The Chartered Financial Analyst (CFA®) designation is fast becoming a requirement for serious investment professionals. It is an attractive alternative to getting an MBA for students wanting a career in investment. A student of finance is curious to know if a CFA designation is a more lucrative option than an MBA. He collects data on 38 recent CFAs with a mean salary of $142,000 and a standard deviation of $45,000. A sample of 55 MBAs results in a mean salary of $126,000 with a standard deviation of $27,000. Use Table 2. μ1 is the population mean for individuals with a CFA designation and μ2 is the population mean of individuals with MBAs. Let CFAs and MBAs represent population 1 and population 2, respectively. a-1. Set up the hypotheses to test if a CFA designation is more lucrative than an MBA at the 10% significance level. Do not assume that the population variances are equal. H0: μ1 − μ2 = 0; HA: μ1 − μ2 ≠ 0 H0: μ1 − μ2 ≥ 0; HA: μ1 − μ2 < 0 H0: μ1 − μ2 ≤ 0; HA: μ1 − μ2 > 0 a-2. Calculate the value of the test statistic. (Round all intermediate calculations to at least 4 decimal places and final answer to 2 decimal places.) Test statistic a-3. Approximate the p-value. 0.025 Picture p-value < 0.050 0.050 Picture p-value < 0.100 0.010 Picture p-value < 0.025 p-value Picture 0.010 p-value Picture 0.100 a-4. Do you reject the null hypothesis at the 10% level? No, since the p-value is more than α. No, since the p-value is less than α. Yes, since the p-value is more than α. Yes, since the p-value is less than α. b. Using the critical value approach, can we conclude that CFA is more lucrative? No, since the value of the test statistic is more than the critical value of 1.297. No, since the value of the test statistic is more than the critical value of 1.673. Yes, since the value of the test statistic is more than the critical value of 1.297. Yes, since the value of the test statistic is more than the critical value of 1.673.

What is the best way to measure the incident of hospital acquired infections? If the goal is to reduce the incidence of hospital acquired infection? What is a reliable tool that can be used to measure this quality indicator?

Sherrod, Inc., reported pretax accounting income of $92 million for 2021. The following information relates to differences between pretax accounting income and taxable income:

1. Income from installment sales of properties included in pretax accounting income in 2021 exceeded that reported for tax purposes by $6 million. The installment receivable account at year-end 2021 had a balance of $8 million (representing portions of 2020 and 2021 installment sales), expected to be collected equally in 2022 and 2023.
2. Sherrod was assessed a penalty of $3 million by the Environmental Protection Agency for violation of a federal law in 2021. The fine is to be paid in equal amounts in 2021 and 2022.
3. Sherrod rents its operating facilities but owns one asset acquired in 2020 at a cost of $104 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

4. For tax purposes, warranty expense is deducted when costs are incurred. The balance of the warranty liability was $1 million at the end of 2020. Warranty expense of $3 million is recognized in the income statement in 2021. $2 million of cost is incurred in 2021, and another $3 million of cost anticipated in 2022. At December 31, 2021, the warranty liability is $2 million (after adjusting entries).
5. In 2021, Sherrod accrued an expense and related liability for estimated paid future absences of $13 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($7 million in 2022; $6 million in 2023).
6. During 2020, accounting income included an estimated loss of $6 million from having accrued a loss contingency. The loss is paid in 2021, at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2021, were $1.8 million and $2.5 million, respectively. The enacted tax rate is 25% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry.
2. What is the 2021 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2021 balance sheet.

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 2009 by two talented engineers with little business training. In 2021, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries were prepared. The income tax rate is 25% for all years.

