Question & Answer

Explain how the present value of an ordinary annuity interest table is converted to the present value of an annuity due interest table.

Discuss the appropriate treatment in the income statement for the following items: (a) Loss on discontinued operations. (b) Non-controlling interest allocation.

When might a shareholder have to rely on the “not essentially equivalent to a dividend” test in arguing that a stock redemption should be treated as an exchange for tax purposes?

On November 10 of year 1, Javier purchased a building, including the land it was on, to assemble his new equipment. The total cost of the purchase was $1,200,000; $300,000 was allocated to the basis of the land, and the remaining $900,000 was allocated to the basis of the building.  a. Using MACRS, what is Javier’s depreciation deduction on the building for years 1 through 3? b. What would be the year 3 depreciation deduction if the building was sold on August 1 of year 3? c. Answer the question in part (a), except assume the building was purchased and placed in service on March 3 instead of November 10. d. Answer the question in part (a), except assume that the building is residential property. e. What would be the depreciation for 2024, 2025, and 2026 if the property were nonresidential property purchased and placed in service November 10, 2007 (assume the same original basis)?

An extruder has a barrel diameter of 2.5 in and a length of 6.0 ft. The screw has a channel depth of 0.25 in, a flight angle of 20°, and rotates at 55 rev/min. The material being extruded is polypropylene. At the present settings, the volumetric flow rate of the polymer melt is 1.50 in3 /sec and the head pressure is 500 lb/in2 . (a) Under these operating characteristics, what is the viscosity of the polypropylene? (b) Using Figure 13.2, approximate the temperature in °F of the polypropylene

Two flat plates, separated by a space of 4 mm, are moving relative to each other at a velocity of 5 m/sec. The space between them is occupied by a fluid of unknown viscosity. The motion of the plates is resisted by a shear stress of 10 Pa due to the viscosity of the fluid. Assuming that the velocity gradient of the fluid is constant, determine the coefficient of viscosity of the fluid.

The financial statements of P&G are presented in Appendix 5B. The company’s complete annual report, including the notes to the financial statements, can be accessed at the book’s companion website, www. wiley.com/college/kieso. Instructions Refer to P&G’s 2011 financial statements and the accompanying notes to answer the following questions. (a) What cash outflow obligations related to the repayment of long-term debt does P&G have over the next 5 years? (b) P&G indicates that it believes that it has the ability to meet business requirements in the foreseeable future. Prepare an assessment of its liquidity, solvency, and financial flexibility using ratio analysis.

Aamodt Music sold CDs to retailers and recorded sales revenue of $700,000. During 2014, retailers returned CDs to Aamodt and were granted credit of $78,000. Past experience indicates that the normal return rate is 15%. Prepare Aamodt’s entries to record (a) the $78,000 of returns and (b) estimated returns at December 31, 2014.

Variance analysis is only useful for organisations using a standard costing system. Discuss.

Using the facts from the previous problem, when should Reese pay the bill if she expects her marginal tax rate to be 35 percent next year? 24 percent next year?

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) What cash outflow obligations related to the repayment of long-term debt does M&S have over the next 5 years? (b) M&S indicates that it believes that it has the ability to meet business requirements in the foreseeable future. Prepare an assessment of its liquidity, solvency, and financial flexibility using ratio analysis.

Instructions Go to the book’s companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc. (a) Compute the debt to assets and the times interest earned ratios for these two companies. Comment on the quality of these two ratios for both Coca-Cola and PepsiCo. (b) What is the difference between the fair value and the historical cost (carrying amount) of each company’s debt at year-end 2011? Why might a difference exist in these two amounts? (c) Both companies have debt issued in foreign countries. Speculate as to why these companies may use foreign debt to finance their operations. What risks are involved in this strategy, and how might they adjust for this risk?

What is the difference between the APBO and the EPBO? What are the components of postretirement expense?

The accounting staff of Usher Inc. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet are not decipherable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2014.   Instructions (a) Determine the missing amounts in the 2014 pension worksheet, indicating whether the amounts are debits or credits. (b) Prepare the journal entry to record 2014 pension expense for Usher Inc. (c) The accounting staff has heard of a pension accounting procedure called “corridor amortization.” Is Usher required to record any amounts for corridor amortization in (1) 2014? In (2) 2015? Explain.

Identify a series of possible frictions which could affect the speed with which markets adjust or which affect the nature of market equilibria.

