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1 Million+ Step-by-step solutionsmath books Q:An instrument weighing 5 lb is mounted on the housingAn instrument weighing 5 lb is mounted on the housing of a pump that rotates at 30 rpm. The amplitude of motion of the housing is 0.003 ft. We want no more than 10% of the housing’s motion to be transmitted to the instrument.
Design a suitable isolator having negligible damping. Compute the force transmitted to the instrument.
Q:Figure P13.7 shows a system being driven by base excitationFigure P13.7 shows a system being driven by base excitation through a damping element. Assume that the base displacement is sinusoidal: y(t) = Y sin (t.
a. Derive the expression for X, the steady-state amplitude of motion of the mass m.
b. Derive the expression for Ft, the steady-state amplitude of the force transmitted to the support.
Q:Consider the vehicle suspension problem in Example 13.1.1. Investigate theConsider the vehicle suspension problem in Example 13.1.1. Investigate the choice of the damping constant c so that the displacement transmissibility X/Y is as small as possible for the case where the speed gives a frequency ratio of r = 2. Do this by trying different values for the damping ratio (. Investigate your design’s sensitivity to a ± 20% variation in r.
Q:Consider the vehicle suspension problem in Example 13.1.1. Suppose theConsider the vehicle suspension problem in Example 13.1.1. Suppose the amplitude of variation of the road surface is 5/8 in. Determine a set of values for the suspension’s stiffness k and damping c so that the force transmitted to the chassis will be as small as possible at 40 mi/hr. For your design, calculate the transmitted force at 40 mi/hr.
Q:In 2013 Airbus announced a contract to deliver 50 A380In 2013 Airbus announced a contract to deliver 50 A380 airplanes to Emirates for $20 billion to be delivered between 2016 and 2018.
Required:
Outline the five‐step revenue recognition process for this transaction.
Q:Discuss how a company’s primary financial statements are useful toDiscuss how a company’s primary financial statements are useful to potential investors who are trying to decide whether to buy stock in the company. Support your discussion by citing objectives outlined in the Conceptual Framework.
Q:Sometimes a business entity changes its method of accounting forSometimes a business entity changes its method of accounting for certain items. The change may be classified as a change in accounting principle, a change in accounting estimate, or a change in reporting entity. Following are three independent, unrelated sets of facts relating to accounting changes.
Situation 1
A company determined that the depreciable lives of its fixed assets were currently too long to fairly match the cost of the fixed assets with the revenue produced. The company decided at the beginning of the current year to reduce the depreciable lives of all its existing fixed assets by five years.
Situation 2
On December 31, 2016, Gary Company owned 51 percent of Allen Company, at which time Gary reported its investment using the cost method owing to political uncertainties in the country in which Allen was located. On January 2, 2017, the management of Gary Company was satisfied that the political uncertainties were resolved and that the assets of the company were in no danger of nationalization. Accordingly, Gary will prepare consolidated financial statements for Gary and Allen for the year ended December 31, 2017.
Situation 3
A company decides in January 2017 to adopt the straight‐line method of depreciation for plant equipment. This method will be used for new acquisitions as well as for previously acquired plant equipment for which depreciation had been provided on an accelerated basis.
Required:
For each of the preceding situations, provide the following information. Complete your discussion of each situation before going on to the next situation.
a. Type of accounting change
b. Manner of reporting the change under current U.S. GAAP, including a discussion, where applicable, of how amounts are computed
c. Effects of the change on the statement of financial position and earnings statement
d. Required disclosures
Q:The following financial statement was prepared by employees of your

The following financial statement was prepared by employees of your client, Linus Construction Company. The statement is not accompanied by footnotes, but you have discovered the following:

  • The average completion period for the company’s jobs is 18 months. The company’s method of journalizing contract transactions is summarized in the following pro forma entries.
  • Linus both owns and leases equipment used on construction jobs. Typically, its equipment lease contracts provide that Linus may return the equipment upon completion of a job or may apply all rentals in full toward purchase of the equipment. About 70 percent of lease rental payments made in the past have been applied to the purchase of equipment. While leased equipment is in use, rents are charged to the account payments made on leased equipment (except for $1 balance) and to jobs on which the equipment has been used. In the event of purchase
The following financial statement was prepared by employees of your
  • The balance in the payments made on leased equipment account is transferred to the machinery and equipment account, and the depreciation and other related accounts are corrected.
    Management is unable to develop dependable estimates of costs to complete contracts in progress.


