Question & Answer

What is the basic accounting problem created by the monetary unit assumption when there is significant inflation? What appears to be the FASB position on a stable monetary unit?

Define precipitation hardening.

1.       : Stick to your principles and refuse to fudge the numbers. Tell Tessa you will work overtime to help develop an alternate proposal that stays within the budget by providing more training to employees who work directly with customers and fewer training hours for those who don’t have direct customer contact.

How could a bank generate higher income before tax (as a percentage of assets) when its net interest margin has decreased? (LO2)

] Given the following tax structure, what tax would need to be assessed on Venita to make the tax horizontally equitable?

The financial statements of P&G are presented in Appendix 5B. The company’s complete annual report, including the notes to the financial statements, can be accessed at the book’s companion website, www. wiley.com/college/kieso. Instructions Refer to P&G’s financial statements and the accompanying notes to answer the following questions. (a) Which method of computing net cash provided by operating activities does P&G use? What were the amounts of net cash provided by operating activities for the years 2009, 2010, and 2011? Which two items were most responsible for the decrease in net cash provided by operating activities in 2011? (b) What was the most significant item in the cash flows used for investing activities section in 2011? What was the most significant item in the cash flows used for financing activities section in 2011? (c) Where is “deferred income taxes” reported in P&G’s statement of cash flows? Why does it appear in that section of the statement of cash flows? (d) Where is depreciation reported in P&G’s statement of cash flows? Why is depreciation added to net income in the statement of cash flows?

Assume that you maintain bonds and money market securities in your portfolio, and you suddenly believe that long-term interest rates will rise substantially tomorrow (even though the market does not share the same view), while short-term interest rates will remain the same. a. How would you rebalance your portfolio between bonds and money market securities?  b. If other market participants suddenly recognize that long-term interest rates will rise tomorrow and they respond in the same manner as you do, explain how the demand for these securities (bonds and money market securities), the supply of these securities for sale, and the prices and yields of these securities will be affected. c. Assume that the yield curve is flat today. Explain how the slope of the yield curve will change tomorrow in response to the market activity. (LO2)

Name three common types of income shifting.

Kase, an individual, purchased some property in Potomac, Maryland, for $150,000 approximately 10 years ago. Kase is approached by a real estate agent representing a client who would like to exchange a parcel of land in North Carolina for Kase’s Maryland property. Kase agrees to the exchange. What is Kase’s realized gain or loss, recognized gain or loss, and basis in the North Carolina property in each of the following alternative scenarios?   a. The transaction qualifies as a like-kind exchange, and the fair market value of each property is $675,000. b. The transaction qualifies as a like-kind exchange, and the fair market value of

Ten samples of equal size are taken to prepare a p chart. The total number of parts in these ten samples was 900 and the total number of defects counted was 117. Determine the center, LCL and UCL for the p chart.

Cost function using regression; scatter plots; three potential cost drivers Laura Mills is the controller of Peer Jets International, a manufacturer of small corporate jets. She has undertaken a project to study the behaviour of overhead cost. She has assembled factory overhead data for the last 30 months from the company’s manufacturing facility. Laura has asked you to develop a model to predict the level of manufacturing overhead.   Required (a)          Create a scatter plot of manufacturing overhead for each of the potential cost drivers. (b)          Would you eliminate any of the potential cost drivers based on the scatter plots? Why? (c)           Explain why you create a scatter plot of the data before you perform regression analysis. (d)          To practice your regression analysis skills, perform a simple regression analysis of manufacturing overhead for each of the three potential cost drivers. Write the cost function from each regression. (e)           Based on the simple regression results, which cost driver does the best job of explaining manufacturing overhead costs? Explain. (f)           Do your regression results support your answer to part (b)? Explain.

An internal cylindrical grinding operation is used to finish an internal bore from an initial diameter of 250.00 mm to a final diameter of 252.5 mm. The bore is 125 mm long. A grinding wheel with an initial diameter of 150.00 mm and a width of 20.00 mm is used. After the operation, the diameter of the grinding wheel has been reduced to 149.75 mm. Determine the grinding ratio in this operation.

