Question & Answer

How do business owners create legal entities? Is the process the same for all entities? If not, what are the differences?

The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared. An analysis of the accounts shows the following. 1. The equipment depreciates $250 per month. 2. One-third of the unearned rent was recognized as revenue during the quarter. 3. Interest of $500 is accrued on the notes payable. 4. Supplies on hand total $850. 5. Insurance expires at the rate of $300 per month. WATTEAU CO. TRIAL BALANCE JUNE 30, 2014 Debit Credit Cash $ 2,870 Accounts Receivable $ 3,231 Supplies 800 Equipment 3,800 Accounts Payable 2,666 Unearned Service Revenue 1,200 Common Stock 6,000 Retained Earnings 3,000 Service Revenue 2,380 Salaries and Wages Expense 3,400 Offi ce Expense 940 $13,371 $16,916 Debit Credit Prepaid Insurance $ 3,600 Supplies 2,800 Equipment 25,000 Accumulated Depreciation—Equipment $ 8,400 Notes Payable 20,000 Unearned Rent Revenue 9,300 Rent Revenue 60,000 Interest Expense –0– Salaries and Wages Expense 14,000 Instructions Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense. (Omit explanations.)

What are some of the mechanisms by which the alloying elements other than carbon strengthen steel?

Consider the following tax rate structure.  Is it horizontally equitable?  Why or why not?  Is it vertically equitable?  Why or why not?

Assume a savings institution has a large amount of fixed-rate mortgages and obtains most of its funds from short-term deposits. How could it use options on financial futures to hedge its exposure to interest rate movements? Would futures or options on futures be more appropriate if the institution is concerned that interest rates will decline, causing a large number of mortgage prepayments? (LO4, LO6)

A special ceramic specimen is tested in a bend test. Its width = 0.50 in and thickness = 0.25 in. The length of the specimen between supports = 2.0 in. Determine the transverse rupture strength if failure occurs at a load = 1700 lb

What are some of the taxes that currently are unique to state and local governments?  What are some of the taxes that the federal, state, and local governments each utilize?

When should liabilities for each of the following items be recorded on the books of an ordinary business corporation? (a) Acquisition of goods by purchase on credit. (b) Officers’ salaries. (c) Special bonus to employees. (d) Dividends. (e) Purchase commitments.

In a certain welding operation to make a fillet weld, the cross-sectional area = 0.025 in2 and the travel speed = 15 in/min. If the heat transfer factor = 0.95 and melting factor = 0.5, and the melting point = 2000°F for the metal to be welded, determine the rate of heat generation required at the heat source to accomplish this weld.

A review of the ledger of Baylor Company at December 31, 2014, produces the following data pertaining to the preparation of annual adjusting entries. 1. Salaries and Wages Payable $0. There are eight employees. Salaries and wages are paid every Friday for the current week. Five employees receive $700 each per week, and three employees earn $600 each per week. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December. 2. Unearned Rent Revenue $429,000. The company began subleasing office space in its new building on November 1. Each tenant is required to make a $5,000 security deposit that is not refundable until occupancy is terminated. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease. Date Term (in months) Monthly Rent Number of Leases Nov. 1 6 $6,000 5 Dec. 1 6 $8,500 4 3. Prepaid Advertising $13,200. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are asshown below. Contract Date Amount Number of Magazine Issues A650 May 1 $6,000 12 B974 Oct. 1 7,200 24 The first advertisement runs in the month in which the contract is signed. 4. Notes Payable $60,000. This balance consists of a note for one year at an annual interest rate of 12%, dated June 1. Instructions Prepare the adjusting entries at December 31, 2014. (Show all computations).

As discussed in the chapter, an important consideration in evaluating current liabilities is a company’s operating cycle. The operating cycle is the average time required to go from cash to cash in generating revenue. To determine the length of the operating cycle, analysts use two measures: the average days to sell inventory (inventory days) and the average days to collect receivables (receivable days). The inventory-days computation measures the average number of days it takes to move an item from raw materials or purchase to final sale (from the day it comes in the company’s door to the point it is converted to cash or an account receivable). The receivable-days computation measures the average number of days it takes to collect an account. Most businesses must then determine how to finance the period of time when the liquid assets are tied up in inventory and accounts receivable. To determine how much to finance, companies first determine accounts payable days—how long it takes to pay creditors. Accounts payable days measures the number of days it takes to pay a supplier invoice. Consider the following operating cycle worksheet for BOP Clothing Co.   These data indicate that BOP has reduced its overall operating cycle (to 261.5 days) as well as the number of days to be financed with sources of funds other than accounts payable (from 78 to 63 days). Most businesses cannot finance the operating cycle with accounts payable financing alone, so working capital financing, usually short-term interest-bearing loans, is needed to cover the shortfall. In this case, BOP would need to borrow less money to finance its operating cycle in 2014 than in 2013. Instructions (a) Use the BOP analysis to briefly discuss how the operating cycle data relate to the amount of working capital and the current and acid-test ratios. (b) Select two other real companies that are in the same industry and complete the operating cycle worksheet, along with the working capital and ratio analysis. Briefly summarize and interpret the results. To simplify the analysis, you may use ending balances to compute turnover ratios. [Adapted from Operating Cycle Worksheet at www.entrepreneur.com]

The following data relate to the operation of Kramer Co.’s pension plan in 2015. The pension worksheet for 2014 is provided in P20-10. Service cost $59,000 Actual return on plan assets 32,000 Amortization of prior service cost 28,000 Annual contributions 51,000 Benefi ts paid retirees 27,000 Average service life of all employees 25 years For 2015, Kramer will use the same assumptions as 2014 for the expected rate of returns on plan assets. The settlement rate for 2015 is 10%. Instructions (a) Prepare a pension worksheet for 2015 and accompanying computations and amortization of the loss, if any, in 2015 using the corridor approach. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31. (c) Indicate the pension amounts reported in the financial statements.

