Question & Answer

On November 3, 2014, Sprinkle Co. invested $200,000 in 4,000 shares of the common stock of Pratt Co. Sprinkle classified this investment as available-for-sale. Sprinkle Co. is considering making a more significant investment in Pratt Co. at some point in the future but has decided to wait and see how the stock does over the next several quarters. Date Market Price of Pratt Shares Time Value of Put Option December 31, 2014 $50 per share $375 March 31, 2015 45 per share 175 June 30, 2015 43 per share 40 Instructions (a) Prepare the journal entries for Sprinkle Co. for the following dates. (1) November 3, 2014—Investment in Pratt stock and the put option on Pratt shares. (2) December 31, 2014—Sprinkle Co. prepares financial statements. (3) March 31, 2015—Sprinkle prepares financial statements. (4) June 30, 2015—Sprinkle prepares financial statements. (5) July 1, 2015—Sprinkle settles the put option and sells the Pratt shares for $43 per share. (b) Indicate the amount(s) reported on the balance sheet and income statement related to the Pratt investment and the put option on December 31, 2014. (c) Indicate the amount(s) reported on the balance sheet and income statement related to the Pratt investment and the put option on June 30, 2015.

Devers Corporation issued $400,000 of 6% bonds on May 1, 2014. The bonds were dated January 1, 2014, and mature January 1, 2017, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Devers’s journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

Under what circumstances is a closed-loop positioning system preferable to an open-loop system?

An investment newsletter suggests that because the prevailing stock market conditions are subject to much uncertainty, investors should purchase call options on the CBOE volatility index (VIX). Write a short essay on the logic behind how the valuation of VIX is influenced by market uncertainty. Also support or refute the advice provided by the newsletter and offer a strategy for investing in call options on the VIX based on expectations of changes in market uncertainty.

Toro Co. has equipment with a carrying amount of $700,000. The value-in-use of the equipment is $705,000, and its fair value less costs of disposal is $590,000. The equipment is expected to be used in operations in the future. What amount (if any) should Toro report as an impairment to its equipment?

Using the facts in problem 43, what interest rate does Surething Inc. need to offer to make Hugh indifferent between investing in the two bonds?

Compare a centralized database system to a decentralized, distributed blockchain system. (LO2)

Solve Problem 24.19 except that in part (a), determine the cutting speeds for maximum production rate

Under what conditions will weighted average and FIFO process costing consistently produce similar equivalent unit costs?

The Financial Accounting Standards Board (FASB) has developed a conceptual framework for financial accounting and reporting. The FASB has issued eight Statements of Financial Accounting Concepts. These statements are intended to set forth the objective and fundamentals that will be the basis for developing financial accounting and reporting standards. The objective identifies the goals and purposes of financial reporting. The fundamentals are the underlying concepts of financial accounting that guide the selection of transactions, events, and circumstances to be accounted for; their recognition and measurement; and the means of summarizing and communicating them to interested parties. The purpose of the statement on qualitative characteristics is to examine the characteristics that make accounting information useful. These characteristics or qualities of information are the ingredients that make information useful and the qualities to be sought when accounting choices are made. Instructions (a) Identify and discuss the benefits that can be expected to be derived from the FASB’s conceptual framework study. (b) What is the most important quality for accounting information as identified in the conceptual framework? Explain why it is the most important. (c) Statement of Financial Accounting Concepts No. 8 describes a number of key characteristics or qualities for accounting information. Briefly discuss the importance of any three of these qualities for financial reporting purposes.

Priya works for Shine Company, a retailer of upscale jewelry. How much taxable income does Priya recognize under the following scenarios?

What are the various forms of extruded shapes and corresponding dies?

Should a remuneration plan include a cash bonus or share options?      Under which circumstances would either be appropriate?             (LO3 and 4)

Discuss how the international landscape is changing, including the growing influence of China and India.

The yield strength of a certain metal = 50,000 lb/in2 and its modulus of elasticity = 22 x 106 lb/in2. It is to be used for the outer ring of a press-fit assembly with a mating shaft made of the same metal. The nominal inside diameter of the ring is 1.000 in and its outside diameter = 2.500 in. Using a safety factor = 2.0, determine the maximum interference that should be used with this assembly.

