Question & Answer

When should a debt security be classified as held-tomaturity?

Where can authoritative IFRS guidance be found related to the statement of financial position (balance sheet) and the statement of cash flows?

How might a company obtain a price index in order to apply dollar-value LIFO?

The Simon Corporation issued 10-year, $5,000,000 par, 7% callable convertible subordinated debentures on January 2, 2014. The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 14:1, and in 2 years it will increase to 18:1. At the date of issue, the bonds were sold at 98. Bond discount is amortized on a straightline basis. Simon’s effective tax was 35%. Net income in 2014 was $9,500,000, and the company had 2,000,000 shares outstanding during the entire year. Instructions (a) Prepare a schedule to compute both basic and diluted earnings per share. (b) Discuss how the schedule would differ if the security was convertible preferred stock.

Do the IASB and FASB conceptual frameworks differ in terms of the role of financial reporting? Explain.

What are the parameters of a machining operation that are included within the scope of cutting conditions?

In what ways can interventionist industrial policy work with the market, rather than against it? What are the arguments for and against such policy?

Mask Company has 30,000 shares of $10 par value common stock authorized and 20,000 shares issued and outstanding. On August 15, 2014, Mask purchased 1,000 shares of treasury stock for $18 per share. Mask uses the cost method to account for treasury stock. On September 14, 2014, Mask sold 500 shares of the treasury stock for $20 per share. In October 2014, Mask declared and distributed 1,950 shares as a stock dividend from unissued shares when the market price of the common stock was $21 per share. On December 20, 2014, Mask declared a $1 per share cash dividend, payable on January 10, 2015, to shareholders of record on December 31, 2014. Instructions (a) How should Mask account for the purchase and sale of the treasury stock, and how should the treasury stock be presented in the balance sheet at December 31, 2014? (b) How should Mask account for the stock dividend, and how would it affect the stockholders’ equity at December 31, 2014? Why? (c) How should Mask account for the cash dividend, and how would it affect the balance sheet at December 31, 2014? Why?

Examine the case for public ownership of an industry where a natural monopoly exists.

Becker Corporation sells farm machinery on the installment plan. On July 1, 2014, Becker entered into an installment-sales contract with Valente Inc. for an 8-year period. Equal annual payments under the installment sale are $100,000 and are due on July 1. The first payment was made on July 1, 2014. Additional information: 1. The amount that would be realized on an outright sale of similar farm machinery is $586,842. 2. The cost of the farm machinery sold to Valente Inc. is $425,000. 3. The finance charges relating to the installment period are based on a stated interest rate of 10%, which is appropriate. 4. Circumstances are such that the collection of the installments due under the contract is reasonably assured. Instructions What income or loss before income taxes should Becker record for the year ended December 31, 2014, as a result of the transaction above?

Are C corporations or flow-through entities (S corporations and entities taxed as partnerships) more flexible in terms of selecting a tax year-end? Why are the tax rules in this area different for C corporations and flow-through business entities?

Use the same information as in E14-22 above except that American Bank reduced the principal to $1,900,000 rather than $2,400,000. On January 1, 2018, Barkley pays $1,900,000 in cash to American Bank for the principal. Instructions (a) Can Barkley Company record a gain under this term modification? If yes, compute the gain for Barkley Company. (b) Prepare the journal entries to record the gain on Barkley’s books. (c) What interest rate should Barkley use to compute its interest expense in future periods? Will your answer be the same as in E14-22 above? Why or why not? (d) Prepare the interest payment schedule of the note for Barkley Company after the debt restructuring. (e) Prepare the interest payment entries for Barkley Company on December 31, of 2015, 2016, and 2017. (f) What entry should Barkley make on January 1, 2018?

Describe the consequences for failure to file a tax return and late payment of taxes owed.

The problem in a certain thermoforming operation is that there is too much thinning in the walls of the large cup-shaped part. The operation is conventional pressure thermoforming using a positive mold, and the plastic is an ABS sheet with an initial thickness of 3.2 mm. (a) Why is thinning occurring in the walls of the cup? (b) What changes could be made in the operation to correct the problem?

