Question & Answer

Give examples of how the government intervenes to protect the interests of dependants from bad economic decisions taken on their behalf.

Where can authoritative IFRS be found related to dilutive securities, stock-based compensation, and earnings per share?

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?

Who are the owners of credit unions? Explain the tax status of CUs and the reason for that status. Why are CUs typically smaller than commercial banks or savings institutions? (LO7)

Included in Adams Company’s December 31, 2014, trial balance are the following accounts: Accounts Payable $220,000; Pension Liability $375,000; Discount on Bonds Payable $29,000; Unearned Rent Revenue $41,000; Bonds Payable $400,000; Salaries and Wages Payable $27,000; Interest Payable $12,000; Income Taxes Payable $29,000. Prepare the current liabilities section of the balance sheet.

“Tax avoidance is discouraged by the courts and Congress.”  Is this statement true or false? Please explain.

At what time is it proper to recognize income in the following cases: (a) Installment sales with no reasonable basis for estimating the degree of collectibility? (b) Sales for future delivery? (c) Merchandise shipped on consignment? (d) Profit on incomplete construction contracts? (e) Subscriptions to publications?

Describe the advantages and disadvantages of equity rewards.             (LO3)

Define what an electrical arc is.

Explain how the liquidity position of finance companies differs from that of depository institutions such as commercial banks. (LO5)

During a recent management meeting at Sunset Consulting Services, a team member questioned why the costing system had multiple indirect cost pools given it would be easier just to have one.  Provide a brief response to explain why the business has adopted multiple indirect costs pools.

Southeast Airlines Inc. awards members of its Flightline program a second ticket at half price, valid for 2 years anywhere on its flight system, when a full-price ticket is purchased. How would you account for the full-fare and half-fare tickets?

Use the information from BE18-7, but assume Turner uses the completed-contract method. Prepare the company’s 2014 journal entries.

ROI; transfer prices; taxes; employee motivation Fowler Electronics produces colour plasma screens in its Bien Hoa plant in Vietnam. The screens are then shipped to the entity’s plant in Sturt, South Australia, where they are incorporated into finished televisions. Although the Bien Hoa plant never sells plasma screens to any other assembler, the market for them is competitive. The market price is $750 per screen.   Variable costs to manufacture the screens are $350. Fixed costs at the Windsor plant are $2 000 000 per period. The plant typically manufactures and ships 10 000 screens per period to the Sturt plant. Taxes in Vietnam amount to 30 per cent, of pre-tax income. The Windsor plant has total assets of $20 000 000.   The Sturt plant incurs variable costs to complete the televisions of $110 per set (in addition to the cost of the screens). The Sturt plant’s fixed costs amount to $4 000 000 per period. The 10 000 sets produced each period are sold for an average of $2500 each. For Sturt, the tax rate is 45 per cent of pre-tax income. The Sturt plant has total assets of $30 000 000.   Required (a)        Determine the return on investment for each plant if the screens are transferred at variable cost. (b)        Determine the return on investment for each plant if the screens are transferred at market price. (c)        To reduce taxes, will Fowler prefer a transfer price based on cost or market price? Explain. (d)        Will the top managers in each plant prefer to use cost or market price as the transfer price? Explain. (e)        How would you resolve potential conflict over the transfer price policy?

A portion of the combined statement of income and retained earnings of Seminole Inc. for the current year follows. Income before extraordinary item $15,000,000 Extraordinary loss, net of applicable income tax (Note 1) 1,340,000 Net income 13,660,000 Retained earnings at the beginning of the year 83,250,000 96,910,000 Dividends declared: On preferred stock—$6.00 per share $ 300,000 On common stock—$1.75 per share 14,875,000 15,175,000 Retained earnings at the end of the year $81,735,000 Note 1. During the year, Seminole Inc. suffered a major casualty loss of $1,340,000 after applicable income tax reduction of $1,200,000. At the end of the current year, Seminole Inc. has outstanding 8,500,000 shares of $10 par common stock and 50,000 shares of 6% preferred. On April 1 of the current year, Seminole Inc. issued 1,000,000 shares of common stock for $32 per share to help finance the casualty. Instructions Compute the earnings per share on common stock for the current year as it should be reported to stockholders.

Explain the strategy of high-frequency trading firms. Describe the typical time horizon of an investment that is relevant to highfrequency traders and explain how it varies from the time horizons of other institutional investors. (LO3)

Explain how you would derive a figure for households’ disposable income if you were starting from a figure for GDP?

Suppose the hole in Problem 26.10 were to be cut using EDM rather than ECM. Using a discharge current = 20 amps (which would be typical for EDM), how long would it take to cut the hole? From Table 4.1, the melting temperature of iron is 2802°F.

1.15     Cost reduction; value chain analysis Budget Cupboards produces kitchen and bathroom cupboards that incorporate unusual functions, such as specialty drawers for knives and kitchen tools, and kitchen appliance holders that pop up from under the counter top. Competition in this industry has recently increased. Budget’s management wants to cut costs for its basic cupboard models and then cut prices using the structure of the table as shown.   Required (a)          The following table lists potential areas for cost reduction. Two potential cost reductions are provided for the first area listed (design phase). For each of the remaining areas, identify two potential ways that Budget Cupboard’s management could reduce costs. (b)     Budget does not currently use value chain analysis. Describe several advantages of using value chain analysis.

: Discuss the use of financial statements and financial analysis as management controls.

What are the advantages and disadvantages of speculation from the point of view of (a) the consumer; (b) firms?

What are postretirement benefits other than pensions?

Balanced scorecard measures for customer perspective Leyland College is in the process of developing a balanced scorecard. The administrators decided that their customers are parents and future employers of their students. They believe the students are their products.   Required Discuss whether each of the following potential measures would be useful for the customer perspective in the balanced scorecard. (a)     Parent ratings of satisfaction with the high school curriculum (b)     Graduation rate (c)     Percentage of students employed during the summer after graduation (d)     Employer satisfaction ratings for Flowing Wells High School graduates (e)     Monthly earnings of graduates (f)      Number of graduates attending classes beyond high school (g)     Cost per student per year (h)     Number of classes per student per semester (i)      Average number of college credit hours completed per teacher

Describe the installment-sales method of accounting.

Under what circumstances would brazing or soldering be preferred over welding?