Question & Answer

This year, Major Healy paid $40,000 of interest on a mortgage on his home (he borrowed $800,000 to buy the residence in 2015; $900,000 original purchase price and value at purchase), $6,000 of interest on a $120,000 home-equity loan on his home (loan proceeds were used to buy antique cars), and $10,000 of interest on a mortgage on his vacation home (borrowed $200,000 to purchase the home in 2010). Major Healy’s AGI is $220,000. How much interest expense can Major Healy deduct as an itemized deduction?

A Metric 16x2 bolt (16 mm diameter, 2 mm pitch) is subjected to a torque of 15 N-m during tightening. If the torque coefficient is 0.24, determine the tensile stress on the bolt.

Use the information for Jones Company as presented in E7-20. Jones is planning to factor some accounts receivable at the end of the year. Accounts totaling $25,000 will be transferred to Credit Factors, Inc. with recourse. Credit Factors will retain 5% of the balances for probable adjustments and assesses a finance charge of 4%. The fair value of the recourse obligation is $1,200. Instructions (a) Prepare the journal entry to record the sale of the receivables. (b) Compute Jones’s accounts receivable turnover for the year, assuming the receivables are sold, and discuss how factoring of receivables affects the turnover ratio.

Assume now that the firm has monopoly power in hiring out equipment, and thus faces a downward-sloping demand curve. Draw in two such demand curves on a diagram like Figure 10.13(b), one crossing the MC curve in the horizontal section, and one in the vertical section. How much will the firm supply in each case and at what price? (You will need to draw in MR curves too.) Is the MC curve still the supply curve?

Determine the value of the strain-hardening exponent for a metal that will cause the average flow stress to be 3/4 of the final flow stress after deformation

Explain the moral hazard problem as it relates to deposit insurance. (LO2)

What is calorizing?

Recording transactions in the accounting system requires knowledge of the important characteristics of the elements of financial statements, such as assets and liabilities. In addition, accountants must understand the inherent uncertainty in accounting measures and distinctions between related accounting concepts that are important in evaluating the effects of transactions on the financial statements. 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 respond to the following items. (Provide paragraph citations.) (a) Provide the definition of an asset and discuss how the economic benefits embodied in an asset might flow to a company. (b) Provide the definition of a liability and discuss how a company might satisfy a liability. (c) What is “accrual basis”? How do adjusting entries illustrate application of the accrual basis?

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 were M&S’s total assets at 31 March 2012? At 2 April 2011? (b) How much cash (and cash equivalents) did M&S have on 31 March 2012? (c) What were M&S’s selling and marketing expenses in 2012? In 2011? (d) What were M&S’s revenues in 2012? In 2011? (e) Using M&S’s financial statements and related notes, identify items that may result in adjusting entries for prepayments and accruals. (f) What were the amounts of M&S’s depreciation and amortization expense in 2011 and 2012?

1. What does this analysis assume about the price elasticity of demand for the new entrant (a) above PL; (b) below PL? 2. Can you think of any limitations with the limit price model?

1. Assume that there is a growing demand for computer programmers. As a result more people train to become programmers. Does this represent a rightward shift in the supply curve of programmers, or merely the supply curve becoming more elastic in the long run, or both? Explain. 2. Which is likely to be more elastic, the supply of coal miners or the supply of shop assistants? Explain.

On March 1, 2014, Sealy Company sold its 5-year, $1,000 face value, 9% bonds dated March 1, 2014, at an effective annual interest rate (yield) of 11%. Interest is payable semiannually, and the first interest payment date is September 1, 2014. Sealy uses the effective-interest method of amortization. Bond issue costs were incurred in preparing and selling the bond issue. The bonds can be called by Sealy at 101 at any time on or after March 1, 2015. Instructions (a) (1) How would the selling price of the bond be determined? (2) Specify how all items related to the bonds would be presented in a balance sheet prepared immediately after the bond issue was sold. (b) What items related to the bond issue would be included in Sealy’s 2014 income statement, and how would each be determined? (c) Would the amount of bond discount amortization using the effective-interest method of amortization be lower in the second or third year of the life of the bond issue? Why? (d) Assuming that the bonds were called in and redeemed on March 1, 2015, how should Sealy report the redemption of the bonds on the 2015 income statement?

