Question & Answer

: Describe how ethical behavior relates to behavior governed by law or free choice.

Muggsy Bogues Company purchased equipment for $212,000 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,000. Estimated production is 40,000 units and estimated working hours are 20,000. During 2014, Bogues uses the equipment for 525 hours and the equipment produces 1,000 units. Instructions Compute depreciation expense under each of the following methods. Bogues is on a calendar-year basis ending December 31. (a) Straight-line method for 2014. (b) Activity method (units of output) for 2014. (c) Activity method (working hours) for 2014. (d) Sum-of-the-years’-digits method for 2016. (e) Double-declining-balance method for 2015.

List two factors that could affect managers’ choices for the number of times and points in processing to inspect units.

: Describe functional, divisional, matrix, team, and virtual network approaches to structure

Turner, Inc. began work on a $7,000,000 contract in 2014 to construct an office building. During 2014, Turner, Inc. incurred costs of $1,700,000, billed its customers for $1,200,000, and collected $960,000. At December 31, 2014, the estimated future costs to complete the project total $3,300,000. Prepare Turner’s 2014 journal entries using the percentage-of-completion method.

Assume a taxpayer makes a nondeductible contribution to a traditional IRA. How does the taxpayer determine the taxability of distributions from the IRA on reaching retirement?

Deirdre sold 100 shares of stock to her brother, James, for $2,400. Deirdre purchased the stock several years ago for $3,000.  a. What gain or loss does Deirdre recognize on the sale? b. What amount of gain or loss does James recognize if he sells the stock for $3,200? c. What amount of gain or loss does James recognize if he sells the stock for $2,600? d. What amount of gain or loss does James recognize if he sells the stock for $2,000?

What is meant by the ‘steady-state economic growth path’? What determines its slope?

1.      : Create a new position at the firm that will allow Farhad to do the reports and reconciliations for several account managers, freeing the account assistants to concentrate on public contact work. Make it clear that he will have little chance of future promotion unless his English improves markedly.

This year Elizabeth agreed to a three-year service contract with an engineering consulting firm to improve efficiency in her factory. The contract requires Elizabeth to pay the consulting firm $1,500 for each instance that Elizabeth requests its assistance. The contract also provides that Elizabeth only pays the consultants if their advice increases efficiency as measured 12 months from the date of service. This year Elizabeth requested advice on three occasions, and she has not yet made any payments to the consultants.  a) How much should Elizabeth deduct this year under this service contract if she uses the accrual method of accounting?  b) How much should Elizabeth deduct this year under this service contract if she uses the cash method of accounting?

One financial accounting issue encountered when a company constructs its own plant is whether the interest cost on funds borrowed to finance construction should be capitalized and then amortized over the life of the assets constructed. What is the justification for capitalizing such interest?

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?

In what situation will there be a common year-end for the principal partners when there is no majority interest taxable year?

Nicole organized a new corporation. The corporation began business on April 1 of year 1. She made the following expenditures associated with getting the corporation started: Expense Date Amount Attorney fees for articles of incorporation February 10 $32,000 March 1 – March 30 wages March 30 $4,500  March 1 – March 30 rent March 30 $2,000 Stock issuance costs April 1 $20,000 April 1 – May 30 wages May 30 $12,000  a. What is the total amount of the start-up costs and organizational expenditures for Nicole’s corporation? b. What amount of the start-up costs and organizational expenditures may the corporation immediately expense in year 1 (excluding the portion of the expenditures that are amortized over 180 months)? c. What amount can the corporation deduct as amortization expense for the organizational expenditures and for the start-up costs for year 1 [not including the amount determined in part (b)]? d. What would be the total allowable organizational expenditures if Nicole started a sole proprietorship instead of a corporation?

