Question & Answer

Should a liability be recorded for risk of loss due to lack of insurance coverage? Discuss.

Mike wanted to work for a CPA firm, but he also wanted to work on his parents’ farm in Montana.  Because the CPA firm wanted Mike to be happy, it offered to let him work for the firm as an independent contractor during the fall and winter and return to Montana to work for his parents during the spring and summer.  He was very excited to hear that the firm was also going to give him a 5 percent higher “salary” for the six months he would be working for the firm over what he would have made over the same six-month period if he worked full time as an employee (i.e., an increase from $30,000 to $31,500).  Should Mike be excited about his 5 percent raise?  Why or why not?  What counteroffer could Mike reasonably suggest?

A batch of 40 identical parts is to be chrome plated using racks. Each part has a surface are = 22.7 cm2. If it is desired to plate an average thickness = 0.010 mm on the surface of each part, how long should the plating operation be allowed to run at a current = 80 amps?

A tensile test uses a test specimen that has a gage length of 50 mm and an area = 200 mm2 . During the test the specimen yields under a load of 98,000 N. The corresponding gage length = 50.23 mm. This is the 0.2 percent yield point. The maximum load of 168,000 N is reached at a gage length = 64.2 mm. Determine (a) yield strength, (b) modulus of elasticity, and (c) tensile strength. (d) If fracture occurs at a gage length of 67.3 mm, determine the percent elongation. (e) If the specimen necked to an area = 92 mm2 , determine the percent reduction in area.

What kinds of deductions are prohibited as a matter of public policy? Why might Congress deem it important to disallow deductions for expenditures that are against public policy?

Jorge is puzzled that the IRS and his CPA could legitimately reach different conclusions on a tax issue.  Why does this happen?

Union Planters is a Tennessee bank holding company (that is, a corporation that owns banks). (Union Planters is now part of Regions Bank.) Union Planters manages $32 billion in assets, the largest of which is its loan portfolio of $19 billion. In addition to its loan portfolio, however, like other banks it has significant debt investments. The nature of these investments varies from short-term in nature to long-term in nature. As a consequence, consistent with the requirements of accounting rules, Union Planters reports its investments in two different categories—trading and available-for-sale. The following facts were found in a recent Union Planters’ annual report. Gross Gross Amortized Unrealized Unrealized Fair (all dollars in millions) Cost Gains Losses Value Trading account assets $ 275 — — $ 275 Securities available for sale 8,209 $108 $15 8,302 Net income 224 Net securities gains (losses) (9) Instructions (a) Why do you suppose Union Planters purchases investments, rather than simply making loans? Why does it purchase investments that vary in nature both in terms of their maturities and in type (debt versus stock)? (b) How must Union Planters account for its investments in each of the two categories? (c) In what ways does classifying investments into two different categories assist investors in evaluating the profitability of a company like Union Planters? (d) Suppose that the management of Union Planters was not happy with its net income for the year. What step could it have taken with its investment portfolio that would have definitely increased reported profit? How much could it have increased reported profit? Why do you suppose it chose not to do this?

Suppose the cutting speed in Problems 21.7 and 21.8 is 200 ft/min. From your answers to those problems, find (a) the horsepower consumed in the operation, (b) metal removal rate in in3 /min, (c) unit horsepower (hp-min/in3 ), and (d) the specific energy (in-lb/in3 )

Criticise the use of increasing government expenditure as a means of reducing unemployment.

Dave Matthew Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $100,000. Instructions (a) Prepare the journal entry for the issuance when the market price of the common shares is $165 each and market price of the preferred is $230 each. (Round to nearest dollar.) (b) Prepare the journal entry for the issuance when only the market price of the common stock is known and it is $170 per share.

Jefferson Millinery Inc. (JMI) decided to liquidate its wholly owned subsidiary, 8 Miles High Inc. (8MH). 8MH had the following tax accounting balance sheet.       FMV         Tax basisAppreciation Cash$  200,000$     200,000 Building      50,000         10,000        40,000 Land    150,000         90,000        60,000 Total$  400,000$     300,000$    100,000

What effect will the discrimination by the firm have on the wages and employment of black workers in other firms in the area if (a) these other firms discriminate against black workers; (b) they do not discriminate?

Smithers is a self-employed individual who earns $30,000 per year in self-employment income. Smithers pays $2,200 in annual health insurance premiums (not through an exchange) for his own medical care. In each of the following situations, determine the amount of the deductible health insurance premium for Smithers before any AGI floor limitation.

How does a universal milling machine differ from a conventional knee-and-column machine?

David and Lilly Fernandez have determined their tax liability on their joint tax return to be $1,700. They have made prepayments of $1,500 and also have a child tax credit of $1,000.What is the amount of their tax refund or taxes due?