Is the value of a money market fund or a bond fund more susceptible to rising interest rates? Explain. (LO3)

Brisky Corporation had net sales of $2,400,000 and interest revenue of $31,000 during 2014. Expenses for 2014 were cost of goods sold $1,450,000; administrative expenses $212,000; selling expenses $280,000; and interest expense $45,000. Brisky’s tax rate is 30%. The corporation had 100,000 shares of common stock authorized and 70,000 shares issued and outstanding during 2014. Prepare a single-step income statement for the year ended December 31, 2014.

In 2014, Gurney Construction Company agreed to construct an apartment building at a price of $1,200,000. The information relating to the costs and billings for this contract is shown below. 2014 2015 2016 Costs incurred to date $280,000 $600,000 $ 785,000 Estimated costs yet to be incurred 520,000 200,000 –0– Customer billings to date 150,000 500,000 1,200,000 Collection of billings to date 120,000 320,000 940,000 Instructions (a) Assuming that the percentage-of-completion method is used, (1) compute the amount of gross profit to be recognized in 2014 and 2015, and (2) prepare journal entries for 2015. (b) For 2015, show how the details related to this construction contract would be disclosed on the balance sheet and on the income statement.

Explain how the investment account is affected by investee activities under the equity method.

Prior Company’s condensed financial statements provide the following information.   Instructions (a) Determine the following for 2014. (1) Current ratio at December 31. (2) Acid-test ratio at December 31. (3) Accounts receivable turnover. (4) Inventory turnover. (5) Return on assets. (6) Profit margin on sales. (b) Prepare a brief evaluation of the financial condition of Prior Company and of the adequacy of its profits.

Determine the bending force required in Problem 20.9 if the bend is to be performed in a V-die with a die opening dimension of 40 mm. The material has a tensile strength of 600 MPa and a shear strength of 430 MPa

Explain the general difference in the composition of pension portfolios managed by trusts versus those managed by insurance companies. Why does this difference occur? (LO6)

Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston’s specifications. Upon completion of the engines, Winston has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is noncancelable, becomes effective on January 1, 2014, and requires annual rental payments of $413,971 each January 1, starting January 1, 2014. Winston’s incremental borrowing rate is 10%. The implicit interest rate used by Ewing Inc. and known to Winston is 8%. The total cost of building the three engines is $2,600,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Winston depreciates similar equipment on a straight-line basis. At the end of the lease, Winston assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs. Instructions (a) Discuss the nature of this lease transaction from the viewpoints of both lessee and lessor. (b) Prepare the journal entry or entries to record the transaction on January 1, 2014, on the books of Winston Industries. (c) Prepare the journal entry or entries to record the transaction on January 1, 2014, on the books of Ewing Inc. (d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2014. (e) Prepare the journal entries for both the lessee and lessor to record interest expense (revenue) at December 31, 2014. (Prepare a lease amortization schedule for 2 years.) (f) Show the items and amounts that would be reported on the balance sheet (not notes) at December 31, 2014, for both the lessee and the lessor.

Bienvenu Enterprises reported cost of goods sold for 2014 of $1,400,000 and retained earnings of $5,200,000 at December 31, 2014. Bienvenu later discovered that its ending inventories at December 31, 2013 and 2014, were overstated by $110,000 and $35,000, respectively. Determine the corrected amounts for 2014 cost of goods sold and December 31, 2014, retained earnings

Some of the information found on a detail inventory card for Slatkin Inc. for the first month of operations is as follows. Received Issued, Balance, Date No. of Units Unit Cost No. of Units No. of Units January 2 1,200 $3.00 1,200 7 700 500 10 600 3.20 1,100 13 500 600 18 1,000 3.30 300 1,300 20 1,100 200 23 1,300 3.40 1,500 26 800 700 28 1,600 3.50 2,300 31 1,300 1,000 Instructions (a) From these data compute the ending inventory on each of the following bases. Assume that perpetual inventory records are kept in units only. (Carry unit costs to the nearest cent and ending inventory to the nearest dollar.) (1) First-in, first-out (FIFO). (2) Last-in, first-out (LIFO). (3) Average-cost. (b) If the perpetual inventory record is kept in dollars, and costs are computed at the time of each withdrawal, would the amounts shown as ending inventory in (1), (2), and (3) above be the same? Explain and compute. (Round average unit costs to four decimal places.)