Question: You are a newly hired accountant with

> Surfboards USA wants to expand its operations to Australia. The current indirect exchange rate is 1.45 for U.S. and Australian dollars. The anticipated inflation rate is 3% in the United States, but only 1.5% in Australia. The discount rate in the United

> Just before Copy-Cat, Incorporated starts the project outlined in Problem 15, the government announces new anticipated inflation numbers. For Japan, the estimate is a higher inflation rate of 5%. For the United States, the estimate is a lower projection

> Copy-Cat, Incorporated has signed a deal to make vintage Nissan 240-Z sports cars for the next three years. The cars will be built in Japan and shipped to the United States for sale. The current indirect rate is 103.50 for dollars and yen. The inflation

> Using the information in Table 18.4 and an average U.S. inflation rate of 1.733% for the three-year period, determine the inflation rates of Europe (euro currency countries) and Australia where the U.S. dollar strengthened over the period. Table 18.

> Using the information in Table 18.4 and an average U.S. inflation rate of 1.733% for the three year period, determine the inflation rates of Britain and China where the U.S. dollar weakened over the period. Table 18.4 U.S. Dollar Exchange Rates for M

> Determine the nominal rates for the three countries listed if they have the following inflation rates and the real rate the world over is 1.25%. Canada: inflation is 4.5%. Switzerland: inflation is 1.25%. United States: inflation is 3%.

> Stan had to delay the sale of the common stock as outlined in Problem 9 for six months. When he finally did sell the stock, the risk-free rate had fallen to 3%, but the expected return on the market had risen to 13%. What was the effect on the cost of eq

> 1. Compute the yield to maturity and the after-tax cost of debt for the two bond issues. 2. Compute BioCom’s cost of preferred stock. 3. Compute BioCom’s cost of common equity. Use the average of results from the dividend growth model and the security ma

> Why is selecting a beta for a project more of an art than a science?

> What are the types of errors a manager can make if he or she does not assign individual WACCs to each potential project?

> Why not use a single WACC for all company projects?

> What are the two ways to estimate the percentage (weights) of funds that a company has received from lenders and owners? Which is more appropriate?

> When calculating the cost of capital, why is it that the company only adjusts the cost of debt for taxes?

> Should retained earnings reinvested in the company have a zero cost of capital because it generates the funds internally and the company does not need to pay itself for borrowing money? If not, why?

> What are the two different ways to estimate the cost of equity for a firm?

> Why is the yield to maturity on a bond the appropriate cost of debt financing?

> If the capital budget is constrained by the amount of funds available for potential projects, what mistake might a manager make if he or she just lists the potential projects by highest to lowest NPV and picks the projects moving down the list until the

> From what sources can a company raise capital? Do these different sources of capital all charge the same rate? Why or why not?

> Villar Co. uses special journals and a general journal. Identify the journal in which each of the following transactions is recorded. a. Purchased equipment on account. b. Purchased merchandise on account. c. Paid utility expense in cash. d. Sold merchan

> Indicate whether each of the following debits and credits is included in the cash receipts journal. (Use “Yes” or “No” to answer this question.) a. Debit to Sales Revenue. b. Credit to Inventory. c. Credit to Accounts Receivable. d. Debit to Accounts Pay

> Identify in what ledger (general or subsidiary) each of the following accounts is shown. a. Rent Expense. b. Accounts Receivable—Cabrera. c. Notes Payable. d. Accounts Payable—Pacheco.

> Presented below is information related to Gantner Company for its first month of operations. Identify the balances that appear in the accounts receivable subsidiary ledger and the accounts receivable balance that appears in the general ledger at the end

> Benji Borke has prepared the following list of statements about accounting information systems. 1. The accounting information system includes each of the steps of the accounting cycle, the documents that provide evidence of transactions that have occurre

> Rauch Computer Components Inc. uses a multi-column cash receipts journal. Indicate which column(s) is/are posted only in total, only daily, or both in total and daily. a. Accounts Receivable. b. Sales Discounts. c. Cash. d. Other Accounts.

