Question & Answer

] Describe how the underpayment penalty is calculated.

What are diversified companies? What accounting problems are related to diversified companies?

1.       : If you were the leader of a newly formed team, what might you do to make sure the team developed norms of high performance?

Ethical decision making: the right thing to do84 In the past, drug makers have been reluctant to invest in cures for diseases in developing countries such as Africa and South America. Most people in these countries cannot afford to pay for treatments, and managers have typically invested in other long-term projects having higher returns. However, a few pharmaceutical companies have chosen to invest in neglected diseases, including tuberculosis, malaria and other tropical diseases. As an example, GlaxoSmithKline formed a joint venture with the World Health Organization to develop a malaria drug that costs less than 50 cents for a three-day treatment.                                    This type of investment has several goals. From a reputation perspective, managers accused of keeping drug prices artificially high may believe that providing low-cost cures will alleviate pressure from regulators and consumers to lower prices for drugs sold in the United States and other developed countries. Furthermore, people from some less-developed countries will eventually have the ability to pay for cures. Finally, ‘it is the right thing to do,’ according to journalist Robert Langreth. Novartis chairman Daniel Vasella says, ‘If you only look at maximizing short-term profit, you may not survive in the long term’.   Required Using figure 19.7, address the following question for this ethical dilemma to improve your skills in making ethical decisions. Think about your answers to these questions and discuss them with others: Does an ethical problem arise if pharmaceutical companies charge lower prices for drugs in developing countries than in developed countries? Why?             (LO2)

Cost function using regression; other potential cost drivers The new cost analyst in your accounting department just received a computer-generated report that contains the results of a simple regression analysis. The analyst was estimating the costs of the marketing department using units sold as the cost driver. Summary results of the report are shown below.   Required (a)          Write an equation for the cost function based on the regression analysis. (b)          What does the adjusted R-square tell you? (c)           What other cost drivers could potentially explain marketing costs? Explain.

What is the range of carbon percentages which defines an iron-carbon alloy as a steel?

Examine the case for public ownership of an industry where a natural monopoly exists.

What is an ad valorem tax?  Name an example of this type of tax.

The following items appear on Brueggen Company’s financial statements. 1. Under the caption Assets: Pension asset/liability. 2. Under the caption Liabilities: Pension asset/liability. 3. Under the caption Stockholders’ Equity: Prior service cost as a component of Accumulated Other Comprehensive Income. 4. On the income statement: Pension expense. Instructions Explain the significance of each of the items above on corporate financial statements. (Note: All items set forth above are not necessarily to be found on the statements of a single company.)

Compare the relative effectiveness of fiscal and monetary policy under (a) fixed; (b) free-floating exchange rates.

(Threshold Concept 1) 1. Think of three things you did last week. What was opportunity cost of each one? (Threshold Concept 1) 2. Assume that a supermarket has some fish that has reached its sell-by date. It was originally priced at £10, but yesterday was marked down to £5 ‘for quick sale’. It is now the end of the day and it still has not been sold. The supermarket is about to close and there is no one in the store that wants fish. What is the opportunity cost for the store of throwing the fish away?

Are there circumstances in which preferentially taxed income (long-term capital gains and qualified dividends) is taxed at the same rate as ordinary income?  Explain.

The following facts pertain to a noncancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee. Inception date January 1, 2014 Annual lease payment due at the beginning of each year, beginning with January 1, 2014 $124,798 Residual value of equipment at end of lease term, guaranteed by the lessee $50,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, 2014 $600,000 Lessor’s implicit rate 12% Lessee’s incremental borrowing rate 12%The lessee assumes responsibility for all executory costs, which are expected to amount to $5,000 per year. The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $50,000. The lessee uses the straight-line depreciation method for all equipment. Instructions (a) Prepare an amortization schedule that would be suitable for the lessee for the lease term. (b) Prepare all of the journal entries for the lessee for 2014 and 2015 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31 and reversing entries are used when appropriate.

Explain how credit rating agencies have changed their rating processes following criticism of their ratings during the credit crisis. (LO1)

Below is the income statement for a British company, Avon Rubber plc. Avon prepares its financial statements in accordance with IFRS.   Instructions (a) Review the Avon Rubber income statement and identify at least three differences between the IFRS income statement and an income statement of a U.S. company as presented in the chapter. (b) Identify any irregular items reported by Avon Rubber. Is the reporting of these irregular items in Avon’s income statement similar to reporting of these items in U.S. companies’ income statements? Explain.

