Question & Answer

The following information is available for Barkley Company at December 31, 2014, regarding its investments. Securities Cost Fair Value 3,000 shares of Myers Corporation Common Stock $40,000 $48,000 1,000 shares of Cole Incorporated Preferred Stock 25,000 22,000 $65,000 $70,000 Instructions (a) Prepare the adjusting entry (if any) for 2014, assuming the securities are classified as trading. (b) Prepare the adjusting entry (if any) for 2014, assuming the securities are classified as availablefor- sale. (c) Discuss how the amounts reported in the financial statements are affected by the entries in (a) and (b).

After the presentation of your report on the examination of the financial statements to the board of directors of Piper Publishing Company, one of the new directors expresses surprise that the income statement assumes that an equal proportion of the revenue is recognized with the publication of every issue of the company’s magazine. She feels that the “crucial event” in the process of earning revenue in the magazine business is the cash sale of the subscription. She says that she does not understand why most of the revenue cannot be “recognized” in the period of the cash sale. Instructions Discuss the propriety of timing the recognition of revenue in Piper Publishing Company’s accounts with: (a) The cash sale of the magazine subscription. (b) The publication of the magazine every month. (c) Both events, by recognizing a portion of the revenue with the cash sale of the magazine subscription and a portion of the revenue with the publication of the magazine every month.

Indicate some of the advantages of cold working relative to warm and hot working

{Planning} Jackie has a corporate client that has recently received a 30-day notice from the IRS with a $100,000 tax assessment.  Her client is considering requesting an appeals conference to contest the assessment.  What factors should Jackie advise her client to consider before requesting an appeals conference?

Recently, your uncle, Carlos Beltran, who knows that you always have your eye out for a profitable investment, has discussed the possibility of your purchasing some corporate bonds. He suggests that you may wish to get in on the “ground floor” of this deal. The bonds being issued by Neville Corp. are 10-year debentures which promise a 40% rate of return. Neville manufactures  novelty/party items. You have told Neville that, unless you can take a look at its financial statements, you would not feel comfortable about such an investment. Believing that this is the chance of a lifetime, Uncle Carlos has procured a copy of Neville’s most recent, unaudited financial statements which are a year old. These statements were prepared by Mrs. Andy Neville. You peruse these statements, and they are quite impressive. The balance sheet showed a debt-to-equity ratio of 0.10 and, for the year shown, the company reported net income of $2,424,240. The financial statements are not shown in comparison with amounts from other years. In addition, no significant note disclosures about inventory valuation, depreciation methods, loan agreements, etc. are available. Instructions Write a letter to Uncle Carlos explaining why it would be unwise to base an investment decision on the financial statements that he has provided to you. Be sure to explain why these financial statements are neither relevant nor representationally faithful.

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 “generally accepted accounting principles.” She has also heard that certain terms have special meanings in accounting relative to everyday use. Shewould like you to explain the meaning of terms she has come across related to accounting. Instructions Go to http://www.fasb.org and access the FASB Concepts Statements and respond to the following items. (Provide paragraph citations.) When you have accessed the documents, you can use the search tool in your Internet browser. (a) How is “materiality” defined in the conceptual framework? (b) The concepts statements provide several examples in which specific quantitative materiality guidelines are provided to firms. Identity at least two of these examples. Do you think the materiality guidelines should be quantified? Why or why not? (c) The concepts statements discuss the concept of “articulation” between financial statement elements. Briefly summarize the meaning of this term and how it relates to an entity’s financial statements.

1.      Georgio owns a 20 percent profits and capital interest in Rain Tree LLC. For the current year, Rain Tree had the following revenues, expenses, gains, and losses: Sales revenue $70,000 Gain on sale of land (§1231) $11,000 Cost of goods sold ($26,000) Depreciation - MACRS ($3,000) §179 deduction* ($10,000) Employee wages ($11,000) Nondeductible fines and penalties ($3,000) Municipal bond interest $6,000 Short-term capital gains $4,000 Guaranteed payment to Sandra ($3,000)

Weisberg Corporation has 10,000 shares of $100 par value, 6%, preference shares and 50,000 ordinary shares of $10 par value outstanding at December 31, 2014. Instructions Answer the questions in each of the following independent situations. (a) If the preference shares are cumulative and dividends were last paid on the preference shares on December 31, 2011, what are the dividends in arrears that should be reported on the December 31, 2014, statement of financial position? How should these dividends be reported? (b) If the preference shares are convertible into seven shares of $10 par value ordinary shares and 3,000 shares are converted, what entry is required for the conversion, assuming the preference shares were issued at par value? (c) If the preference shares were issued at $107 per share, how should the preference shares be reported in the equity section?