Required:
Identify the weaknesses in the financial statement and for each item identified indicate their preferable treatment and explain why the treatment is preferable.

Q:Obtain a copy of a large corporation’s annual report, andObtain a copy of a large corporation’s annual report, and refer to the statement of cash flows.
Required:
a. Did the company use the direct method or the indirect method of disclosing cash flows?
b. Comment on the relationship between cash flows from operations and net income for the year of the statement and the previous year.
c. What were the most significant sources of cash from operating activities during the period covered by the statement? What percentage of total cash inflows do these sources represent?
Answer the same question for the previous period.
d. Was the cash from operations more than or less than dividends during the period covered by the statement and the previous period?
e. What were the firm’s major investing activities during the period covered by the statement and the previous period? Were cash flows from operations more or less than cash flows from investing activities for the company in question?
f. What were the most significant cash flows from financing activities during the year of the statement and the previous year?
Q:FASB ASC 320 (generally effective until 2018) requires companies toFASB ASC 320 (generally effective until 2018) requires companies to assign their portfolio of investment securities into
1. Trading securities
2. Securities available for sale
3. Held‐to‐maturity securities
Required:
a. Define each of these categories of securities, and discuss the accounting treatment for each category.
b. Discuss how companies are required to assign each category of securities into its current and noncurrent portions.
c. Some individuals maintain that the only proper accounting treatment for all marketable securities is current value. Others maintain that this treatment might allow companies to “manage earnings.” Discuss the arguments for each position.
Q:On December 31, 2016, Carme Company had significant amounts of

On December 31, 2016, Carme Company had significant amounts of accounts receivables as a result of credit sales to its customers. Carme uses the allowance method based on credit sales to estimate bad debts. Based on experience, 1 percent of credit sales normally will not be collected. This pattern is expected to continue.


Required:

a. Discuss the rationale for using the allowance method based on credit sales to estimate bad debts. Contrast this method with the allowance method based on the balance in the trade receivables accounts.

b. How should Carme Company report the allowance for bad debts account on its balance sheet at December 31, 2016? Also, describe the alternatives, if any, for presentation of bad debt expense in Carme’s 2016 income statement.