Dingel Corporation has contracted with you to prepare a statement of cash flows. The controller has provided the following information. December 31 2014 2013 Buildings $ –0– $29,750 Equipment 45,000 20,000 Patents 5,000 6,250 Investments –0– 3,000 Inventory 12,000 9,000 Accounts receivable 12,250 10,000 Cash 33,500 13,000 $107,750 $91,000 Share capital—ordinary $ 43,000 $33,000 Retained earnings 20,750 6,000 Allowance for doubtful accounts 3,000 4,500 Accumulated depreciation on equipment 2,000 4,500 Accumulated depreciation on buildings –0– 6,000 Accounts payable 5,000 3,000 Dividends payable –0– 5,000 Long-term notes payable 31,000 25,000 Notes payable, short-term (non-trade) 3,000 4,000 $107,750 $91,000 Additional data related to 2014 are as follows. 1. Equipment that had cost $11,000 and was 40% depreciated at time of disposal was sold for $2,500. 2. $10,000 of the long-term notes payable was paid by issuing ordinary shares. 3. Cash dividends paid were $5,000. 4. On January 1, 2014, the building was completely destroyed by a flood. Insurance proceeds on the building were $32,000. 5. Equity investments (non-trading) were sold at $1,700 above their cost. 6. Cash was paid for the acquisition of equipment. 7. A long-term note for $16,000 was issued for the acquisition of equipment. 8. Interest of $2,000 and income taxes of $6,500 were paid in cash. Instructions Prepare a statement of cash flows using the indirect method.

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) Which method of computing net cash provided by operating activities does M&S use? What were the amounts of net cash provided by operating activities for the years 2011 and 2012? Which two items were most responsible for the increase in net cash provided by operating activities in 2012? (b) What was the most significant item in the cash flows used for investing activities section in 2012? What was the most significant item in the cash flows used for financing activities section in 2012? (c) Where is “deferred income taxes” reported in M&S’s statement of cash flows? Why does it appear in that section of the statement of cash flows? (d) Where is depreciation reported in M&S’s statement of cash flows? Why is depreciation added to net income in the statement of cash flows?

Instructions Go to the book’s companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc. (a) What method of computing net cash provided by operating activities does Coca-Cola use? What method does PepsiCo use? What were the amounts of cash provided by operating activities reported by Coca-Cola and PepsiCo in 2011? (b) What was the most significant item reported by Coca-Cola and PepsiCo in 2011 in their investing activities sections? What is the most significant item reported by Coca-Cola and PepsiCo in 2011 in their financing activities sections? (c) What were these two companies’ trends in net cash provided by operating activities over the period 2009 to 2011? (d) Where is “depreciation and amortization” reported by Coca-Cola and PepsiCo in their statements of cash flows? What is the amount and why does it appear in that section of the statement of cash flows? (e) Based on the information contained in Coca-Cola’s and PepsiCo’s financial statements, compute the following 2011 ratios for each company. These ratios require the use of statement of cash flows data. (These ratios were covered in Chapter 5.) (1) Current cash debt coverage. (2) Cash debt coverage. (f) What conclusions concerning the management of cash can be drawn from the ratios computed in (e)?

What are the basic differences between civil and criminal tax penalties?

Compare and contrast the tests for accruing income and those for accruing deductions for tax purposes.

What is the difference between vacuum permanent-mold casting and vacuum molding?

Latrell recently used his Delta Skymiles to purchase a free roundtrip ticket to Milan, Italy (value $1,200).  The frequent flyer miles used to purchase the ticket were generated from Latrell’s business travel as a CPA.  Latrell’s employer paid for his business trips, and he was not taxed on the travel reimbursement.   a.  Use an available tax research service to determine how much income, if any, does Latrell have to recognize as a result of purchasing an airline ticket with Skymiles earned from business travel.  b.  Write a memo communicating the results of your research.

Arnold and Lilly have recently had a heated discussion about whether a sales tax is a proportional tax or a regressive tax.  Arnoldargues that a sales tax is regressive.  Lillycounters that the sales tax is a flat tax.  Who is correct?

Is the number of working days lost through disputes a good indication of (a) union power; (b) union militancy?

Which cutting speed is always lower for a given machining operation, cutting speed for minimum cost or cutting speed for maximum production rate? Why?

Sinise Industries acquired two copyrights during 2014. One copyright related to a textbook that was developed internally at a cost of $9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2014, the date it was published. The second copyright (a history research textbook) was purchased from University Press on December 1, 2014, for $24,000. This textbook has an indefinite useful life. How should these two copyrights be reported on Sinise’s balance sheet as of December 31, 2014?

Plant-wide versus production cost pools Flexible Manufacturers produces small batches of customised products. The accounting system is set up to allocate plant overhead to each job using the following production cost pools and overhead allocation rates       Actual resources used for job 75:       The manufacturing accountant wants to simplify the cost accounting system and use a plant wide rate. If the preceding costs are grouped into a single cost pool and allocated based on labour hours, the rate would be $35 per direct labour hour.   Required (a)          What cost should be allocated to job 75 using the plant-wide overhead rate? (b)          What cost should be allocated to job 75 using the production cost pool overhead rates? (c)           Why do the allocated amounts in parts (a) and (b) differ? (d)          Which method would you recommend? Explain your choice.

What is the indirect effect of a change in accounting policy? Briefly describe the approach to reporting the indirect effects of a change in accounting policy under IFRS.