Question & Answer

What are the two basic methods of accounting for long-term construction contracts? Indicate the circumstances that determine when one or the other of these methods should be used.

Identify which basic assumption of accounting is best described in each item below. (a) The economic activities of FedEx Corporation are divided into 12-month periods for the purpose of issuing annual reports. (b) Solectron Corporation, Inc. does not adjust amounts in its financial statements for the effects of inflation. (c) Walgreen Co. reports current and noncurrent classifications in its balance sheet. (d) The economic activities of General Electric and its subsidiaries are merged for accounting and reporting purposes.

Merck & Co., Inc. and Johnson & Johnson are two leading producers of health-care products. Each has considerable assets, and each expends considerable funds each year toward the development of new products. The development of a new health-care product is often very expensive, and risky. New products frequently must undergo considerable testing before approval for distribution to the public. For example, it took Johnson & Johnson 4 years and $200 million to develop its 1-DAY ACUVUE contact lenses. Below are some basic data compiled from the financial statements of these two companies.   Instructions (a) What kinds of intangible assets might a health-care products company have? Does the composition of these intangibles matter to investors—that is, would it be perceived differently if all of Merck’s intangibles were goodwill than if all of its intangibles were patents? (b) Suppose the president of Merck has come to you for advice. He has noted that by eliminating research and development expenditures the company could have reported $4 billion more in net income. He is frustrated because much of the research never results in a product, or the products take years to develop. He says shareholders are eager for higher returns, so he is considering eliminating research and development expenditures for at least a couple of years. What would you advise? (c) The notes to Merck’s financial statements note that Merck has goodwill of $1.1 billion. Where does recorded goodwill come from? Is it necessarily a good thing to have a lot of goodwill on a company’s books?

1.         : Is nice related to any concepts in the chapter, such as agreeableness, conscientiousness, or emotional intelligence? Discuss.

Vedula Advertising Agency was founded by Murali Vedula in January 2009. Presented on the next page are both the adjusted and unadjusted trial balances as of December 31, 2014.   Instructions (a) Journalize the annual adjusting entries that were made. (b) Prepare an income statement and a retained earnings statement for the year ended December 31, and a classified balance sheet at December 31. (c) Identify which accounts should be closed on December 31. (d) If the note has been outstanding 10 months, what is the annual interest rate on that note? (e) If the company paid $10,500 in salaries and wages in 2014, what was the balance in Salaries and Wages Payable on December 31, 2013?

{Planning} Alan inherited $100,000 with the stipulation that he “invest it to financially benefit his family.”  Alan and Alice decided they would invest the inheritance to help them accomplish two financial goals: purchasing a Park City vacation home and saving for their son Cooper’s education.     Vacation Home Cooper’s Education Initial Investment $50,000 $50,000 Investment Horizon 5 years 18 years   Alan and Alice have a marginal income tax rate of 30 percent (capital gains rate of 15 percent), and have decided to investigate the following investment opportunities.      5 Years Annual After-Tax Rate of Return 18 Years Annual After-Tax Rate of Return Corporate bonds (ordinary interest taxed annually) 5.75%   4.75%   Dividend-paying stock (no appreciation and dividends are taxed at 15%)   3.50%     3.50%   Growth stock Future Value is $65,000   Future Value is $140,000   Municipal bond (tax-exempt) 3.20%   3.10%     Complete the two annual after-tax rates of return columns for each investment and provide investment recommendations for Alan and Alice.

A groove weld has a cross-sectional area = 0.045 in2 and is 10 inches long. (a) What quantity of heat (in Btu) is required to accomplish the weld, if the metal to be welded is medium carbon steel? (b) How much heat must be generated at the welding source, if the heat transfer factor = 0.9 and the melting factor = 0.7?

Vandross Company has recorded bad debt expense in the past at a rate of 1½% of net sales. In 2014, Vandross decides to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been $380,000 instead of $285,000. In 2014, bad debt expense will be $120,000 instead of $90,000. If Vandross’s tax rate is 30%, what amount should it report as the cumulative effect of changing the estimated bad debt rate?