Q:On October 10, 2016, Mason Engineering Company completed negotiations onOn October 10, 2016, Mason Engineering Company completed negotiations on a contract for the purchase of new equipment. Under the terms of the agreement, the equipment may be purchased now or Mason may wait until January 10, 2017, to make the purchase. The cost of the equipment is $400,000. It will be financed by a note bearing interest at the market rate. Straight‐line depreciation over a 10‐year life will be used for book purposes.
A double‐declining balance over seven years will be used for tax purposes. (One‐half year of depreciation will be taken in the year of purchase regardless of the date of purchase.)
Required:
a. Discuss the financial statement impacts of postponing the purchase of the equipment. Would the market price of the firm’s common stock be affected by any or all of these impacts? Do not assume in your discussion that the postponement will affect revenues or any operating costs other than depreciation.
b. Discuss any cash flow impacts related to postponing the purchase of the equipment.
c. Efficient markets assume that stockholder wealth is affected by the amount and timing of cash flows. Which alternative is more favorable to them: purchasing before year‐end, or waiting until January? Explain your answer.
Q:Jay Manufacturing, Inc., began operations five years ago producing theJay Manufacturing, Inc., began operations five years ago producing the probos, a new type of instrument it hoped to sell to doctors, dentists, and hospitals. The demand for probos far exceeded initial expectations, and the company was unable to produce enough probos to meet that demand. Jay was manufacturing probos on equipment it built at the start of its operations, but it needed more efficient equipment to meet demand. Company management decided to design and build the equipment because no equipment currently available on the market was suitable for producing probos.
In 2017, a section of the plant was devoted to development of the new equipment and a special staff of personnel was hired. Within six months, a machine was developed at a cost of $170,000 that increased production and reduced labor cost substantially. Sparked by the success of the new machine, the company built three more machines of the same type at a cost of $80,000 each.
Required:
a. In addition to satisfying a need that outsiders cannot meet within the desired time, what other reasons might cause a firm to construct fixed assets for its own use?
b. In general, what costs should be capitalized for a self‐constructed asset?
c. Discuss the appropriateness (give pros and cons) of including these charges in the capitalized cost of self‐constructed assets:
i. The increase in overhead caused by the self‐construction of fixed assets
ii. A proportionate share of overhead on the same basis as that applied to goods manufactured for sale (consider whether the company is at full capacity)
d. Discuss the proper accounting treatment of the $90,000 ($170,000 – $80,000) by which the cost of the first machine exceeded the cost of the subsequent machines.
Q:On July 1, 2017, Dynamic Company purchased for cash 40On July 1, 2017, Dynamic Company purchased for cash 40 percent of the outstanding capital stock of Cart Company. Both Dynamic and Cart have a December 31 year‐end. Cart, whose common stock is actively traded in the over‐the‐counter market, reported its total net income for the year to Dynamic and also paid cash dividends on November 15, 2017, to Dynamic and its other stockholders.
Required:
a. How should Dynamic report the foregoing facts in its December 31, 2017, balance sheet and its income statement for the year then ended? Discuss the rationale for your answer.
b. If Dynamic should elect to report its investment at fair value, how would its balance sheet and income statement differ from your answer to part (a)?
Q:The Thomas Company is in the process of developing aThe Thomas Company is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this product. As of year‐end (December 31, 2017), the product has not been manufactured for resale; however, a prototype unit was built and is in operation.
Throughout 2017 the division incurred certain costs. These costs include design and engineering studies, prototype manufacturing costs, administrative expenses (including salaries of administrative personnel), and market research costs. In addition, $500,000 in equipment (estimated useful life: 10 years) was purchased for use in developing and manufacturing the preproduction prototype and will be used to manufacture the product. Approximately $200,000 of this equipment was built specifically for the design and development of the product; the remaining $300,000 of equipment will be used to manufacture the product once it is in commercial production.
Required:
a. How is research and development defined in Statement of Financial Accounting Standards No. 2?
b. Briefly indicate the practical and conceptual reasons for the conclusion reached by the FASB on accounting and reporting practices for R&D costs.
c. In accordance with SFAS No. 2, how should the various costs of Thomas just described be reported in the financial statements for the year ended December 31, 2017?
Q:Watson Company has several investments in the securities of otherWatson Company has several investments in the securities of other companies. The following information regarding these investments is available at December 31, 2016.
1. Watson holds bonds issued by Fowler Corp. The bonds have an amortized cost of $600,000, and their fair value at December 31, 2016, is $700,000. Watson intends to hold the bonds until they mature on December 31, 2022.
2. Watson has invested idle cash in the equity securities of several publicly traded companies. Watson intends to sell these securities during the first quarter of 2017, when it will need the cash to acquire seasonal inventory. These equity securities have a cost basis of $500,000 and a fair value of $620,000 at December 31, 2016.
3. Watson has a significant ownership stake in one of the companies that supplies Watson with various components Watson uses in its products. Watson owns 5 percent of the common stock of the supplier, does not have any representation on the supplier’s board of directors, does not exchange any personnel with the supplier, and does not consult with the supplier on any of the supplier’s operating, financial, or strategic decisions. The cost basis of the investment in the supplier is $1,400,000, and the fair value of the investment at December31, 2016, is $1,800,000. Watson does not intend to sell the investment in the foreseeable future. The supplier reported net income of $200,000 for 2016 and paid no dividends.
4. Watson owns some common stock of Stein Corp. The cost basis of the investment in Stein is $300,000, and the fair value at December 31, 2016, is $250,000. Watson believes the decline in the value of its investment in Stein is other than temporary, but Watson does not intend to sell its investment in Stein in the foreseeable future.
5. Watson purchased 25 percent of the stock of Love Co. for$500,000. Watson has significant influence over the operating activities of Love Co. During 2016, Love Co. reported net income of $200,000 and paid a dividend of $50,000.
Required:
Determine whether each of the investments described should be classified as available‐for‐sale, held‐to‐maturity, trading, or equity method.
Q:On January 1, 2016, Plywood Homes, Inc., issued 20‐year, 4On January 1, 2016, Plywood Homes, Inc., issued 20‐year, 4 percent bonds having a face value of $1 million. The interest on the bonds is payable semiannually on June 30 and December 31. The proceeds to the company were $975,000 (i.e., on the day they were issued the bonds had a market value of $975,000). On June 30, 2016, the company’s fiscal closing date, when the bonds were being traded at 98 ½, each of the following amounts was suggested as a possible valuation basis for reporting the bond liability on the balance sheet.
1. $975,625 (proceeds, plus six months’ straight‐line amortization)
2. $1 million (face value)
3. $1,780,000 (face value plus interest payments)
Required:
a. Distinguish between nominal and effective interest rates.
b. Explain the nature of the $25,000 difference between the face value and market value of the bonds on January 1, 2016.
c. Between January 1 and June 30, the market value of the company’s bonds increased from $975,000 to $985,000. Explain. Discuss the significance of the increase to the company.
d. Evaluate each of the three suggested alternatives for reporting the bond liability on the balance sheet, giving arguments for and against each alternative. Your answer should take the investor and the reporting company into consideration.
Q:Whiley Company issued a $100,000, five‐year, 10 percent note toWhiley Company issued a $100,000, five‐year, 10 percent note to Security Company on January 2, 2016. Interest was to be paid annually each December 31. The stated rate of interest reflected the market rate of interest on similar notes.
Whiley made the first interest payment on December 31, 2016. Owing to financial difficulties, the firm was unable to pay any interest on December 31, 2017. Security Co. agreed to the following terms:
1. The $100,000 principal would be payable in five equal installments, beginning December 31, 2017.
2. The accrued interest at December 31, 2017, would be forgiven.
3. Whiley would be required to make no other payments. Because of the risk associated with the note, it has no determinable fair value. The note is secured by equipment having a fair value of $80,000 at December 31, 2017. The present value of the five equal installments discounted at 10 percent is $75,815.
Required:
a. Under current U.S. GAAP, at which amount would Whiley report the restructured liability at December 31, 2017? Explain. How much gain would Whiley recognize in its income statement for 2017? Explain. How much interest expense would Whiley recognize in 2016? Explain.
b. Under current U.S. GAAP, what alternatives does Security have for reporting the restructured receivable? Explain. How would each alternative affect the 2017 income statement and future interest revenue? Explain.
c. Discuss the pros and cons of the alternatives in (b) and compare them to the prior U.S. GAAP treatment (treatment that was reciprocal to the debtor).
Q:Baker Company needs $1 million to expand its existing plant.

