Question & Answer

How does electroless plating differ from electrochemical plating?

Contrast the constructive receipt doctrine with the claim of right doctrine.

Kramer Co. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet are not decipherable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2014.   Instructions (a) Determine the missing amounts in the 2014 pension worksheet, indicating whether the amounts are debits or credits. (b) Prepare the journal entry to record 2014 pension expense for Kramer Co. (c) Determine the following for Kramer for 2014: (1) settlement rate used to measure the interest on the liability and (2) expected return on plan assets.

Crawford Imports Inc. was involved in two default and repossession cases during the year: 1. A refrigerator was sold to Cindy McClary for $1,800, including a 30% markup on selling price. McClary made a down payment of 20%, four of the remaining 16 equal payments, and then defaulted on further payments. The refrigerator was repossessed, at which time the fair value was determined to be $800. 2. An oven that cost $1,200 was sold to Travis Longman for $1,500 on the installment basis. Longman made a down payment of $240 and paid $80 a month for six months, after which he defaulted. The oven was repossessed and the estimated fair value at time of repossession was determined to be $750. Instructions Prepare journal entries to record each of these repossessions using a fair value approach. (Ignore interest charges.)

Ashley Company is a young and growing producer of electronic measuring instruments and technical equipment. You have been retained by Ashley to advise it in the preparation of a statement of cash flows using the indirect method. For the fiscal year ended October 31, 2014, you have obtained the following information concerning certain events and transactions of Ashley. 1. The amount of reported earnings for the fiscal year was $700,000, which included a deduction for an extraordinary loss of $110,000 (see item 5 below). 2. Depreciation expense of $315,000 was included in the income statement. 3. Uncollectible accounts receivable of $40,000 were written off against the allowance for doubtful accounts. Also, $51,000 of bad debt expense was included in determining income for the fiscal year, and the same amount was added to the allowance for doubtful accounts. 4. A gain of $6,000 was realized on the sale of a machine. It originally cost $75,000, of which $30,000 was undepreciated on the date of sale. 5. On April 1, 2014, lightning caused an uninsured building loss of $110,000 ($180,000 loss, less reduction in income taxes of $70,000). This extraordinary loss was included in determining income as indicated in item 1 above. 6. On July 3, 2014, building and land were purchased for $700,000. Ashley gave in payment $75,000 cash, $200,000 market price of its unissued common stock, and signed a $425,000 mortgage note payable. 7. On August 3, 2014, $800,000 face value of Ashley’s 10% convertible debentures was converted into $150,000 par value of its common stock. The bonds were originally issued at face value. Instructions Explain whether each of the seven numbered items above is a cash inflow or outflow, and explain how it should be disclosed in Ashley’s statement of cash flows for the fiscal year ended October 31, 2014. If any item is neither an inflow nor an outflow of cash, explain why it is not, and indicate the disclosure, if any, that should be made of the item in Ashley’s statement of cash flows for the fiscal year ended October 31, 2014.

This question is concerned with the supply of oil for central heating. In each case consider whether there is a movement along the supply curve (and in which direction) or a shift in it (and whether left or right). (a) New oil fields start up in production. (b) The demand for central heating rises. (c) The price of gas falls. (d) Oil companies anticipate an upsurge in demand for centralheating oil. (e) The demand for petrol rises. (f) New technology decreases the costs of oil refining. (g) All oil products become more expensive.

Presented below is the SEC-mandated disclosure of contractual obligations provided by Deere & Company in a recent annual report. Deere & Company reported current assets of $27,208 and total current liabilities of $15,922 at year-end. All dollars are in millions.   Instructions (a) Compute Deere & Company’s working capital and current ratio (current assets 4 current liabilities) with and without the contractual obligations reported in the schedule. (b) Briefly discuss how the information provided in the contractual obligation disclosure would be useful in evaluating Deere & Company for loans (1) due in one year and (2) due in five years.

1. What is the opportunity cost of the seventh million units of clothing? 2. If the country moves upward along the curve and produces more food, does this also involve increasing opportunity costs?

What is viscoelasticity, as a material property?

Why will investment affect both actual (short-term) growth and the long-term growth in potential output? What will be the implications if these two effects differ in magnitude?