Compare and contrast S corporations, C corporations, and partnerships in terms of tax consequences at formation, shareholder restrictions, income allocation, basis calculations, compensation to owners, taxation of distributions, and accounting periods.

Explain how banks use credit default swaps. (LO4)

Mortonson Company has not yet prepared a formal statement of cash flows for the 2014 fiscal year. Comparative balance sheets as of December 31, 2013 and 2014, and a statement of income and retained earnings for the year ended December 31, 2014, are presented as follows. MORTONSON COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2014 ($000 OMITTED) Sales revenue $3,800 Expenses Cost of goods sold $1,200 Salaries and benefi ts 725 Heat, light, and power 75 Depreciation 80 Property taxes 19 Patent amortization 25 Miscellaneous expenses 10 Interest 30 2,164 MORTONSON COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2014 (CONTINUED) Income before income taxes 1,636 Income taxes 818 Net income 818 Retained earnings—Jan. 1, 2014 310 1,128 Stock dividend declared and issued 600 Retained earnings—Dec. 31, 2014 $ 528 MORTONSON COMPANY COMPARATIVE BALANCE SHEETS AS OF DECEMBER 31 ($000 OMITTED) Assets 2014 2013 Current assets Cash $ 333 $ 100 U.S. Treasury notes (available-for-sale) 10 50 Accounts receivable 780 500 Inventory 720 560 Total current assets 1,843 1,210 Long-term assets Land 150 70 Buildings and equipment 910 600 Accumulated depreciation—buildings and equipment (200) (120) Patents (less amortization) 105 130 Total long-term assets 965 680 Total assets $2,808 $1,890 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 420 $ 330 Income taxes payable 40 30 Notes payable 320 320 Total current liabilities 780 680 Long-term notes payable—due 2016 200 200 Total liabilities 980 880 Stockholders’ equity Common stock 1,300 700 Retained earnings 528 310 Total stockholders’ equity 1,828 1,010 Total liabilities and stockholders’ equity $2,808 $1,890 Instructions Prepare a statement of cash flows using the direct method. Changes in accounts receivable and accounts payable relate to sales and cost of goods sold. Do not prepare a reconciliation schedule.

For each of the following citations, identify the type of authority (statutory, administrative, or judicial) and explain the citation.

What is the difference between favorable and unfavorable book-tax differences?

If MCX/MCY were greater than PX/PY how would firms behave? What would bring production back into equilibrium where MCX/MCY = PX/PY?

Diane has a job working three-quarter time.  She hired a relative to take care of her two small children so Diane could work.  Do Diane’s child care payments to her relative qualify for the child and dependent care credit in 2024?  Explain.

Under what circumstances can a partner recognize both gain and loss on the sale of a partnership interest?

Cost function using account analysis and high-low method The Elder Clinic, a not-for-profit entity, provides limited medical services to low-income elderly patients. The manager’s summary report for the past four months of operations is reproduced here.     The clinic receives an operating subsidy from the city, but unfortunately, the operating loss that has been incurred through June $(79 392) is larger than anticipated. Part of the problem is the salary increase that went into effect in June, which had been overlooked when the budget was submitted to the city last year. To compound the problem, the cold winter months traditionally bring with them an increase in cold-related health problems. Thus, the clinic is likely to experience an increase in patient visits during July.   The clinic’s managers are considering an increase in patient fees to reduce losses. However, they are reluctant to raise fees because the patients have low incomes. They will raise fees only if it is necessary.   Required (a)          Use your judgement to classify costs as fixed, variable, or mixed. Explain how you classified each item. (b)          Create a cost function for the Elder Clinic. Use the high-low method to estimate the function for any mixed costs. (c)           Use the cost function to estimate July expenses based on a projection of 940 patient visits. (d)          List reasons why management of the Elder Clinic cannot know with certainty what the expenses will be during July. List as many reasons as you can. (e)           Describe the pros and cons of using your cost estimate from part (C) to decide whether to raise patient fees. (f)           The managers need your July cost estimate to decide whether to raise patient fees. Use the information you learned from parts (a) and (b)  to write a memo to the director of the Elder Clinic presenting your estimate of July costs. Provide the director with appropriate information for understanding your methodology and evaluating the reliability of your cost estimate.

1.    : Based on your knowledge of the following companies, how effective would you say any one of the following acquisitions was in terms of creating synergy? Why?    a) T-Mobile’s merger with Sprint    b) Google’s purchase of YouTube    c) PepsiCo’s purchase of Frito-Lay