> On June 30, Joanna Fabrics has the following data pertaining to the retail inventory method. Goods available for sale: at cost $38,000; at retail $50,000; net sales $40,000; and ending inventory at retail $10,000. Compute the estimated cost of the ending

> At May 31, Brunet Company has net sales of $340,000 and cost of goods available for sale of $230,000. Compute the estimated cost of the ending inventory, assuming the gross profit rate is 35%.

> Rosario Department Store uses a perpetual inventory system. Data for product E2-D2 include the following purchases. On June 1, Rosario sold 26 units, and on August 27, 40 more units. Prepare the perpetual inventory schedule for the above transactions u

> At December 31, 2020, the following information was available for E. Hetzel Company: ending inventory $40,000, beginning inventory $56,000, cost of goods sold $270,000, and sales revenue $380,000. Calculate inventory turnover and days in inventory for E

> Your friend Ben Johnson has been hired to help take the physical inventory in Pearson Hardware Store. Explain to Ben what this job will entail.

> Cruz Video Center accumulates the following cost and net realizable data at December 31. Compute the lower-of-cost-or-net realizable value valuation for the company’s total inventory. Inventory Categories Cost Net Realizable Data

> Larkin Company reports net income of $90,000 in 2020. However, ending inventory was understated $7,000. What is the correct net income for 2020? What effect, if any, will this error have on total assets as reported in the balance sheet at December 31, 20

> Financial Statement In its first month of operation, Hoff man Company purchased 100 units of inventory for $6, then 200 units for $7, and finally 140 units for $8. At the end of the month, 180 units remained. Compute the amount of phantom profit that wou

> Financial Statement The management of Mastronardo Corp. is considering the effects of inventory-costing methods on its financial statements and its income tax expense. Assuming that the price the company pays for inventory is increasing, which method wil

> Data for Weatherall Company are presented in BE6.3. Compute the cost of the ending inventory under the average-cost method, assuming there are 380 units on hand.

> Which payroll tax is levied on both employers and employees?

> What is the difference between gross pay and net pay? Which amount should a company record as wages and salaries expense?

> Under what circumstances is a contingent liability disclosed only in the notes to the financial statements? Under what circumstances is a contingent liability not recorded in the accounts nor disclosed in the notes to the financial statements?

> What is a contingent liability? Give an example of a contingent liability that is usually recorded in the accounts.

> What is liquidity? What are two measures of liquidity?

> Wilkinson Company established a $100 petty cash fund on August 1. On August 31, the fund had $7 cash remaining and petty cash receipts for postage $31, office supplies $42, and miscellaneous expense $16. Prepare journal entries to establish the fund on A

> Ottawa University sold 15,000 season football tickets at $80 each for its six-game home schedule. What entries should be made (a) when the tickets were sold, and (b) after each game?

> a. Your roommate says, “Sales taxes are reported as an expense in the income statement.” Do you agree? Explain. b. Jensen Company has cash proceeds from sales of $8,400. This amount includes $400 of sales taxes. Give the entry to record the proceeds.

> What is the principal difference between a defined-contribution pension plan and a defined benefit pension plan?

> Explain how a 401(k) plan works.

> What are two types of postretirement benefits?

> Petrocelli Company obtains $40,000 in cash by signing a 7%, 6-month, $40,000 note payable to First Bank on July 1. Petrocelli’s fiscal year ends on September 30. What information should be reported for the note payable in the annual financial statements?

> Often during job interviews, the candidate asks the potential employer about the firm’s paid absences policy. What are paid absences? How are they accounted for?

> Identify two additional types of fringe benefits associated with employees’ compensation.

> What are the four functions associated with payroll activities?

> Pinewood Corporation purchased a piece of equipment for $70,000. It estimated an 8-year life and $2,000 salvage value. At the end of year four (before the depreciation adjustment), it estimated the new total life to be 10 years and the new salvage value

> a. Identify the three types of employer payroll taxes. b. How are tax liability accounts and payroll tax expense accounts classified in the financial statements?

