1. Berful Industries, a US corporation using US GAAP accounting standards, wants to increase its reported net income this year. Will the following actions result in an increase in net income for the firm?

1. Berful is going to select double-declining balance depreciation for the new assets it acquires this year instead of the straight-line method.                                                              Yes _____ No _____

2. Berful plans to sell treasury stock at a price substantially above its acquisition cost this year.                               Yes _____ No _____

3. Berful plans to issue new common shares this year, with a par value of $1 per share, believing that it can sell the new shares for $40 per share.                                       Yes _____ No _____

4. Berful plans to receive about $5,000 in dividends from its marketable security portfolio of publicly-traded common stock this year.                                                              Yes _____ No _____

5. Berful plans to change from LIFO to FIFO in measuring the cost of its ending inventory and cost of goods sold, in a period of rising prices.                                                        Yes _____ No _____

6. Berful has used the direct write-off method to account for bad debts, but must change to the allowance method, in a year in which it has no write-offs, but expects to discover next year that some of the current year sales are uncollectible. Will this change reduce net income?                                      Yes _____ No _____

7. Berful wishes to accelerate the timing of the recognition of revenue by collecting cash in advance of performing services or delivering goods. Does net income increase?                  Yes _____ No _____

8. Berful is planning to sell land it has owned for many years, expecting to recognize a gain of $50,000.      Yes _____ No _____

1. Berful is considering purchasing a machine, but is concerned that the sales taxes and delivery costs will drive down its reported profit in the year of purchase. Will these costs decrease net income in the year of purchase?                                   Yes _____ No _____

10. Berful is planning to hire a new officer for the corporation on the last day of the year, with his services to begin next year. Will the profit this year be decreased for his salary? Yes _____ No _____

11. Berful plans to undertake a large research and development project this year. Will the cost of this R&D activity reduce net income this year?                                   Yes _____ No _____

12. Berful is planning to acquire another company this year, and hopes to avoid the recognition of goodwill. Will the recognition of goodwill reduce the net income of Berful in the year of acquisition?                                                                           Yes _____ No _____

13. Berful is concerned that the dividends it declares will be treated as expenses in the year declared—true?                  Yes _____ No _____

Sal, a calendar-year taxpayer, uses the cash-basis method of accounting for his sole proprietorship. In late December he performed $50,000 of consulting services for a client. Sal typically requires his clients to pay his bills immediately upon receipt. Assume that Sal's marginal tax rate is 32 percent this year and 37 percent next year and that he can earn an after-tax rate of return of 7 percent on his investments. Should Sal send his client the bill in December or January? Use Exhibit 3.1. (Round discount factor(s) to three decimal places.)

Programming Exercise 11-2

QUESTION: In this chapter, the class dateType was designed to implement the date in a program, but the member function setDate and the constructor do not check whether the date is valid before storing the date in the member variables. Rewrite the definitions of the function setDate and the constructor so that the values for the month, day, and year are checked before storing the date into the member variables. Add a member function, isLeapYear, to check whether a year is a leap year. Moreover, write a test program to test your class.

Input should be format month day year with each separated by a space. Output should resemble the following:

Date #: month-day-year

An example of the program is shown below:

Date 1: 3-15-2008
this is a leap year

If the year is a leap year, print the date and a message indicating it is a leap year, otherwise print a message indicating that it is not a leap year.

The header file for the class dateType has been provided for you.

