 8606, part I, to report the taxable portion of the $70,000 distribution (withdrawal). Use the most current form available.

What are the considerations in imputing an appropriate interest rate?

How is the public-sector debt-to-GDP ratio likely to be affected by the state of the economy?

Define drawing in the context of sheet metalworking

Choice of transfer price The following information relates to a new computer chip that Hand Held has developed for its new mobile phone that contains a personal organiser:       The variable costs of the mobile phone division will be incurred whether it buys from the chip division or from an outside supplier.   Required (a)        What is the highest price that the managers of the mobile phone division would want to pay the chip division for the chip? Explain. (b)        If the chip division is working at full capacity and cannot produce additional units, what transfer price for the chip would be best for the entity as a whole? Explain. (c)        If the chip division is not operating at capacity and has no prospect of reaching capacity, what is the lowest price its managers would typically be willing to sell chips to the mobile phone division?

What basic questions must be answered before the amount of the depreciation charge can be computed?

Which of the above causes are reflected in differences in the marginal revenue product of factors?

After securing lease commitments from several major stores, Auer Shopping Center, Inc. was organized and built a shopping center in a growing suburb. The shopping center would have opened on schedule on January 1, 2014, if it had not been struck by a severe tornado in December. Instead, it opened for business on October 1, 2014. All of the additional construction costs that were incurred as a result of the tornado were covered by insurance. In July 2013, in anticipation of the scheduled January opening, a permanent staff had been hired to promote the shopping center, obtain tenants for the uncommitted space, and manage the property. A summary of some of the costs incurred in 2013 and the first nine months of 2014 follows. January 1, 2014 through 2013 September 30, 2014 Interest on mortgage bonds $720,000 $540,000 Cost of obtaining tenants 300,000 360,000 Promotional advertising 540,000 557,000 The promotional advertising campaign was designed to familiarize shoppers with the center. Had it been known in time that the center would not open until October 2014, the 2013 expenditure for promotional advertising would not have been made. The advertising had to be repeated in 2014. All of the tenants who had leased space in the shopping center at the time of the tornado accepted the October occupancy date on condition that the monthly rental charges for the first 9 months of 2014 be canceled. Instructions Explain how each of the costs for 2013 and the first 9 months of 2014 should be treated in the accounts of the shopping center corporation. Give the reasons for each treatment.

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?

1.       : How do you think a system for self-management such as the five-step system described in this chapter could benefit you as a student? What parts of the system seem particularly useful to you? Explain.

Explain why paying dividends is not an effective way to shift income from a corporation to its owners.

Jurassic Company owns equipment that cost $900,000 and has accumulated depreciation of $380,000. The expected future net cash flows from the use of the asset are expected to be $500,000. The fair value of the equipment is $400,000. Prepare the journal entry, if any, to record the impairment loss.

Presented below is information related to equipment owned by Pujols Company at December 31, 2014. Cost (residual value $0) $9,000,000 Accumulated depreciation to date 1,000,000 Value-in-use 5,500,000 Fair value less cost of disposal 4,400,000 Assume that Pujols will continue to use this asset in the future. As of December 31, 2014, the equipment has a remaining useful life of 8 years. Pujols uses straight-line depreciation. Instructions (a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2014. (b) Prepare the journal entry to record depreciation expense for 2015. (c) The recoverable amount of the equipment at December 31, 2015, is $6,050,000. Prepare the journal entry (if any) necessary to record this increase.

Would it be possible for firms to calculate their maximum-profit output if they did not use marginal cost and marginal revenue concepts?