1. A five-year casualty insurance policy was purchased at the beginning of 2019 for $39,500. The full amount was debited to insurance expense at the time.
2. Effective January 1, 2021, the company changed the salvage value used in calculating depreciation for its office building. The building cost $636,000 on December 29, 2010, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000.
3. On December 31, 2020, merchandise inventory was overstated by $29,500 due to a mistake in the physical inventory count using the periodic inventory system.
4. The company changed inventory cost methods to FIFO from LIFO at the end of 2021 for both financial statement and income tax purposes. The change will cause a $1,005,000 increase in the beginning inventory at January 1, 2022.
5. At the end of 2020, the company failed to accrue $17,300 of sales commissions earned by employees during 2020. The expense was recorded when the commissions were paid in early 2021.
6. At the beginning of 2019, the company purchased a machine at a cost of $810,000. Its useful life was estimated to be ten years with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December 31, 2020, was $518,400. On January 1, 2021, the company changed to the straight-line method.
7. Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.75% is a better indication of the actual cost. Management effects the change in 2021. Credit sales for 2021 are $4,900,000; in 2020 they were $4,600,000.

Required:
For each situation:
1. Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change. For accounting errors, choose "Not applicable".
2. Prepare any journal entry necessary as a direct result of the change or error correction, as well as any adjusting entry for 2021 related to the situation described. Any tax effects should be adjusted for through Income tax payable or Refund—income tax.

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 2009 by two talented engineers with little business training. In 2021, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries were prepared. The income tax rate is 25% for all years.

1. A five-year casualty insurance policy was purchased at the beginning of 2019 for $31,000. The full amount was debited to insurance expense at the time.
2. Effective January 1, 2021, the company changed the salvage value used in calculating depreciation for its office building. The building cost $568,000 on December 29, 2010, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000.
3. On December 31, 2020, merchandise inventory was overstated by $21,000 due to a mistake in the physical inventory count using the periodic inventory system.
4. The company changed inventory cost methods to FIFO from LIFO at the end of 2021 for both financial statement and income tax purposes. The change will cause a $920,000 increase in the beginning inventory at January 1, 2022.
5. At the end of 2020, the company failed to accrue $15,600 of sales commissions earned by employees during 2020. The expense was recorded when the commissions were paid in early 2021.
6. At the beginning of 2019, the company purchased a machine at a cost of $640,000. Its useful life was estimated to be ten years with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December 31, 2020, was $409,600. On January 1, 2021, the company changed to the straight-line method.
7. Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.75% is a better indication of the actual cost. Management effects the change in 2021. Credit sales for 2021 are $3,200,000; in 2020 they were $2,900,000.

Required:
For each situation:
1. Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change. For accounting errors, choose "Not applicable".
2. Prepare any journal entry necessary as a direct result of the change or error correction, as well as any adjusting entry for 2021 related to the situation described. Any tax effects should be adjusted for through Income tax payable or Refund—income tax.

Sherrod, Inc., reported pretax accounting income of $72 million for 2021. The following information relates to differences between pretax accounting income and taxable income:

1. Income from installment sales of properties included in pretax accounting income in 2021 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end 2021 had a balance of $4 million (representing portions of 2020 and 2021 installment sales), expected to be collected equally in 2022 and 2023.
2. Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2021. The fine is to be paid in equal amounts in 2021 and 2022.
3. Sherrod rents its operating facilities but owns one asset acquired in 2020 at a cost of $64 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

4. For tax purposes, warranty expense is deducted when costs are incurred. The balance of the warranty liability was $1 million at the end of 2020. Warranty expense of $3 million is recognized in the income statement in 2021. $2 million of cost is incurred in 2021, and another $3 million of cost anticipated in 2022. At December 31, 2021, the warranty liability is $2 million (after adjusting entries).
5. In 2021, Sherrod accrued an expense and related liability for estimated paid future absences of $14 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($11 million in 2022; $3 million in 2023).
6. During 2020, accounting income included an estimated loss of $6 million from having accrued a loss contingency. The loss is paid in 2021, at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2021, were $1.8 million and $1.5 million, respectively. The enacted tax rate is 25% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry.
2. What is the 2021 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2021 balance sheet.

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 2009 by two talented engineers with little business training. In 2021, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries were prepared. The income tax rate is 25% for all years.