Baker Company needs $1 million to expand its existing plant. Baker management is considering the following two alternative forms of financing:

1. At the beginning of 2017, issue $1 million of convertible, 10‐year, 10 percent bonds. Each $1,000 bond can be converted into 20 shares of Baker $10 par value common stock. The conversion may take place any time after three years.

2. At the beginning of 2017, issue 10,000 shares of $100 par value, $10, redeemable preferred stock. The preferred is redeemable at $102 ten years from the date of issue.

Baker’s management is concerned about the effects of the two alternatives on cash flows, their financial statements, and future financing for other planned expansion activities. Also, existing debt covenants restrict the debt‐to‐equity ratio to 2:1; $1 million in new debt would cause the debt‐to‐equity ratio to be close to 2:1. Baker believes that either the bonds or the preferred stock could be sold at par value. Their income tax rate is 34 percent.

Baker Company common stock is currently selling for $45 per share.

Required:

a. Discuss the theoretical and current U.S. GAAP treatments for convertible bonds.

b. Discuss the current U.S. GAAP treatment for redeemable preferred stock.

c. Compare the effects of the two financing alternatives on Baker Company’s balance sheet, income statement, and cash flows under current U.S. GAAP. Your comparison should consider 2017 and future years, the potential conversion of the bonds, and the debt covenant restrictions.