Risk management The Dancing Goat is the name Logan Jones chose for his café. The origins of the name came from a 1600s fable of a young goat herder watching his goats dance after they ate red coffee beans. Logan wanted his customers to have the same pleasant ‘dancing’ experience when they drank his specialty coffee blends. In his Sopital Lane café in Melbourne, Logan has a central roasting room in which he roasts fresh coffee beans from around the world. He offers 12 blends of coffee and delights customers with the atmosphere of his classy, European-style café with couches and low tables. The Dancing Goat has become very successful and Logan began to expand his operations to several locations around Melbourne. He roasts the coffee at the main Sopital Lane café and transports it daily to the other cafés. Logan now has 10 cafés located around Melbourne. They offer a deliberately small, but high-quality gourmet menu. Logan is well liked by his staff and they all understand his requirement for friendly service, a pleasant atmosphere and excellent coffee. Every new staff member learns to make coffee to Logan’s strict specifications and wears The Dancing Goat uniform with pride. Logan is particularly pleased when returning customers at each of the cafés praise his friendly, well-trained staff. Nevertheless, after several years of successful operations, the profitability of the Dancing Goat has begun to decline. Logan has decided to revisit The Dancing Goat’s ‘branding’ strategy. He recently read the following article relating to the Starbucks decision to ‘unbrand’.   The idea is that the [Starbucks] chain will turn some of its premises into individually branded neighbourhood coffee shops, to find out whether it will do better by adopting a facade that’s more like an old-fashioned neighbourhood coffee shop. In its home-town of Seattle, an outlet called 15th Avenue Coffee and Tea will be the test-bed for this new non-brand, selling beer and wine as well as high end brew.   Logan is particularly interested in Starbuck’s test-bed 15th Avenue Coffee and Tea store, which courted coffee connoisseurs with the same elaborate coffee brewing machines that Logan decided to purchase for The Dancing Goat cafés.   Although Logan is a little dubious about the potential success of the Starbucks’ approach in his operations, he is aware that several café managers are dissatisfied and keen to make significant changes. Logan ponders. Why not let one of the cafés loose for a couple of years to trial a similar unbranding approach? Logan could set simple performance targets based on profitable growth and pay uncapped incentives. He will allow the manager to determine what would best suit the local clientele without too much interference from Logan. After all, Logan knows the manager of the trial café he has selected is not scared to take risks. Logan will be satisfied as long as the profitability of this café remains at an acceptable level.   Required Given your understanding of risk management, briefly provide advice to Logan on: (a) The risk profile and level of risk exposure for The Dancing Goat of the new approach. (b) How Logan might reduce this level of risk exposure. (LO6)

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.)

Will this type of behaviour tend to lead to profit maximisation?

Transfer price; sale to outside versus inside customer The Enviro division of Solar Sun produces electric motors, 20 per cent of which are sold to the Energy Plus division of Solar Sun and the remainder to outside customers. Solar Sun treats its divisions as profit centres and allows division managers to choose their sources of sale and supply. Corporate policy requires that all interdivisional sales and purchases be recorded at variable cost as transfer price. Enviro division’s estimated sales and standard cost data for 2017, based on its full capacity of 100 000 units are as follows:     Enviro has an opportunity to sell the 20 000 units to an outside customer at a price of $75 per unit on a continuing basis. Energy Plus can purchase its requirements from an outside supplier for $85 per unit.   Required Assuming that Enviro division desires to maximise its gross margin, should Enviro accept the new customer and drop its sales to Energy Plus for 2019? Why?

The significance of financial statement data is not in the amount alone.” Discuss the meaning of this statement.

Presented below is information related to Viel Company at December 31, 2014, the end of its first year of operations. Sales revenue $310,000 Cost of goods sold 140,000 Selling and administrative expenses 50,000 Gain on sale of plant assets 30,000 Unrealized gain on non-trading equity securities 10,000 Interest expense 6,000 Loss on discontinued operations 12,000 Allocation to non-controlling interest 40,000 Dividends declared and paid 5,000 Instructions Compute the following: (a) income from operations, (b) net income, (c) net income attributable to Viel Company controlling shareholders, (d) comprehensive income, and (e) retained earnings balance at December 31, 2014. (Ignore income taxes.)

Your client took accounting a number of years ago and was unaware of comprehensive income reporting. He is not convinced that any accounting standards exist for comprehensive income. Instructions Access the IFRS authoritative literature at the IASB website (http://www.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 respond to the following questions. (Provide paragraph citations.) (a) What IFRS addresses reporting in the statement of comprehensive income? When was it issued? (b) Provide the definition of total comprehensive income. (c) Explain the rationale for presenting additional line items, headings, and subtotals in the statement of comprehensive income. (d) What items of income or expense may be presented either in the statement of comprehensive income or in the notes?

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/Marks-and- 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) What type of income statement format does M&S use? Indicate why this format might be used to present income statement information. (b) What are M&S’s primary revenue sources? (c) Compute M&S’s gross profit for each of the years 2011 and 2012. Explain why gross profit increased in 2012. (d) Why does M&S make a distinction between operating and non-operating profit? (e) Does M&S report any non-GAAP measures? Explain.

