Question & Answer

Explain how the bond market facilitates a government’s fiscal policy. How do you think the bond market could discipline a government and discourage the government from borrowing (and spending) excessively? (LO1)

What is the aspect ratio of a cubic particle shape?

Accountants try to prepare income statements that are as accurate as possible. A basic requirement in preparing accurate income statements is to record costs and revenues properly. Proper recognition of costs and revenues requires that costs resulting from typical business operations be recognized in the period in which they expired. Instructions (a) List three criteria that can be used to determine whether such costs should appear as charges in the income statement for the current period. (b) As generally presented in financial statements, the following items or procedures have been criticized as improperly recognizing costs. Briefly discuss each item from the viewpoint of matching costs with revenues and suggest corrective or alternative means of presenting the financial information. (1) Receiving and handling costs. (2) Cash discounts on purchases.

When the records of Debra Hanson Corporation were reviewed at the close of 2015, the errors listed below were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years 2014 and 2015. 2014 2015 Over- Under- No Over- Under- No Item statement statement Effect statement statement Effect 1. Failure to record amortization of patent in 2015. 2. Failure to record the correct amount of ending 2014 inventory. The amount was understated because of an error in calculation. 3. Failure to record merchandise purchased in 2014. Merchandise was also omitted from ending inventory in 2014 but was not yet sold. 4. Failure to record accrued interest on notes payable in 2014; that amount was recorded when paid in 2015. 5. Failure to refl ect supplies on hand on balance sheet at end of 2014.

On April 1, 2014, Seminole Company sold 15,000 of its 11%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2015, Seminole took advantage of favorable prices of its stock to extinguish 6,000 of the bonds by issuing 200,000 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling for $31 per share on March 1, 2015. Instructions Prepare the journal entries needed on the books of Seminole Company to record the following. (a) April 1, 2014: issuance of the bonds. (b) October 1, 2014: payment of semiannual interest. (c) December 31, 2014: accrual of interest expense. (d) March 1, 2015: extinguishment of 6,000 bonds. (No reversing entries made.)

What strategies will help a business maximize its current depreciation deductions (including §179)? Why might a taxpayer choose not to maximize its current depreciation deductions?

1. Assume that demand for a product is inelastic. Will consumer expenditure go on increasing as price rises? Would there be any limit? 2. Can you think of any examples of goods which have a totally inelastic demand (a) at all prices; (b) over a particular price range?

Presented below is an excerpt from the financial statements of H. J. Heinz Company. Segment and Geographic Data The company is engaged principally in one line of business—processed food products—which represents over 90% of consolidated sales. Information about the business of the company by geographic area is presented in the table below. There were no material amounts of sales or transfers between geographic areas or between affi liates, and no material amounts of United States export sales. Foreign (in thousands of United Western U.S. dollars) Domestic Kingdom Canada Europe Other Total Worldwide Sales $2,381,054 $547,527 $216,726 $383,784 $209,354 $1,357,391 $3,738,445 Operating income 246,780 61,282 34,146 29,146 25,111 149,685 396,465 Identifi able assets 1,362,152 265,218 112,620 294,732 143,971 816,541 2,178,693 Capital expenditures 72,712 12,262 13,790 8,253 4,368 38,673 111,385 Depreciation expense 42,279 8,364 3,592 6,355 3,606 21,917 64,196 Instructions (a) Why does H. J. Heinz not prepare segment information on its products or services? (b) What are export sales, and when should they be disclosed? (c) Why are sales by geographical area important to disclose?

What is a reversing mill in rolling?

All else being equal, should taxpayers prefer to exclude income or defer it?Why?