Job costing journal entries Vern’s Van Service customises light trucks according to customers’ orders. This month the entity worked on five jobs, numbered 207 to 211. Materials requisitions for the month were as follows:       An analysis of the payroll records revealed the following distribution for labour costs:       Other overhead costs (consisting of rent, depreciation, taxes, insurance, utilities, etc.) amounted to $3600. At the beginning of the period, management anticipated that overhead cost would be $6400 and total direct labour would amount to $5000. Overhead is allocated on the basis of direct labour dollars.   Jobs 207 to 210 were finished during the month; Job 211 is still in process. Jobs 207 to 209 were picked up and paid for by customers. Job 210 is still on the lot waiting to be picked up.   Required (a)     Prepare the journal entries to reflect the incurrence of materials, labour, and overhead costs; the allocation of overhead; and the transfer of units to finished goods and cost of sales. (b)     Close overapplied or underapplied overhead to cost of sales.

1.      : Adopt Chris Robinson’s proposed changes and show more leniency to first-time offenders. It is a more cost-effective approach to the problem than the current policy, plus it stays close to your father’s original intent.

How does a shareholder create debt basis in an S corporation?  How is debt basis similar and dissimilar to stock basis?

A turning operation is to be performed on a 20 hp lathe that has an 87% efficiency rating. The roughing cut is made on alloy steel whose hardness is in the range 325 to 335 HB. The cutting speed is 375 ft/min, feed is 0.030 in/rev, and depth of cut is 0.150 in. Based on these values, can the job be performed on the 20 hp lathe? Use Table 21.2 to obtain the appropriate unit horsepower value

Crowe Company purchased a heavy-duty truck on July 1, 2011, for $30,000. It was estimated that it would have a useful life of 10 years and then would have a trade-in value of $6,000. The company uses the straight-line method. It was traded on August 1, 2015, for a similar truck costing $42,000; $16,000 was allowed as trade-in value (also fair value) on the old truck and $26,000 was paid in cash. A comparison of expected cash flows for the trucks indicates the exchange lacks commercial substance. What is the entry to record the trade-in?

Differentiate between investing activities, financing activities, and operating activities.

Joe operates a business that locates and purchases specialized assets for clients, among other activities. Joe uses the accrual method of accounting, but he does not keep any significant inventories of the specialized assets that he sells. Joe reported the following financial information for his business activities during this year. Determine the effect of each of the following transactions on the taxable business income.  a) Joe has signed a contract to sell gadgets to the city. The contract provides that sales of gadgets are dependent upon a test sample of gadgets operating successfully. In December of this year, Joe delivers $12,000 worth of gadgets to the city that will be tested in March of next year. Joe purchased the gadgets especially for this contract and paid $8,500. b) Joe paid $180 in July of this year to entertain a visiting out-of-town client. The client didn’t discuss business with Joe during this visit, but Joe wants to maintain good relations to encourage additional business next year. c) On November 1 of this year, Joe paid $600 for premiums providing for $40,000 of “key employee” insurance on the life of Joe’s accountant over the next 12 months. d) At the end of this year, Joe’s business reports $9,000 of accounts receivable. Based upon experience, Joe believes that at least $2,000 of his new receivables will be uncollectible.  e) In December of this year, Joe rented equipment to complete a large job. Joe paid $3,000 in December because the rental agency required a minimum rental of three months ($1,000 per month). Joe completed the job before year-end, but he returned the equipment at the end of the lease.  f) Joe hired a new sales representative as an employee and sent them to Dallas for a week to contact prospective out-of-state clients. Joe ended up reimbursing this employee $300 for airfare, $350 for lodging, and $250 for meals (the employee provided adequate documentation to substantiate the business purpose for the meals). Joe requires the employee to account for all expenditures to be reimbursed. g) Joe uses his BMW (a personal auto) to travel to and from his residence to his factory. However, he switches to a business vehicle if he needs to travel after he reaches the factory. In September of this year, the business vehicle broke down and he was forced to use the BMW both to travel to and from the factory and to visit work sites. He drove 120 miles visiting work sites and 46 miles driving back and forth between the factory and his home. Joe uses the standard mileage rate to determine his auto-related business expenses. h) Joe paid a visit to his parents in Dallas over the Christmas holidays this year. While he was in the city, Joe spent $50 to attend a half-day business symposium. Joe paid $200 for airfare, $50 for meals provided during the symposium, and $20 on cab fare to the symposium.

Determine whether a taxpayer can change their election to itemize deductions once a return is filed. (Hint: Read about itemization under Reg. §1.63-1.)

The controller for Lafayette Inc. recently commented, “If I have to disclose our segments individually, the only people who will gain are our competitors and the only people that will lose are our present stockholders.” Evaluate this comment.

Make out a case for (a) increasing and (b) decreasing the role of the government in the allocation of resources.