Your client, Keith Moreland Leasing Company, is preparing a contract to lease a machine to Souvenirs Corporation for a period of 25 years. Moreland has an investment cost of $365,755 in the machine, which has a useful life of 25 years and no salvage value at the end of that time. Your client is interested in earning an 11% return on its investment and has agreed to accept 25 equal rental payments at the end of each of the next 25 years. Instructions You are requested to provide Moreland with the amount of each of the 25 rental payments that will yield an 11% return on investment.

What is meant by the principal–agent problem? Give two examples of this problem that you have come across in your own experience.

Ramirez Company has a held-for-collection investment in the 6%, 20-year bonds of Soto Company. The investment was originally purchased for $1,200,000 in 2013. Early in 2014, Ramirez recorded an impairment of $300,000 on the Soto investment, due to Soto’s financial distress. In 2015, Soto returned toprofitability and the Soto investment was no longer impaired. What entry does Ramirez make in 2015 under (a) GAAP and (b) IFRS?

What is the fair value option? Briefly describe the controversy of applying the fair value option to financial liabilities.

Use the information for Rick Kleckner Corporation from IFRS21-7. Assume that at December 31, 2014, Kleckner made an adjusting entry to accrue interest expense of $29,530 on the lease. Prepare Kleckner’s January 1, 2015, journal entry to record the second lease payment of $53,920.

Describe the differences between a proportional, progressive, and regressive tax rate structures.

How might the volatility of an economy affect the growth of potential output?

If factor X costs twice as much as factor Y (Px/Py = 2), what can be said about the relationship between the MPPs of the two factors if the optimum combination of factors is used?

A plastic extrusion process produces round extrudate with a mean diameter = 28.6 mm. The process is in statistical control and the output is normally distributed with standard deviation = 0.53 mm. Determine the process capability.

The gage length of a tensile test specimen = 150 mm. It is subjected to a tensile test in which the grips holding the end of the test specimen are moved with a relative velocity = 0.1 m/s. Construct a plot of the strain rate as a function of length as the specimen is pulled to a length = 200 mm.

On November 24, 2014, 26 passengers on Windsor Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for damages totaling $9,000,000 were filed on January 11, 2015, against the airline by 18 injured passengers. The airline carries no insurance. Legal counsel has studied each suit and advised Windsor that it can reasonably expect to pay 60% of the damages claimed. The financial statements for the year ended December 31, 2014, were issued February 27, 2015. Instructions (a) Prepare any disclosures and journal entries required by the airline in preparation of the December 31, 2014, financial statements. (b) Ignoring the November 24, 2014, accident, what liability due to the risk of loss from lack of insurance coverage should Windsor Airlines record or disclose? During the past decade, the company has experienced at least one accident per year and incurred average damages of $3,200,000. Discuss fully.

A flux-cored arc-welding process is used to join two low alloy steel plates at a 90° angle using an outside fillet weld. The steel plates are ½ in thick. The weld bead consists of 55% metal from the electrode and the remaining 45% from the steel plates. The melting factor of the steel is 0.65 and the heat transfer factor is 0.90. The welding current is 75 amps and the voltage is 16 volts. The velocity of the welding head is 40 in/min. The diameter of the electrode is 0.10 in. There is a core of flux running through the center of the electrode that has a diameter of 0.05 in and contains flux (compounds that do not become part of the weld bead). (a) What is the cross-sectional area of the weld bead? (b) How fast must the electrode be fed into the workpiece?

What impact does the financial accelerator have on the marginal propensity to consume domestically produced goods (mpcd)? How does this affect the IS curve?