Show that true strain = ln(1 + e), where e = engineering strain.

The following three situations involve the capitalization of interest. Situation I: On January 1, 2014, Oksana Baiul, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,000,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2014, to finance the construction cost, Oksana Baiul borrowed $4,000,000 payable in 10 annual installments of $400,000, plus interest at the rate of 10%. During 2014, Oksana Baiul made deposit and progress payments totaling $1,500,000 under the contract; the weightedaverage amount of accumulated expenditures was $800,000 for the year. The excess borrowed funds were invested in short-term securities, from which Oksana Baiul realized investment income of $250,000. Instructions What amount should Oksana Baiul report as capitalized interest at December 31, 2014? Situation II: During 2014, Midori Ito Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities. Interest Costs Incurred Warehouse constructed for Ito’s own use $30,000 Special-order machine for sale to unrelated customer, produced according to customer’s specifi cations 9,000 Inventories routinely manufactured, produced on a repetitive basis 8,000 All of these assets required an extended period of time for completion. Instructions Assuming the effect of interest capitalization is material, what is the total amount of interest costs to be capitalized? Situation III: Peggy Fleming, Inc. has a fiscal year ending April 30. On May 1, 2014, Peggy Fleming borrowed $10,000,000 at 11% to finance construction of its own building. Repayments of the loan are to commence the month following completion of the building. During the year ended April 30, 2015, expenditures for the partially completed structure totaled $7,000,000. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to $650,000 for the year. Instructions How much should be shown as capitalized interest on Peggy Fleming’s financial statements at April 30, 2015?

The following expenditures and receipts are related to land, land improvements, and buildings acquired for use in a business enterprise. The receipts are enclosed in parentheses. (a) Money borrowed to pay building contractor (signed a note) $(275,000) (b) Payment for construction from note proceeds 275,000 (c) Cost of land fill and clearing 8,000 (d) Delinquent real estate taxes on property assumed by purchaser 7,000 (e) Premium on 6-month insurance policy during construction 6,000 (f) Refund of 1-month insurance premium because construction completed early (1,000) (g) Architect’s fee on building 22,000 (h) Cost of real estate purchased as a plant site (land $200,000 and building $50,000) 250,000 (i) Commission fee paid to real estate agency 9,000 (j) Installation of fences around property 4,000 (k) Cost of razing and removing building 11,000 (l) Proceeds from salvage of demolished building (5,000) (m) Interest paid during construction on money borrowed for construction 13,000 (n) Cost of parking lots and driveways 19,000 (o) Cost of trees and shrubbery planted (permanent in nature) 14,000 (p) Excavation costs for new building 3,000 Instructions Identify each item by letter and list the items in columnar form, using the headings shown below. All receipt amounts should be reported in parentheses. For any amounts entered in the Other Accounts column, also indicate the account title.

As a newly enrolled accounting major, you are anxious to better understand accounting institutions and sources of accounting literature. As a first step, you decide to explore the FASB Conceptual Framework. Instructions Go to the FASB website, http://www.fasb.org, to access the FASB Concepts Statements. When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following items. (Provide paragraph citations.) (a) What is the objective of financial reporting? (b) What other means are there of communicating information, besides financial statements? (c) Indicate some of the users and the information they are most directly concerned with in economic decision-making.

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 these financial statements and the accompanying notes to answer the following questions. (a) What were P&G’s total assets at June 30, 2011? At June 30, 2010? (b) How much cash (and cash equivalents) did P&G have on June 30, 2011? (c) What were P&G’s research and development costs in 2010? In 2011? (d) What were P&G’s revenues in 2010? In 2011? (e) Using P&G’s financial statements and related notes, identify items that may result in adjusting entries for deferrals and accruals. (f) What were the amounts of P&G’s depreciation and amortization expense in 2009, 2010, and 2011?

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) What type of income statement format does P&G use? Indicate why this format might be used to present income statement information. (b) What are P&G’s primary revenue sources? (c) Compute P&G’s gross profit for each of the years 2009–2011. Explain why gross profit decreased in 2011. (d) Why does P&G make a distinction between operating and nonoperating revenue? (e) What financial ratios did P&G choose to report in its “Financial Summary” section covering the years 2001–2011?

On December 31, 2012, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Abbey Co. agreed to accept a $200,000 zero-interest-bearing note due December 31, 2014, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 10%. Abbey is much more creditworthy and has various lines of credit at 6%. Instructions (a) Prepare the journal entry to record the transaction of December 31, 2012, for the Ed Abbey Co. (b) Assuming Ed Abbey Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2013. (c) Assuming Ed Abbey Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2014.