Q:On January 2, 2017, two identical companies, Daggar Corp. and

On January 2, 2017, two identical companies, Daggar Corp. and Bayshore Company, lease similar assets with the following characteristics:

1. The economic life is eight years.

2. The term of the lease is five years.

3. Lease payment of $20,000 per year is due at the beginning of each year beginning January 2, 2017.

4. The fair market value of the leased property is $96,000.

5. Each firm has an incremental borrowing rate of 8 percent and a tax rate of 40 percent.

Neither company has early adopt the new lease standard and Daggar capitalizes the lease, whereas Bayshore records the lease as an operating lease. Both firms depreciate assets by the straight‐line method, and both treat the lease as an operating lease for federal income tax purposes.

Required:

a. Determine earnings (i) before interest and taxes and (ii) before taxes for both firms. Identify the source of any differences between the companies.

b. Compute any deferred taxes resulting from the lease for each firm in the first year of the lease.

c. Compute the effect of the lease on the 2017 reported cash from operations for both firms. Explain any differences.

Q:On January 2, 2017, Grant Corporation leases an asset to

On January 2, 2017, Grant Corporation leases an asset to Pippin Corporation under the following conditions (assume Grant has not early adopted the new lease standard):

1. Annual lease payments are $10,000 for 20 years.

2. At the end of the lease term, the asset is expected to have a value of $2,750.

3. The fair market value of the asset at the inception of the lease is $92,625.

4. The estimated economic life of the lease is 30 years.

5. Grant’s implicit interest rate is 12 percent; Pippin’s incremental borrowing rate is 10 percent.

6. The asset is recorded in Grant’s inventory at $75,000 just prior to the lease transaction.

Required:

a. What type of lease is this for Pippin? Why?

b. Assume Grant capitalizes the lease. What financial statement accounts are affected by this lease, and what is the amount of each effect?

c. Assume Grant uses straight‐line depreciation. What are the income statement, balance sheet, and statement of cash flow effects for 2017?

d. How should Grant record this lease? Why? Would any additional information be helpful in making this decision?

Q:On January 1, 2017, Von Company entered into two non

On January 1, 2017, Von Company entered into two non cancelable leases for new machines to be used in its manufacturing operations. The first lease does not contain a bargain purchase option; the lease term is equal to 80 percent of the estimated economic life of the machine. The second lease contains a bargain purchase option; the lease term is equal to 50 percent of the estimated economic life of the machine.

Required:

a. What is the theoretical basis for requiring lessees to capitalize certain long‐term leases? Do not discuss the specific criteria for classifying a lease as a capital lease.

b. How should a lessee account for a capital lease at its inception?

c. How should a lessee record each minimum lease payment for a capital lease?

d. How should Von classify each of the two leases? Why?

Q:Growth Corporation offered the following stock option plan to itsGrowth Corporation offered the following stock option plan to its employees: Each employee will receive 1,000 options to purchase shares of stock at an option price equal to the market price of the company’s common shares on the grant date, January 1, 2017. On that date:
The market price per share was……………$22
The fair value of an option was……………. $ 3
Required:
a. Describe how the ESOPs would have been reported under the provisions of APB Opinion No. 25.
b. Analyze and explain the consequences of the APB Opinion No. 25 accounting treatment. Your analysis should consider the following:
i. The conceptual framework
ii. Any ethical implications
iii. The impact on financial statements
iv. The impact on financial ratios
c. The FASB now requires companies to use the fair value method of accounting for ESOPs as described in FASB ASC 718. Describe how the ESOPs will be reported under this method.
Q:Drake Company reported the following for 2017: Current assets…………………………….$87,

Drake Company reported the following for 2017:

Current assets……………………………………..$87,000

Current liabilities……………………………………19,000

Revenues……………………………………………..450,000

Cost of goods sold……………………………….220,000

Noncurrent assets……………………………….186,000

Bonds payable (10%, issued at par)………100,000

Preferred stock, $5, $100 par………………….20,000

Common stock, $10 par………………………….50,000

Paid‐in capital in excess of par……………….48,000

Operating expense………………………………..64,000

Retained earnings………………………………….36,000

Common stockholders received a $2 dividend during the year. The preferred stock is noncumulative and nonparticipating.