GIVEN FILE: dateType.h

FILES NEEDED: dateTypeImp.cpp, main.cpp

~~~~~~dateType.h~~~~~~

#ifndef date_H

#define date_H

class dateType

{

public:

    void setDate(int month, int day, int year);

      //Function to set the date.

      //The member variables dMonth, dDay, and dYear are set

      //according to the parameters

      //Postcondition: dMonth = month; dDay = day;

      //               dYear = year

    int getDay() const;

      //Function to return the day.

      //Postcondition: The value of dDay is returned.

    int getMonth() const;

      //Function to return the month.  

      //Postcondition: The value of dMonth is returned.

    int getYear() const;

      //Function to return the year.     

      //Postcondition: The value of dYear is returned.

    void printDate() const;

      //Function to output the date in the form mm-dd-yyyy.

    bool isLeapYear();

      //Function to determine whether the year is a leap year.

    dateType(int month = 1, int day = 1, int year = 1900);

      //Constructor to set the date

      //The member variables dMonth, dDay, and dYear are set

      //according to the parameters

      //Postcondition: dMonth = month; dDay = day;

      //               dYear = year

      //If no values are specified, the default values are

      //used to initialize the member variables.

private:

    int dMonth;      //variable to store the month

    int dDay;        //variable to store the day

    int dYear;       //variable to store the year

};

#endif

1. The management of Plitt Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 55,000 machine-hours. Capacity is 76,000 machine-hours and the actual level of activity for the year is assumed to be 71,000 machine-hours. All of the manufacturing overhead is fixed and both the estimated amount at the beginning of the year and the actual amount at the end of the year are assumed to be $2,508,000 per year. It is assumed that a number of jobs were worked on during the year, one of which was Job Q20L which required 410 machine-hours.

Multiple Choice

$13,530.00

$14,482.82

$10,480.99

$18,696.00

2. Daget Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the total estimated manufacturing overhead was $364,140. At the end of the year, actual direct labor-hours for the year were 24,000 hours, manufacturing overhead for the year was overapplied by $8,060, and the actual manufacturing overhead was $359,140. The predetermined overhead rate for the year must have been closest to:

Multiple Choice

$15.43 per direct labor-hour

$15.30 per direct labor-hour

$15.17 per direct labor-hour

$14.96 per direct labor-hour

3. Braam Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 11,500 hours. At the end of the year, actual direct labor-hours for the year were 9,700 hours, the actual manufacturing overhead for the year was $143,350, and manufacturing overhead for the year was underapplied by $18,220. The estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate must have been:

Multiple Choice

$164,023

$125,130

$148,350

$138,350

4. Darrow Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 10,000 direct labor-hours and incurred $80,000 of actual manufacturing overhead cost. If overhead was underapplied by $2,000, the predetermined overhead rate for the Corporation for the year must have been:

Multiple Choice

$7.80 per direct labor-hour

$8.00 per direct labor-hour

$8.20 per direct labor-hour

$8.40 per direct labor-hour

1. Lucero, Inc. starts their 2nd year of operations with $15,000 in their allowance for doubtful accounts and $175,000 in their A/R account

• During the year:

•Lucero makes $200,000 in sales, and collects $185,000 from customers

•Lucero writes-off $12,000 in specific accounts receivable

•Additionally, a previously written-off customer pays an old bill of $2,000

•At year end, Lucero estimates that 4% of their A/R balance will prove uncollectible.

•Questions:

•A: Journalize all related year 2 transactions.

•B: What is the net realizable value (NRV) of A/R at the start of year 2?

•C: What is the NRV of A/R at the end of year 2, before any adjusting entries?

•D: What is the NRV of A/R at the end of year 2, after adjusting entries?

2. Lucero, Inc. starts their 2nd year of operations with $15,000 in their allowance for doubtful accounts and $175,000 in their A/R account

• During the year:

•Lucero makes $200,000 in sales, and collects $185,000 from customers

•Lucero writes-off $22,000 in specific accounts receivable

•Additionally, a previously written-off customer pays an old bill of $2,000

•At year end, Lucero estimates that 4% of their A/R balance will prove uncollectible.

•Questions:

•E: What was the necessary adjusting entry at the end of year 2?

•F: What is the NRV of A/R at the end of year 2, after adjusting entries?

3. Lucero, Inc. starts their 2nd year of operations with $15,000 in their allowance for doubtful accounts and $175,000 in their A/R account

• During the year:

•Lucero makes $202,000 in sales, and collects $185,000 from customers

•Lucero writes-off $12,000 in specific accounts receivable

•Additionally, a previously written-off customer pays an old bill of $2,000

•After adjusting entries, Lucero shows $19,800 in their allowance for doubtful accounts.

•Questions:

•G: What adjusting entry was made at the end of year 2?

•H: What was Lucero’s estimate % of uncollectible A/R?

4. Lucero, Inc. starts their 2nd year of operations with $175,000 in their R/E account, and $75,000 in A/R. They use the direct write-off method for bad debts

• During year 2:

•Lucero writes-off $20,000 in specific accounts receivable relating to year 1.

•Questions:

•I: Journalize the year 2 entry.

•J: What is the theoretical weakness to this method? (what is meant by it being a “bad match”?)

You and your significant other are going to have a baby one year from now.

Of course your little pride-and-joy is going to be cute AND smart. After much consultation, your significant other and you have decided that you want the little one to go to a private four-year college in the United States. However, private colleges are very expensive. The average current cost is estimated to be around $43,921 per year, including tuition, fees, room, and board. You expect these costs to increase by 3% per year beyond the current annual rate of inflation of 2%.

Your child will most likely begin college eighteen (18) years after birth. Colleges tend to demand payment of the annual cost at the beginning of each year. You expect to invest your money in a manner that returns 7.50% per year over the foreseeable future. You want to start saving soon. In fact, you plan to invest money every year. To be precise, you will put away money once a year, starting when the baby is born, and ending one year prior to the beginning of your child’s first year in college.

A. Suppose you want to save the same (constant) amount each year in nominal dollars. How much will you have to save each year so that there is enough money to send your child to college?

B. (13 points) Now suppose that you want to save a constant percentage of your salary every year. Assume that your current household income is $100,000 per year, and assume that it will grow at the rate of inflation over the foreseeable future. What (constant) percentage of your salary will you have to save each year so that there is enough money to send your child to college? What is the constant amount you will save every year in real dollars, and what are the corresponding (increasing) amounts saved in nominal dollars each year?

Hint 1: For part A, verify your work by calculating the value of the savings account each year and make sure it starts at $0 and ends at $0.

Hint 2: Your answers to parts A and B must be the same in present value terms.

1 I.e., college costs will increase by (1+0.02)*(1+0.03)-1 per year for the foreseeable future.

Bramble Consulting started the year with total assets of $60500 and total liabilities of $15600. During the year, the business recorded $47900 in consulting revenues and $29300 in expenses. Bramble made an additional investment of $8900 and withdrew cash of $14900 during the year. Owner’s equity changed by what amount from the beginning of the year to the end of the year?

a. 2500

b. 12,600

c. 15,100

d. 44,900

Current one-year rates are 3% in Switzerland and 5% in USA. The current spot rate is 1.12 Sf/$.

1. What is the expected (in one year) future FX rate according to Interest Rate Parity? Use exact equation.
2. What is the synthetic one-year forward rate?
3. What is the market one-year forward rate?
4. How much is the one-year forward premium on the Swiss Franc?