Pam, Sergei, and Mercedes are all one-third partners in the capital and profits of Oak Grove General Partnership. Partnership liabilities are allocated among the partners in accordance with their capital and profits interests. In addition to their normal share of the partnership’s annual income, Pam and Sergei receive annual guaranteed payments of $20,000 each to compensate them for additional services they provide. Oak Grove’s income statement for the current year reflects the following revenues and expenses: Sales revenue $476,700 Dividend income 6,600 §1231 losses (3,800) Cost of goods sold (245,000) Employee wages (92,000) Depreciation expense (31,000) Guaranteed payments (40,000) Miscellaneous expenses (11,500) Overall net income $ 60,000 In addition, Oak Grove owed creditors $90,000 at the beginning of the year and $150,000 at the end, and Pam, Sergei and Mercedes had a tax basis of $50,000 in their interests at the beginning of the year. Also, on December 31 of the current year, Sergei and Mercedes agreed to increase Pam’s capital and profits interest from 1∕3 to 40 percent in exchange for additional services she provided to the partnership. The current liquidation value of the additional capital interest Pam received at the end of the tax year is $40,000. a. What tax basis do the partners have in their partnership interests at the end of the year? b. If, in addition to the expenses listed above, the partnership donated $12,000 to a political campaign, what tax basis do the partners have in their partnership interests at the end of the year assuming the liquidation value of the additional capital interest Pam receives at the end of the year remains at $40,000?

Why is the profit-maximising price under monopoly greater than marginal cost? In what way can this be seen as inefficient?

Falcetto Company acquired equipment on January 1, 2013, for $12,000. Falcetto elects to value this class of equipment using revaluation accounting. This equipment is being depreciated on a straightline basis over its 6-year useful life. There is no residual value at the end of the 6-year period. The appraised value of the equipment approximates the carrying amount at December 31, 2013 and 2015. On December 31, 2014, the fair value of the equipment is determined to be $7,000. Instructions (a) Prepare the journal entries for 2013 related to the equipment. (b) Prepare the journal entries for 2014 related to the equipment. (c) Determine the amount of depreciation expense that Falcetto will record on the equipment in 2015.

Suppose in Example 30.3 in the text that the fuel used in the welding operation is MAPP instead of acetylene, and the proportion of heat concentrated in the 9 mm circle is 60% instead of 75 %. Compute (a) rate of heat liberated during combustion, (b) rate of heat transferred to the work surface, and (c) average power density in the circular area.

In a turning operation on ductile steel, it is desired to obtain an actual surface roughness of 63 µ-in with a 2/64 in nose radius tool. The ideal roughness is given by Eq. (24.1) and an adjustment will have to be made using Figure 24.2 to convert the 63 µ-in actual roughness to an ideal roughness, taking into account the material and cutting speed. Disposable inserts are used at a cost of $1.75 per cutting edge (each insert costs $7.00 and there are four edges per insert). Average time to change each insert = 1.0 min. The workpiece length = 30.0 in and its diameter = 3.5 in. The machine and operator’s rate = $39.00 per hour including applicable overheads. The Taylor tool life equation for this tool and work combination is given by: vT0.23 f 0.55 = 40.75, where T = tool life, min; v = cutting speed, ft/min; and f = feed, in/rev. Solve for (a) the feed in in/rev that will achieve the desired actual finish, (b) cutting speed for minimum cost per piece at the feed determined in (a). Hint: To solve (a) and (b) requires an iterative computational procedure. Use of a spreadsheet calculator is recommended for this iterative procedure

1. We defined the factor of production ‘land’ to include raw materials. Does the analysis of rent that we have just been looking at apply to raw materials? 2. The supply of land in a particular area may be totally inelastic, but the supply of land in that area for a specific purpose (e.g. growing wheat) will be upward sloping: the higher the price of wheat and thus the higher the rent that wheat producers are prepared to pay, the more will be made available for wheat production. Using the concept of transfer earnings, what will determine the elasticity of supply of land for any particular purpose?

Suppose you asked your favorite AI query tool “What types of assets held in a partnership are treated as hot assets for tax purposes?” and the AI tool responded as follows:

Hyundai is considering opening a plant in two neighboring states. One state has a corporate tax rate of 10 percent. If operated in this state, the plant is expected to generate $1,000,000 pretax profit. The other state has a corporate tax rate of 2 percent. If operated in this state, the plant is expected to generate $930,000 of pretax profit. Which state should Hyundai choose? Why do you think the plant in the state with a lower tax rate would produce a lower before-tax income?

Joseph contributed $22,000 in cash and equipment with a tax basis of $5,000 and a fair market value of $11,000 to Berry Hill Partnership in exchange for a partnership interest. a. What is Joseph’s tax basis in his partnership interest? b. What is Berry Hill’s basis in the equipment?

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for dilutive securities, stock-based compensation, and earnings per share.