(Looking at the Maths) What is the present value (utility) of a good which yields £50 of utility at the end of year 1, £60 at the end of year 2, £100 at the end of year 3 and £50 at the end of year 4, assuming a discount factor of 0.9? Would it be worth the consumer paying £200 for it today?

A final assembly plant for a certain automobile model is to have a capacity of 240,000 units annually. The plant will operate 50 weeks/yr, 2 shifts/day, 5 days/week, and 8.0 hours/shift. It will be divided into three departments: (1) body shop, (2) paint shop, (3) trim-chassis-final department. The body shop welds the car bodies using robots, and the paint shop coats the bodies. Both of these departments are highly automated. Trim-chassis-final has no automation. There are 15.5 hours of direct labor content on each car in this department, where cars are moved by a continuous conveyor. Determine (a) hourly production rate of the plant, (b) number of workers and workstations required in trim-chassis-final if no automated stations are used, the average manning level is 2.5, balancing efficiency = 93%, proportion uptime = 95%, and a repositioning time of 0.15 min is allowed for each worker.

Armelio operates a business that acts as a sales representative for a client that produces and sells precious metals to electronic manufacturers. Armelio contacts manufacturers and convinces them to sign contracts for delivery of metals, and his company earns a commission on the sales. This year, Armelio contacted a jeweler to engrave small lapel buttons for his client’s employees. Armelio paid $20 each for the lapel buttons, and the jeweler charged Armelio an additional $7 for engraving. Can Armelio deduct the cost of the lapel buttons as business gifts? (Hint: see §274(b) and Reg. §1.274-3.)

A partial trial balance of Julie Hartsack Corporation is as follows on December 31, 2015. Dr. Cr. Supplies $ 2,700 Salaries and wages payable $ 1,500 Interest receivable 5,100 Prepaid insurance 90,000 Unearned rent –0– Interest payable 15,000 Additional adjusting data: 1. A physical count of supplies on hand on December 31, 2015, totaled $1,100. 2. Through oversight, the Salaries and Wages Payable account was not changed during 2015. Accrued salaries and wages on December 31, 2015, amounted to $4,400. 3. The Interest Receivable account was also left unchanged during 2015. Accrued interest on investments amounts to $4,350 on December 31, 2015. 4. The unexpired portions of the insurance policies totaled $65,000 as of December 31, 2015. 5. $28,000 was received on January 1, 2015, for the rent of a building for both 2015 and 2016. The entire amount was credited to rent revenue. 6. Depreciation on equipment for the year was erroneously recorded as $5,000 rather than the correct figure of $50,000. 7. A further review of depreciation calculations of prior years revealed that equipment depreciation of $7,200 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment. Instructions (a) Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2015? (Ignore income tax considerations.) (b) Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2015? (Ignore income tax considerations.) (c) Repeat the requirements for items 6 and 7, taking into account income tax effects (40% tax rate) and assuming that the books have been closed.

Jamel and Jennifer have been married 30 years and have filed a joint return every year of their marriage.Their three daughters, Jade, Lindsay, and Abbi, are ages 12, 17, and 22 respectively and all live at home.None of the daughters provide more than half of her own support.Abbi is a full-time student at a local university and does not have any gross income. a.       How many personal and dependency exemptions are Jamel and Jennifer allowed to claim?

Describe the differences between a proportional, progressive, and regressive tax rate structures.

Using the information in BE5-14, determine Martinez’s free cash flow, assuming that it reported net cash provided by operating activities of $400,000.

1.    : What personal skills do you need to keep your financial backers feeling confident in your new business? Which skills are most useful when you’re dealing with more informal financial sources, such as family and friends, versus receiving funds from stockholders, a bank, or a venture capital firm? Would these considerations affect your financing strategy?

Why is it reasonable to believe that microsystem products would be available at lower costs than products of larger, more conventional size?