Required:

a. Ignoring income taxes, prepare an income statement and balance sheet for Drake Company at December 31, 2017, that is consistent with each of the following theories of equity:

i. Entity theory

ii. Proprietary theory

iii. Residual equity theory

b. For each theory cited above, compute the December 31, 2017, debt‐to‐equity ratio. If none would be computed, discuss why.

Q:Carrol, Inc., accomplished a quasi‐reorganization effective December 31, 2017. ImmediatelyCarrol, Inc., accomplished a quasi‐reorganization effective December 31, 2017. Immediately before the quasi‐reorganization, the stockholders’ equity was as follows:
Common Stock, Par Value…………………………..$10 per Share
Authorized issued and outstanding $4,000,000……400,000 shares
Additional paid‐in capital…………………………………. 600,000
Retained earnings (deficit)………………………………. (900,000)
Under the terms of the quasi‐reorganization, the par value of the common stock was reduced from $10 per share to $5 per share, and equipment was written down by $1.2 million.
Required:
Discuss the accounting treatment necessary to accomplish this quasi‐reorganization.
Q:On January 1, 2016, as an incentive to improved performanceOn January 1, 2016, as an incentive to improved performance of duties, Recycling Corporation adopted a qualified stock option plan to grant corporate executives nontransferable stock options to 500,000 shares of its unissued $1 par value common stock. The options were granted on May 1, 2016, at $25 per share, the market price on that date. All the options were exercisable one year later and for four years thereafter, providing that the grantee was employed by the corporation at the date of exercise.
The market price of this stock was $40 per share on May 1, 2017. All options were exercised before December 31, 2017, at times when the market price varied between $40 and $50 per share.
Required:
a. What information on this option plan should be presented in the financial statements of Recycling Corporation at
(i) December 31, 2016
(ii) December 31, 2017? Explain.
b. It has been said that the exercise of such a stock option would dilute the equity of existing stockholders in the corporation.
i. How could this happen? Discuss.
ii. What conditions could prevent a dilution of existing equities from taking place in this transaction? Discuss.
Q:Purity Company acquired all of the net assets of SolticePurity Company acquired all of the net assets of Soltice Company on November 1, 20×1. As a result Soltice became a 100% percent owned subsidiary of Purity. After allocating the cost of the net acquisition to the net assets of Soltice, the remainder ($100,000) was reported in the December 31, 20×1 balance sheet as goodwill.
During 20×1 Purity determined that the Soltice office building was undervalued by $40,000 when its provisional amount was determined. Purity depreciates the building using the straight‐line method over a twenty‐year period, beginning November 1, 20×1.
Required:
Address the following questions assuming a tax rate of 40%.
a. At what amount will goodwill now be adjusted to?
b. Under current accounting practice, how will Soltice treat the $40,000 change? Explain and show the journal entry (ies), if any that must be recorded in 20×2.
c. Under the proposed exposure draft issued as a part of the FASB’s Simplification Initiative, how will Soltice treat the $40,000 change? Explain and show the journal entry (ies) that would be recorded in 20×2.
Q:The Fillups Company has been in the business of exploringThe Fillups Company has been in the business of exploring for oil reserves. During 2017, $10 million was spent drilling wells that were dry holes. Under U.S. GAAP, Fillups has the option of accounting for these costs by the successful efforts method or the full‐cost method. Under successful efforts, the $10 million would be expensed once it was determined that the wells were dry. Under full cost, the $10 million would be capitalized. It would not be expensed until the oil from successful wells is extracted and sold. Fillups decides to use the full‐cost method because of its positive effect on the bottom line.
Required:
a. What are the ethical considerations implied in the rationale for Fillups’s decision? Explain.
b. Do you believe that an accounting alternative should be selected solely on the basis of financial statement effects? Discuss.
Q:You have completed your audit of Carter Corporation and itsYou have completed your audit of Carter Corporation and its consolidated subsidiaries for the year ended December 31, 2017, and are satisfied with the results of your examination. You have examined the financial statements of Carter for the past three years. The corporation is now preparing its annual report to shareholders. The report will include the consolidated financial statements of Carter and its subsidiaries and your short‐form auditor’s report. During your audit, the following matters came to your attention:
1. The I
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