Polska Corporation, in preparation of its December 31, 2014, financial statements, is attempting to determine the proper accounting treatment for each of the following situations. 1. As a result of uninsured accidents during the year, personal injury suits for $350,000 and $60,000 have been filed against the company. It is the judgment of Polska’s legal counsel that an unfavorable outcome is unlikely in the $60,000 case but that an unfavorable verdict approximating $250,000 will probably result in the $350,000 case. 2. Polska Corporation owns a subsidiary in a foreign country that has a book value of $5,725,000 and an estimated fair value of $9,500,000. The foreign government has communicated to Polska its intention to expropriate the assets and business of all foreign investors. On the basis of settlements otherfirms have received from this same country, Polska expects to receive 40% of the fair value of its properties as final settlement. 3. Polska’s chemical product division consisting of five plants is uninsurable because of the special risk of injury to employees and losses due to fire and explosion. The year 2014 is considered one of the safest (luckiest) in the division’s history because no loss due to injury or casualty was suffered. Having suffered an average of three casualties a year during the rest of the past decade (ranging from $60,000 to $700,000), management is certain that next year the company will probably not be so fortunate. Instructions (a) Prepare the journal entries that should be recorded as of December 31, 2014, to recognize each of the situations above. (b) Indicate what should be reported relative to each situation in the financial statements and accompanying notes. Explain why.

Compare and contrast the personal traits associated with great leaders and those associated with ineffective leaders.

Although Hank is retired, he is an excellent handyman and often works part time on small projects for neighbors and friends. Last week his neighbor, Mike, offered to pay Hank $500 for minor repairs to his house. Hank completed the repairs in December of this year. Hank uses the cash method of accounting and is a calendar-year taxpayer. Compute Hank’s gross income for this year from each of the following alternative transactions:

Presented below are the assumptions, principles, and constraint used in this chapter. Instructions Identify by number the accounting assumption, principle, or constraint that describes each situation below. Do not use a number more than once. (a) Allocates expenses to revenues in the proper period. (b) Indicates that fair value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle.) (c) Ensures that all relevant financial information is reported. (d) Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.) (e) Indicates that personal and business record keeping should be separately maintained. (f) Separates financial information into time periods for reporting purposes. (g) Assumes that the dollar is the “measuring stick” used to report on financial performance.

The following situations relate to Bolivia Company. 1. Bolivia provides a warranty with all its products it sells. It estimates that it will sell 1,000,000 units of its product for the year ended December 31, 2014, and that its total revenue for the product will be $100,000,000. It also estimates that 60% of the product will have no defects, 30% will have major defects, and 10% will have minor defects. The cost of a minor defect is estimated to be $5 for each product sold, and the cost for a major defect cost is $15. The company also estimates that the minimum amount of warranty expense will be $2,000,000 and the maximum will be $10,000,000. 2. Bolivia is involved in a tax dispute with the tax authorities. The most likely outcome of this dispute is that Bolivia will lose and have to pay $400,000. The minimum it will lose is $20,000 and the maximum is $2,500,000. Instructions Prepare the journal entry to record provisions, if any, for Bolivia at December 31, 2014.

How does increasing discharge current affect metal removal rate and surface finish in electric discharge machining?

A test specimen in a tensile test has a gage length of 2.0 in and an area = 0.5 in2 . During the test the specimen yields under a load of 32,000 lb. The corresponding gage length = 2.0083 in. This is the 0.2 percent yield point. The maximum load of 60,000 lb is reached at a gage length = 2.60 in. Determine (a) yield strength, (b) modulus of elasticity, and (c) tensile strength. (d) If fracture occurs at a gage length of 2.92 in, determine the percent elongation. (e) If the specimen necked to an area = 0.25 in2 , determine the percent reduction in area.

Using the facts in problem 37, if Campbell earns an additional $15,000 of taxable income, what is her marginal tax rate on this income?  What is her marginal rate if, instead, she had $15,000 of additional deductions?

Consider an extruder in which the barrel diameter = 4.5 in and length = 11 ft. The extruder screw rotates at 60 rev/min; it has channel depth = 0.35 in and flight angle = 20°. The plastic melt has a shear viscosity = 125 x 10-4 lb-sec/in2 . Determine: (a) Qmax and pmax; (b) the shape factor Ks for a circular die opening in which Dd = 0.312 in and Ld = 0.75 in; and (c) the values of Q and p at the operating point

What is a via hole in a printed circuit board?

Assume the same facts as in the previous problem but that Betty and Barney are not getting along and have separated due to marital discord (although they are not legally separated). In fact, they cannot even stand to talk to each other anymore and communicate only through their accountant. Betty wants to argue that she should not be treated as owning any of Barney’s stock in Bedrock because of their hostility towards each other. Can family hostility be used as an argument to void the family attribution rules?  Consult Rev. Rul. 80-26; Robin Haft Trust v. Comm’r, 510 F.2d 43 (1st Cir. 1975);