Charles Austin of the controller’s office of Thompson Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending December 31, 2015. Austin has compiled the information listed below. 1. The company is authorized to issue 8,000,000 shares of $10 par value common stock. As of December 31, 2014, 2,000,000 shares had been issued and were outstanding. 2. The per share market prices of the common stock on selected dates were as follows. Price per Share July 1, 2014 $20.00 January 1, 2015 21.00 April 1, 2015 25.00 July 1, 2015 11.00 August 1, 2015 10.50 November 1, 2015 9.00 December 31, 2015 10.00 3. A total of 700,000 shares of an authorized 1,200,000 shares of convertible preferred stock had beenissued on July 1, 2014. The stock was issued at its par value of $25, and it has a cumulative dividendof $3 per share. The stock is convertible into common stock at the rate of one share of convertible preferred for one share of common. The rate of conversion is to be automatically adjusted for stock splits and stock dividends. Dividends are paid quarterly on September 30, December 31, March 31, and June 30. 4. Thompson Corporation is subject to a 40% income tax rate. 5. The after-tax net income for the year ended December 31, 2015, was $11,550,000. The following specific activities took place during 2015. 1. January 1—A 5% common stock dividend was issued. The dividend had been declared on December 1, 2014, to all stockholders of record on December 29, 2014. 2. April 1—A total of 400,000 shares of the $3 convertible preferred stock was converted into common stock. The company issued new common stock and retired the preferred stock. This was the only conversion of the preferred stock during 2015. 3. July 1—A 2-for-1 split of the common stock became effective on this date. The board of directors had authorized the split on June 1. 4. August 1—A total of 300,000 shares of common stock were issued to acquire a factory building. 5. November 1—A total of 24,000 shares of common stock were purchased on the open market at $9 per share. These shares were to be held as treasury stock and were still in the treasury as of December 31, 2015. 6. Common stock cash dividends—Cash dividends to common stockholders were declared and paid as follows. April 15—$0.30 per share October 15—$0.20 per share 7. Preferred stock cash dividends—Cash dividends to preferred stockholders were declared and paid as scheduled. Instructions (a) Determine the number of shares used to compute basic earnings per share for the year ended December 31, 2015. (b) Determine the number of shares used to compute diluted earnings per share for the year ended December 31, 2015. (c) Compute the adjusted net income to be used as the numerator in the basic earnings per share calculation for the year ended December 31, 2015.

Does this mean that the value of manufacturing output in 2007 was 1.3 per cent higher than 2018 in money terms?

A manual assembly line is being designed for a product with annual demand = 100,000 units. The line will operate 50 wks/year, 5 shifts/wk, and 7.5 hr/shift. Work units will be attached to a continuously moving conveyor. Work content time = 42.0 min. Assume line efficiency = 0.97, balancing efficiency = 0.92, and repositioning time = 6 sec. Determine (a) hourly production rate to meet demand, (b) number of workers required, and (c) the number of workstations required if the estimated manning level is 1.4.

How do speculators use call options? Describe the conditions under which their strategy would backfire. What is the maximum loss that could occur for a purchaser of a call option? (LO3)

Generally, a selling partner’s capital account carries over to the purchaser of the partnership interest. Under what circumstances will this not be the case?

Melindainvests $200,000 in a City of Heflin bond that pays 6 percent interest.  Alternatively, Melindacould have invested the $200,000 in a bond recently issued by Surething Inc. that pays 8 percent interest with similar risk and othernontax characteristics to the City of Heflin bond.  Assume Melinda’s marginal tax rate is 25 percent.

Jurassic Park Co. prepares monthly financial statements from a worksheet. Selected portions of the January worksheet showed the following data.   During February, no events occurred that affected these accounts. But at the end of February, the following information was available. (a) Supplies on hand $715 (b) Monthly depreciation $257 (c) Accrued interest $ 50

Hiram Co. uses the equity method to account for investments in common stock. What accounting should be made for dividends received from these investments subsequent to the date of investment?