> What are the primary uses of the employee earnings record?

> Distinguish between the two types of payroll deductions and give examples of each.

> What information is shown in a W-2 statement?

> What do the following acronyms stand for: FICA, FUTA, and SUTA?

> Are the federal and state income taxes withheld from employee paychecks a payroll tax expense for the employer? Explain your answer.

> Lori Randle believes a current liability is a debt that can be expected to be paid in one year. Is Lori correct? Explain.

> Distinguish between revenue expenditures and capital expenditures during useful life.

> Andrew is studying for the next accounting examination. He asks your help on two questions: (a) What is salvage value? (b) Is salvage value used in determining periodic depreciation under each depreciation method? Answer Andrew’s questions.

> In a recent newspaper release, the president of Downs Company asserted that something has to be done about depreciation. The president said, “Depreciation does not come close to accumulating the cash needed to replace the asset at the end of its useful l

> Neumann Distributors is a growing company whose ability to raise capital has not been growing as quickly as its expanding assets and sales. Neumann’s local banker has indicated that the company cannot increase its borrowing for the foreseeable future. Ne

> Lynn Company acquires the land and building owned by Noble Company. What types of costs may be incurred to make the asset ready for its intended use if Lynn Company wants to use (a) only the land, and (b) both the land and the building?

> Unruh Refrigeration Company trades in an old machine on a new model when the fair value of the old machine is greater than its book value. The transaction has commercial substance. Should Unruh recognize a gain on disposal of plant assets? If the fair va

> When assets are exchanged in a transaction involving commercial substance, how is the gain or loss on disposal of plant assets computed?

> Sosa Company is doing significant work to revitalize its warehouses. It is not sure whether it should capitalize these costs or expense them. What are the implications for current-year net income and future net income of expensing versus capitalizing the

> You are comparing two companies in the same industry. You have determined that Ace Corp. depreciates its plant assets over a 40- year life, whereas Liu Corp. depreciates its plant assets over a 20-year life. Discuss the implications this has for comparin

> Gomez Corporation uses straight-line depreciation for financial reporting purposes but an accelerated method for tax purposes. Is it acceptable to use different methods for the two purposes? What is Gomez’s motivation for doing this?

> Stark Corporation and Zuber Corporation operate in the same industry. Stark uses the straight-line method to account for depreciation; Zuber uses an accelerated method. Explain what complications might arise in trying to compare the results of these two

> McDonald’s Corporation reports total average assets of $28.9 billion and net sales of $20.5 billion. What is the company’s asset turnover?

> Under what conditions is goodwill recorded?

> Jimmy West, a business major, is working on a case problem for one of his classes. In the case problem, the company needs to raise cash to market a new product it developed. Ron Thayer, an engineering major, takes one look at the company’s balance sheet

> Gary Stanten is concerned with control over mail receipts at Gary’s Sporting Goods. All mail receipts are opened by Al Krane. Al sends the checks to the accounting department, where they are stamped “For Deposit Only.” The accounting department records a

> Goodwill has been defined as the value of all favorable attributes that relate to a business. What types of attributes could result in goodwill?

> Rowand Company hires an accounting intern who says that intangible assets should always be amortized over their legal lives. Is the intern correct? Explain.

> Explain the concept of depletion and how it is computed.

> What are natural resources, and what are their distinguishing characteristics?

> Romero Corporation owns a machine that is fully depreciated but is still being used. How should Romero account for this asset and report it in the financial statements?

> Sid Watney is uncertain about the applicability of the historical cost principle to plant assets. Explain the principle to Sid.

> Regina Golden, the vice president of sales for Tropical Pools and Spas, wants the company’s credit department to be less restrictive in granting credit. “How can we sell anything when you guys won’t approve anybody?” she asks. Discuss the pros and cons o

> Borke Company has a credit balance of $3,000 in Allowance for Doubtful Accounts before adjustment. The total estimated uncollectibles under the percentage-of-receivables basis is $5,800. Prepare the adjusting entry to record bad debt expense.