1. A five-year casualty insurance policy was purchased at the beginning of 2019 for $36,500. The full amount was debited to insurance expense at the time.
2. Effective January 1, 2021, the company changed the salvage value used in calculating depreciation for its office building. The building cost $612,000 on December 29, 2010, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000.
3. On December 31, 2020, merchandise inventory was overstated by $26,500 due to a mistake in the physical inventory count using the periodic inventory system.
4. The company changed inventory cost methods to FIFO from LIFO at the end of 2021 for both financial statement and income tax purposes. The change will cause a $975,000 increase in the beginning inventory at January 1, 2022.
5. At the end of 2020, the company failed to accrue $16,700 of sales commissions earned by employees during 2020. The expense was recorded when the commissions were paid in early 2021.
6. At the beginning of 2019, the company purchased a machine at a cost of $750,000. Its useful life was estimated to be ten years with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December 31, 2020, was $480,000. On January 1, 2021, the company changed to the straight-line method.
7. Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.75% is a better indication of the actual cost. Management effects the change in 2021. Credit sales for 2021 are $4,300,000; in 2020 they were $4,000,000.

Required:
For each situation:
1. Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change. For accounting errors, choose "Not applicable".
2. Prepare any journal entry necessary as a direct result of the change or error correction, as well as any adjusting entry for 2021 related to the situation described. Any tax effects should be adjusted for through Income tax payable or Refund—income tax.

Sherrod, Inc., reported pretax accounting income of $68 million for 2021. The following information relates to differences between pretax accounting income and taxable income:

1. Income from installment sales of properties included in pretax accounting income in 2021 exceeded that reported for tax purposes by $6 million. The installment receivable account at year-end 2021 had a balance of $8 million (representing portions of 2020 and 2021 installment sales), expected to be collected equally in 2022 and 2023.
2. Sherrod was assessed a penalty of $4 million by the Environmental Protection Agency for violation of a federal law in 2021. The fine is to be paid in equal amounts in 2021 and 2022.
3. Sherrod rents its operating facilities but owns one asset acquired in 2020 at a cost of $56 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

4. For tax purposes, warranty expense is deducted when costs are incurred. The balance of the warranty liability was $3 million at the end of 2020. Warranty expense of $5 million is recognized in the income statement in 2021. $4 million of cost is incurred in 2021, and another $3 million of cost anticipated in 2022. At December 31, 2021, the warranty liability is $4 million (after adjusting entries).
5. In 2021, Sherrod accrued an expense and related liability for estimated paid future absences of $14 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($8 million in 2022; $6 million in 2023).
6. During 2020, accounting income included an estimated loss of $2 million from having accrued a loss contingency. The loss is paid in 2021, at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2021, were $1.3 million and $1.5 million, respectively. The enacted tax rate is 25% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry.
2. What is the 2021 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2021 balance sheet.

Sherrod, Inc., reported pretax accounting income of $76 million for 2021. The following information relates to differences between pretax accounting income and taxable income:

1. Income from installment sales of properties included in pretax accounting income in 2021 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end 2021 had a balance of $7 million (representing portions of 2020 and 2021 installment sales), expected to be collected equally in 2022 and 2023.
2. Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2021. The fine is to be paid in equal amounts in 2021 and 2022.
3. Sherrod rents its operating facilities but owns one asset acquired in 2020 at a cost of $80 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

4. For tax purposes, warranty expense is deducted when costs are incurred. The balance of the warranty liability was $2 million at the end of 2020. Warranty expense of $4 million is recognized in the income statement in 2021. $3 million of cost is incurred in 2021, and another $3 million of cost anticipated in 2022. At December 31, 2021, the warranty liability is $3 million (after adjusting entries).
5. In 2021, Sherrod accrued an expense and related liability for estimated paid future absences of $7 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million in 2022; $3 million in 2023).
6. During 2020, accounting income included an estimated loss of $2 million from having accrued a loss contingency. The loss is paid in 2021, at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2021, were $1 million and $2.5 million, respectively. The enacted tax rate is 25% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry.
2. What is the 2021 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2021 balance sheet.