Question & Answer

Use the information for Hanson Company from BE10-2 and BE10-3. Compute avoidable interest for Hanson Company.

Presented below are the captions of Faulk Company’s balance sheet. (a) Current assets. (f) Current liabilities. (b) Investments. (g) Noncurrent liabilities. (c) Property, plant, and equipment. (h) Capital stock. (d) Intangible assets. (i) Additional paid-in capital. (e) Other assets. (j) Retained earnings. Instructions Indicate by letter where each of the following items would be classified. 1. Preferred stock. 11. Cash surrender value of life insurance. 2. Goodwill. 12. Notes payable (due next year). 3. Salaries and wages payable. 13. Supplies. 4. Accounts payable. 14. Common stock. 5. Buildings. 15. Land. 6. Equity investments (trading). 16. Bond sinking fund. 7. Current maturity of long-term debt. 17. Inventory. 8. Premium on bonds payable. 18. Prepaid insurance. 9. Allowance for doubtful accounts. 19. Bonds payable. 10. Accounts receivable. 20. Income taxes payable.

Robert has found a “favorable” authority directly on point for his tax question.  If the authority is a court case, which court would he prefer to have issued the opinion?  Which court would he least prefer to have issued the opinion?

Rick Kleckner Corporation recorded a finance lease at $300,000 on January 1, 2014. The interest rate is 12%. Kleckner Corporation made the first lease payment of $53,920 on January 1, 2014. The lease requires eight annual payments. The equipment has a useful life of 8 years with no residual value. Prepare Kleckner Corporation’s December 31, 2014, adjusting entries.

What is the difference between the nominal interest rate and real interest rate? What is the logic behind the implied positive relationship between expected inflation and nominal interest rates? (LO2)

Acorn Construction (calendar-year-end C corporation) has had rapid expansion during the last half of the current year due to the housing market’s recovery. The company has record income and would like to maximize its cost recovery deduction for the current year. Acorn provided the following information:

1. Why may a food shop charge higher prices than supermarkets for ‘essential items’ and yet very similar prices for delicatessen items? 2. Which of these two items is a petrol station more likely to sell at a discount: (a) oil; (b) sweets? Why?

Describe the accounting entry for a stock dividend, if any. Describe the accounting entry for a stock split, if any.

The conventional retail inventory method yields results that are essentially the same as those yielded by the lowerof- cost-or-market method. Explain. Prepare an illustration of how the retail inventory method reduces inventory to market.

Distinguish between a substitutional solid solution and an interstitial solid solution.

What adjustments are made annually to a shareholder’s basis in S corporate stock and in what order? What impact do these adjustments have on a subsequent sale of stock?

List the most common methods for forming the pressed parts in powder metallurgy according to the powder metallurgy video.

What has been the trend in noninterest income in recent years? Explain. (LO2)

Willow Corp. (a calendar-year C corporation) reported taxable income before the net operating loss deduction (NOL) in the amount of $100,000 in 2024. Willow had an NOL carryover of $90,000 to 2024 How much tax will Willow Corp. pay for 2024, what is its NOL carryover to 2025, and when will the NOL expire under the following assumptions?

Why can convertible bonds be issued by firms at a higher price than other bonds? (LO2)

A disk 40 cm in diameter and 5 cm thick is to be cast of pure aluminum in an open mold casting operation. The melting temperature of aluminum = 660°C, and the pouring temperature will be 800°C. Assume that the amount of aluminum heated will be 5% more than what is needed to fill the mold cavity. Compute the amount of heat that must be added to the metal to heat it to the pouring temperature, starting from a room temperature of 25°C. The heat of fusion of aluminum = 389.3 J/g. Other properties can be obtained from Tables 4.1 and 4.2 in the text. Assume the specific heat has the same value for solid and molten aluminum

Each of the following items must be considered in preparing a statement of cash flows for Blackwell Inc. for the year ended December 31, 2014. State where each item is to be shown in the statement, if at all. (a) Plant assets that had cost $18,000 6½ years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $4,000. (b) During the year, 10,000 shares of common stock with a stated value of $20 a share were issued for $41 a share. (c) Uncollectible accounts receivable in the amount of $22,000 were written off against Allowance for Doubtful Accounts. (d) The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realized on the sale of available-for-sale securities for $38,000 cash.

Jack Kelly Company has grown rapidly since its founding in 2004. To instill loyalty in its employees, Kelly is contemplating establishment of a defined benefit plan. Kelly knows that lenders and potential investors will pay close attention to the impact of the pension plan on the company’s financial statements, particularly any gains or losses that develop in the plan. Kelly has asked you to conduct some research on the accounting for gains and losses in a defined benefit plan. Instructions Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.) (a) Briefly describe how pension gains and losses are accounted for. (b) Explain the rationale behind the accounting method described in part (a). (c) What is the related pension asset or liability that may show up on the statement of financial position? When will each of these situations occur?

Many critics argue that greed in the mortgage markets caused the credit crisis. Yet many market advocates suggest that greed is good, as the thirst for profits by firms that participate in mortgage markets allows for economic growth. Write a short essay on how regulations can allow for greed while also ensuring proper transparency in the mortgage markets so that another credit crisis does not occur.

Describe the conditions in which a donation of property to a charity will result in a charitable contribution deduction of fair market value and when it will result in a deduction of the tax basis of the property.

How might the reimbursement of a portion of an employee expense influence the deductibility of the expense for the employee?

Despite being a publicly traded company only since 1987, Northland Cranberries of Wisconsin Rapids, Wisconsin, is one of the world’s largest cranberry growers. During its short life as a publicly traded corporation, it has engaged in an aggressive growth strategy. As a consequence, the company has taken on significant amounts of both short-term and long-term debt. The following information is taken from recent annual reports of the company.   Instructions (a) Evaluate the company’s liquidity by calculating and analyzing working capital and the current ratio. (b) The discussion of the company’s liquidity, shown below, was provided by the company in the Management Discussion and Analysis section of the company’s annual report. Comment on whether you agree with management’s statements, and what might be done to remedy the situation.

L. A. and Paula file as married taxpayers. In August of this year, they received a $5,200 refund of state income taxes that they paid last year. How much of the refund, if any, must L. A. and Paula include in gross income under the following independent scenarios? Assume the standard deduction last year was $27,700.

Your aunt recently received the annual report for a company in which she has invested. The report notes that the statements have been prepared in accordance with IFRS. She has also heard that certain terms have special meanings in accounting relative to everyday use. She would like you to explain the meaning of terms she has come across related to accounting. Instructions Access the IASB Framework at the IASB website (http://eifrs.iasb.org/ ). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to prepare responses to the following items. (Provide paragraph citations.) (a) How is “materiality” defined in the framework? (b) Briefly discuss how materiality relates to (1) the relevance of financial information, and (2) completeness. (c) Your aunt observes that under IFRS, the financial statements are prepared on the accrual basis. According to the framework, what does “accrual basis” mean?

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marksand- Spencer-Annual-report-and-financial-statements-2012.pdf. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) Using the notes to the consolidated financial statements, determine M&S’s revenue recognition policies. (b) Give two examples of where historical cost information is reported in M&S’s financial statements and related notes. Give two examples of the use of fair value information reported in either the financial statements or related notes. (c) How can we determine that the accounting principles used by M&S are prepared on a basis consistent with those of last year? (d) What is M&S’s accounting policy related to refunds and loyalty schemes? Why does M&S include the accounting for refunds and loyalty schemes in its critical accounting estimates and judgments?