Explain why an employee should be concerned about whether their employer reimburses business expenses using an “accountable” plan.

As noted in Example 1-2, tolls, parking meter fees, and annual licensing fees are not considered taxes.  Can you identify other fees that are similar?

Use the information from BE15-13, but assume Green Day Corporation declared a 100% stock dividend rather than a 5% stock dividend. Prepare the journal entries for both the date of declaration and the date of distribution.

A perfectly competitive firm faces a price of £14 per unit. It has the following short-run cost schedule: Output 0 1 2 3 4 5 6 7 8 TC (£) 10 18 24 30 38 50 66 91 120 (a)  Copy the table and put in additional rows for average cost and marginal cost at each level of output. (Enter the figures for marginal cost in the space between each column.) (b)  Plot AC, MC and MR on a diagram. (c)  Mark the profit-maximising output. (d)  How much (supernormal) profit is made at this output? (e)  What would happen to the price in the long run if this firm were typical of others in the industry? Why would we need to know information about long-run average cost in order to give a precise answer to this question?

Francis Corporation purchased an asset at a cost of $50,000 on March 1, 2014. The asset has a useful life of 8 years and a salvage value of $4,000. For tax purposes, the MACRS class life is 5 years. Compute tax depreciation for each year 2014–2019.

Outline the relationship between the scope (levels) of costs and full cost accounting.

Classification of rework costs, uncertainties, critique of rework and scrap policy Fran Markus is in the cost accounting group at Boats Galore, a large manufacturing company that produces customised boats and yachts. The company sometimes experiences quality problems with its fibreglass raw material, causing flawed areas in boat hulls. The problem is often fixed by reworking the flawed areas. Other times the hull is scrapped because it is too flawed, and a new hull is fabricated. The spoilage policy at Boats Galore is to charge the cost of rework and spoilage to overhead unless it arises because a hull design is particularly complicated. In those cases, the cost is assigned to the job.   Two boats currently under construction require triple the amount of materials and labour time to enhance boat security. The customer wants each hull to be able to withstand the explosion of a small bomb. It is the company’s first order with this hull construction. Because of the new design and fibreglass process, the customer has agreed to a cost-plus contract and will pay cost plus a fixed percentage of cost. This contract assures that Boats Galore does not incur a loss from developing the enhanced security hull. This week, the third layer on one of the boat hulls had a flaw in the fibreglass. The area was reworked, after which it met the security requirements.   Fran receives weekly data on labour and materials for each boat under construction. For regular production, workers estimate the time and materials used to rework flawed fibreglass areas, and Fran adds those costs to overhead instead of recording them as a cost of the particular job. Now she needs to decide how to record the cost of rework for the enhanced security hulls. The production people are not sure whether the flaw was due to poor quality fibreglass or to the triple hull design. If Fran adds the cost to the job order, the customer will pay for the labour and supplies as part of the cost-plus price. If she adds the cost to overhead, the cost will be spread across all jobs and only part of it will be allocated to the job having the enhanced security hulls.   Required (a)     Critique the company’s accounting policy for rework and scrap. (b)     Describe uncertainties about the accounting treatment for the rework costs on the enhanced security hull job. (c)      Discuss the pros and cons of alternative accounting treatments for the rework costs on this job. (d)     Suppose you are an accounting work-experience student at Boats Galore. Fran asks you to recommend an accounting treatment for the rework costs on the enhanced security hull job. i) Write a memo to Fran with your recommendation. As you write the memo,          consider what information Fran will need from you to help her make a final            decision. ii) Write one or two paragraphs explaining how you decided what information to   include in your memo.

The income statement of Vince Gill Company is shown below. VINCE GILL COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2014 Sales revenue $6,900,000 Cost of goods sold Beginning inventory $1,900,000 Purchases 4,400,000 Goods available for sale 6,300,000 Ending inventory 1,600,000 Cost of goods sold 4,700,000 Gross profi t 2,200,000 Operating expenses Selling expenses 450,000 Administrative expenses 700,000 1,150,000 Net income $1,050,000 Additional information: 1. Accounts receivable decreased $360,000 during the year. 2. Prepaid expenses increased $170,000 during the year. 3. Accounts payable to suppliers of merchandise decreased $275,000 during the year. 4. Accrued expenses payable decreased $100,000 during the year. 5. Administrative expenses include depreciation expense of $60,000. Instructions Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2014, for Vince Gill Company, using the indirect method.

How is the rubber industry organized?

Gramps purchased a joint survivor annuity that pays $500 monthly over his remaining life and that of his wife, Gram. Gramps is 70 years old and Gram is 65 years old. Gramps paid $97,020 for the contract. How much income will Gramps recognize on the first payment?