Fallen Company commonly issues long-term notes payable to its various lenders. Fallen has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Fallen has elected to use the fair value option for the long-term notes issued to Barclay’s Bank and has the following data related to the carrying and fair value for these notes. Carrying Value Fair Value December 31, 2014 $54,000 $54,000 December 31, 2015 44,000 42,500 December 31, 2016 36,000 38,000 Instructions (a) Prepare the journal entry at December 31 (Fallen’s year-end) for 2014, 2015, and 2016, to record the fair value option for these notes. (b) At what amount will the note be reported on Fallen’s 2015 balance sheet? (c) What is the effect of recording the fair value option on these notes on Fallen’s 2016 income? (d) Assuming that general market interest rates have been stable over the period, does the fair value data for the notes indicate that Fallen’s creditworthiness has improved or declined in 2016? Explain.

What is the difference between peripheral milling and face milling?

Jeremy (unmarried) earned $100,000 in salary and $6,000 in interest income during the year. Jeremy’s employer withheld $10,000 of federal income taxes from Jeremy’s paychecks during the year. Jeremy has one qualifying dependent child (age 14) who lives with him. Jeremey qualifies to file as head of household and has $25,000 in itemized deductions.

Kimberly is divorced and the custodial parent of a 3-year-old girl named Bailey. Kimberly and Bailey live with Kimberly’s parents, who pay all the costs of maintaining the household (such as mortgage, property taxes, and food). Kimberly pays forBailey’s clothing, entertainment, and healthinsurance costs.These costs comprised only a small part of the total costs of maintaining the household.Kimberly does not qualify as her parents’ dependent. a. Determine the appropriate filing status for Kimberly.

What is the relationship of the asset turnover to the return on assets?

What would happen to price and quantity if the demand curve shifted to the left? Draw a diagram to illustrate your answer.

Consider the prevailing conditions for inflation (including oil prices), the economy, the budget deficit, and the Fed’s monetary policy that could affect interest rates. Based on these conditions, do you think interest rates will likely increase or decrease during this semester? Offer some logic to support your answer. Which factor do you think will have the greatest impact on interest rates? (LO2)

Describe the difference between up milling and down milling?

Foreman Company issued $800,000 of 10%, 20-year bonds on January 1, 2014, at 119.792 to yield 8%. Interest is payable semiannually on July 1 and January 1. Prepare the journal entries to record (a) the issuance of the bonds, (b) the payment of interest and the related amortization on July 1, 2014, and (c) the accrual of interest and the related amortization on December 31, 2014. (Round to the nearest dollar.)

Vande Velde Company made three investments during 2014. (1) It purchased 1,000 shares of Sastre Company, a start-up company. Vande Velde made the investment based on valuation estimates from an internally developed model. (2) It purchased 2,000 shares of GE stock, which trades on the NYSE. (3) It invested $10,000 in local development authority bonds. Although these bonds do not trade on an active market, their value closely tracks movements in U.S. Treasury bonds. Where will Vande Velde report these investments in the fair value hierarchy?

How did Basel III change capital and liquidity requirements for banks? (LO3)

Juan Diego began the year with a tax basis in his partnership interest of $50,000. During the year, he was allocated $20,000 of partnership ordinary business income, $70,000 of §1231 losses, $30,000 of short-term capital losses and received a cash distribution of $50,000. a. What items related to these allocations does Juan Diego actually report on his tax return for the year? [Hint: See Reg. §1.704-1(d)(2) and Rev. Rul. 66-94.] b. If any deductions or losses are limited, what are the carryover amounts, and what is their character? [Hint: See Reg. §1.704-1(d).]

What is a substituted basis as it relates to stock received in exchange for property in a §351 transaction?  What is the purpose of attaching a substituted basis to stock received in a §351 transaction?

Rainmaker Company prepares its financial statements in accordance with IFRS. In 2014, Rainmaker recorded the following revaluation adjustments related to its buildings and land: The company’s building increased in value by $200,000; its land declined by $35,000. How will these revaluation adjustments affect Rainmaker’s balance sheet? Will the reporting differ under GAAP? Explain.

Beyoncé Corporation factors $175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2014. Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments. Instructions (a) What conditions must be met for a transfer of receivables with recourse to be accounted for as a sale? (b) Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2014, for Beyoncé to record the sale of receivables, assuming the recourse obligation has a fair value of $2,000.