What are some of the factors that affect the fluidity of a molten metal during pouring into a mold cavity?

On December 31, 2013, Main Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2014, the company made the following expenditures related to this building: March 1, $360,000; June 1, $600,000; July 1, $1,500,000; December 1, $1,500,000. The building was completed in February 2015. Additional information is provided as follows. 1. Other debt outstanding 10-year, 13% bond, December 31, 2007, interest payable annually $4,000,000 6-year, 10% note, dated December 31, 2011, interest payable annually $1,600,000 2. March 1, 2014, expenditure included land costs of $150,000 3. Interest revenue earned in 2014 $49,000 Instructions (a) Determine the amount of interest to be capitalized in 2014 in relation to the construction of the building. (b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2014.

What is a tax bracket?  What is the relationship between filing status and the width of the tax brackets in the tax rate schedule?

Geri has a certificate of deposit at the local bank. The interest on this certificate was credited to their account on December 31 of last year but they didn’t withdraw the interest until January of this year. When is the interest income taxed?

Answer the following questions relatedto Dubois Inc. (a) Dubois Inc. has $600,000 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides $80,000 at the end of each year for 12 years, and the other is to receive a single lump-sum payment of $1,900,000 at the end of the 12 years. Which alternative should Dubois select? Assume the interest rate is constant over the entire investment. (b) Dubois Inc. has completed the purchase of new Dell computers. The fair value of the equipment is $824,150. The purchase agreement specifies an immediate down payment of $200,000 and semiannual payments of $76,952 beginning at the end of 6 months for 5 years. What is the interest rate, to the nearest percent, used in discounting this purchase transaction? (c) Dubois Inc. loans money to John Kruk Corporation in the amount of $800,000. Dubois accepts an 8% note due in 7 years with interest payable semiannually. After 2 years (and receipt of interest for 2 years), Dubois needs money and therefore sells the note to Chicago National Bank, which demands interest on the note of 10% compounded semiannually. What is the amount Dubois will receive on the sale of the note? (d) Dubois Inc. wishes to accumulate $1,300,000 by December 31, 2024, to retire bonds outstanding. The company deposits $200,000 on December 31, 2014, which will earn interest at 10% compounded quarterly, to help in the retirement of this debt. In addition, the company wants to know how much should be deposited at the end of each quarter for 10 years to ensure that $1,300,000 is available at the end of 2024. (The quarterly deposits will also earn at a rate of 10%, compounded quarterly.) (Round to even dollars.)

Remuneration disclosure The ASX Corporate Governance Principles and Recommendations set out rules to deal with enhanced management performance and effectiveness and requires disclosure of the process for performance evaluation of the board, its committees and individual directors and key executives. However, the outcomes of individual evaluations are not required to be disclosed.   Required Why do you think such a recommendation is included in the guidelines? (LO5)

Joy Cunningham Co. purchased a machine on January 1, 2012, for $550,000. At that time, it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2015, the firm’s accountant found that the entry for depreciation expense had been omitted in 2013. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2015. At present, the company uses the sum-of-the-years’-digits method for depreciating equipment. Instructions Prepare the general journal entries that should be made at December 31, 2015, to record these events. (Ignore tax effects.)

Presented below are selected accounts of Yasunari Kawabata Company at December 31, 2014 Inventory (fi nished goods) $ 52,000 Cost of Goods Sold $2,100,000 Unearned Service Revenue 90,000 Notes Receivable 40,000 Equipment 253,000 Accounts Receivable 161,000 Inventory (work in process) 34,000 Inventory (raw materials) 207,000 Cash 37,000 Supplies Expense 60,000 Equity Investments (short-term) 31,000 Allowance for Doubtful Accounts 12,000 Customer Advances 36,000 Licenses 18,000 Restricted Cash for Plant Expansion 50,000 Additional Paid-in Capital 88,000 Treasury Stock 22,000 The following additional information is available. 1. Inventories are valued at lower-of-cost-or-market using LIFO. 2. Equipment is recorded at cost. Accumulated depreciation, computed on a straight-line basis, is $50,600. 3. The short-term investments have a fair value of $29,000. (Assume they are trading securities.) 4. The notes receivable are due April 30, 2016, with interest receivable every April 30. The notes bear interest at 6%. (Hint: Accrued interest due on December 31, 2014.) 5. The allowance for doubtful accounts applies to the accounts receivable. Accounts receivable of $50,000 are pledged as collateral on a bank loan. 6. Licenses are recorded net of accumulated amortization of $14,000. 7. Treasury stock is recorded at cost. Instructions Prepare the current assets section of Yasunari Kawabata Company’s December 31, 2014, balance sheet, with appropriate disclosures.

(Threshold Concept 14) 1. Give some examples of supply-side policy. (see Chapter 23 for some ideas if you are stuck). (Threshold Concept 14) 2. If there is an increase in aggregate supply, will this result in an increase in potential growth?

In MRP, what are common use items?

Explain how gains or losses on impaired assets should be reported in income.

A sand core used to form the internal surfaces of a steel casting experiences a buoyancy force of 23 kg. The volume of the mold cavity forming the outside surface of the casting = 5000 cm3 . What is the weight of the final casting? Ignore considerations of shrinkage

Jansen Corporation shipped $20,000 of merchandise on consignment to Gooch Company. Jansen paid freight costs of $2,000. Gooch Company paid $500 for local advertising, which is reimbursable from Jansen. By year-end, 60% of the merchandise had been sold for $21,500. Gooch notified Jansen, retained a 10% commission, and remitted the cash due to Jansen. Prepare Jansen’s entry when the cash is received.