Presented below is the trial balance of the Crestwood Golf Club, Inc. as of December 31. The books are closed annually on December 31.   Instructions (a) Enter the balances in ledger accounts. Allow five lines for each account. (b) From the trial balance and the information given below, prepare annual adjusting entries and post to the ledger accounts. (Omit explanations.) (1) The buildings have an estimated life of 30 years with no salvage value (straight-line method). (2) The equipment is depreciated at 10% per year. (3) Insurance expired during the year $3,500. (4) The rent revenue represents the amount received for 11 months for dining facilities. The December rent has not yet been received. (5) It is estimated that 12% of the accounts receivable will be uncollectible. (6) Salaries and wages earned but not paid by December 31, $3,600. (7) Dues received in advance from members $8,900. (c) Prepare an adjusted trial balance. (d) Prepare closing entries and post.

Consider the prevailing conditions for inflation (including oil prices), the economy, interest rates, and any other factors that could affect exchange rates. Based on these conditions, do you think the euro’s value will likely appreciate or depreciate against the dollar for the remainder of this semester? Offer some logic to support your answer. Which factor do you think will have the biggest impact on the euro’s exchange rate? (LO2)

Does this mean that the value of manufacturing output in 2007 was 1.3 per cent higher than 2018 in money terms?

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?

An electron-beam welding operation is to be accomplished to butt weld two sheet-metal parts that are 3.0 mm thick. The unit melting energy = 5.0 J/mm3. The weld joint is to be 0.35 mm wide, so that the cross section of the fused metal is 0.35 mm by 3.0 mm. If accelerating voltage = 25 kV, beam current = 30 milliamp, heat transfer factor f1 = 0.85, and melting factor f2 = 0.75, determine the travel speed at which this weld can be made along the seam

Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. In 2024, she sells the following long-term assets used in her business:

Illustrate on two separate indifference diagrams the income and substitution effects of the following: (a)    A decrease in the price of good X (and no change in the price of good Y). (b)    An increase in the price of good Y (and no change in the price of good X)

Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $20,000 of legal services for a client. Manny typically requires his clients to pay his bills immediately upon receipt. Assume Manny’s marginal tax rate is 37 percent this year and next year, and that he can earn an after-tax rate of return of 12 percent on his investments. Should Manny send his client the bill in December or January?

What hurdles (or limitations) must partners overcome before they can ultimately deduct partnership losses on their tax returns?

Jorge contributed land he held as an investment (fair market value $120,000; basis $55,000) and inventory (fair market value $80,000; basis $75,000) to ABC Corporation in exchange for 50 percent of the ABC stock (50 shares valued at $160,000) and $40,000 cash in a qualifying §351 exchange.   a. What amount of gain does Jorge recognize on the exchange? What is the character of the gain? What would be Jorge's tax basis in his ABC stock after the exchange? b. Assume the same facts except that Jorge received $40,000 of business property from ABC instead of $40,000 cash. What are the amount and character of gain Jorge would recognize on the exchange? c. Assume the original facts in this problem except that the inventory had a tax basis of $90,000 so that Jorge realized a $10,000 loss on the inventory (he still realized a $65,000 gain on the land). How much gain or loss would he recognize on the exchange?

Indicate whether each of the following items is a real or nominal account and whether it appears in the balance sheet or the income statement. (a) Prepaid Rent. (b) Salaries and Wages Payable. (c) Inventory. (d) Accumulated Depreciation—Equipment. (e) Equipment. (f) Service Revenue. (g) Salaries and Wages Expense. (h) Supplies.

Employees are paid every Saturday for the preceding work week. If a balance sheet is prepared on Wednesday, December 31, what does the amount of wages earned during the first three days of the week (12/29, 12/30, 12/31) represent? Explain.

Hui is currently considering investing in municipal bonds that earn 6 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 8 percent. If Hui’s tax rate is 22 percent, which bond should Hui choose? Which bond should Hui choose if the rate is 32 percent? At what tax rate would Hui be indifferent between the bonds? What strategy is this decision based upon?

(a) How are the components of revenues and expenses different for a merchandising company? (b) Explain the income measurement process of a merchandising company.

What differences are there between the trial balance before closing and the trial balance after closing with respect to the following accounts? (a) Accounts Payable. (b) Expense accounts. (c) Revenue accounts. (d) Retained Earnings account. (e) Cash.

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)