> Roger Holloway cannot understand why cash realizable value does not decrease when an uncollectible account is written off under the allowance method. Clarify this point for Roger.

> What percentage does Apple’s 2015 allowance for doubtful accounts represent as a percentage of its gross receivables?

> On January 1, 2020, Emporia Country Club purchased a new riding mower for $15,000. The mower is expected to have an 8-year life with a $3,000 salvage value. What journal entry would Emporia make at December 31, 2020, if it uses straight-line depreciation

> The accounts receivable turnover is 8.14, and average net receivables during the period are $400,000. What is the amount of net credit sales for the period?

> Jana Company dishonors a note at maturity. What are the options available to the lender?

> Indicate the maturity date of each of the following promissory notes: Date of Note Terms a. March 13 one year after date of note b. Мay 4 c. June 20 d. July 1 3 months after date 30 days after date 60 days after date

> Westside Textiles decides to sell $800,000 of its accounts receivable to First Factors Inc. First Factors assesses a service charge of 3% of the amount of receivables sold. Prepare the journal entry that Westside Textiles makes to record this sale.

> Cinderella Shoe Shop had goods available for sale in 2020 with a retail price of $120,000. The cost of these goods was $84,000. If sales during the period were $80,000, what is the ending inventory at cost using the retail inventory method?

> Pawlowski Company has net sales of $400,000 and cost of goods available for sale of $300,000. If the gross profit rate is 35%, what is the estimated cost of the ending inventory? Show computations.

> You are the controller of Small Toys Inc. Pamela Bames, the president, recently mentioned to you that she found an error in the 2019 financial statements which she believes has corrected itself. She determined, in discussions with the Purchasing Departme

> Both the gross profit method and the retail inventory method are based on averages. For each method, indicate the average used, how it is determined, and how it is applied.

> On April 10, 2020, fire damaged the office and warehouse of Corvet Company. Most of the accounting records were destroyed, but the following account balances were determined as of March 31, 2020: Inventory (January 1, 2020), $80,000; Sales Revenue (Janua

> All organizations should have systems of internal control to combat fraud. Instructions Go to the Association of Certified Fraud Examiner (ACFE) website, search “Report to the Nations on Occupational Fraud and Abuse,” click Costs, and then answer the fo

> McBride Company has the following opening account balances in its general and subsidiary ledgers on January 1 and uses the periodic inventory system. All accounts have normal debit and credit balances. In addition, the following transactions have not b

> Wiemers Products Company operates three divisions, each with its own manufacturing plant and marketing/sales force. The corporate headquarters and central accounting office are in Wiemers, and the plants are in Freeport, Rockport, and Bayport, all within

> On December 1, 2020, Fullerton Company had the following account balances. During December, the company completed the following transactions. Dec. 7 Received $3,600 cash from customers in payment of account (no discount allowed). 12 Purchased merchan

> Jeter Co. uses a perpetual inventory system and both an accounts receivable and an accounts payable subsidiary ledger. Balances related to both the general ledger and the subsidiary ledgers for Jeter are indicated in the working papers presented below. A

> On December 1, 2020, Annalise Company had the account balances shown below. The following transactions occurred during December. Dec. 3 Purchased 4,000 units of inventory on account at a cost of $0.74 per unit. 5 Sold 4,400 units of inventory on acco

> Hassellhouf Company’s trial balance at December 31, 2020, is as follows. All 2020 transactions have been recorded except for the items described following the trial balance. // Unrecorded transactions: 1. On May 1, 2020, Hassellhouf purchased equipment

> Winter Company’s balance sheet at December 31, 2019, is presented below. During January 2020, the following transactions occurred. Winter uses the perpetual inventory method. Jan. 1 Winter accepted a 4-month, 8% note from Merando Comp