Question & Answer

Locate the IRS Web site at http://www.irs.gov/.  For every $100 the IRS collected, how much was spent on the IRS collection efforts?  What tax system criterion does this information help you to evaluate with respect to the current U.S. tax system?

What is the difference between earned and unearned income?

Briefly describe the fair value hierarchy

‘Executives should only be compensated based upon the achievement of           targets.  They should not receive a fixed salary component’. Discuss.             (LO4 and 5)

Explain the difference between roughing and finishing operations in machining.

How do banks resolve illiquidity problems? (LO2)

1. Why may inflows of short-term deposits create a problem? 2. Where would interest payments on short-term foreign deposits in UK banks be entered on the balance of payments account?

Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2012, the company expends $325,000 on a research project, but by the end of 2012, it is impossible to determine whether any benefit will be derived from it. (a) What account should be charged for the $325,000, and how should it be shown in the financial statements? (b) The project is completed in 2013, and a successful patent is obtained. The R&D costs to complete the project are $130,000 ($36,000 of these costs were incurred after achieving economic viability). The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2013 total $24,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also,record patent amortization (full year) in 2013. (c) In 2014, the company successfully defends the patent in extended litigation at a cost of $47,200, thereby extending the patent life to December 31, 2021. What is the proper way to account for thiscost?Also, record patent amortization (full year) in 2014. (d) Additional engineering and consulting costs incurred in 2014 required to advance the design of a new version of the product to the manufacturing stage total $60,000. These costs enhance the design of the product considerably, but it is highly uncertain if there will be a market for the new version of the product. Discuss the proper accounting treatment for this cost.

Why does Congress provide tax deferral on the formation of a corporation?

A dowel pin made of steel (elastic modulus = 209,000 MPa) is to be press fitted into a steel collar. The pin has a nominal diameter of 16.0 mm, and the collar has an outside diameter of 27.0 mm. (a) Compute the radial pressure and the maximum effective stress if the interference between the shaft OD and the collar ID is 0.03 mm. (b) Determine the effect of increasing the outside diameter of the collar to 39.0 mm on the radial pressure and the maximum effective stress.

Assessing a remuneration plan Hailey’s Hair Products has two criteria upon which its reward system is based: (1) rewarding executives for performance and (2) adding to shareholder value. At present, the remuneration package for executives consists of a base salary, annual bonus and stock options. The base salary is considered critical to attract the ‘best’ people to positions with the bonus and stock options encouraging performance that leads to increases in the share price.   Base salaries are set at competitive levels to attract and retain the ‘best’ people. The bonus is payable if executives meet the annual performance targets set by the board at the beginning of the year. The stock options are not able to be exercised until five years after being granted. A recent initiative has meant that executives are able to substitute the bonus payment for stock options (but still with the five year restriction). The board’s remuneration committee is made up entirely of independent directors and makes use of outside advisors to ensure that recommendations are fair to all shareholders.   Required Evaluate the remuneration plan for executives. (LO2, 3 and 4)

Presented below is the current liabilities section of Micro Corporation. ($000) 2015 2014 Current liabilities Notes payable $ 68,713 $ 7,700 Accounts payable 179,496 101,379 Compensation to employees 60,312 31,649 Accrued liabilities 158,198 77,621 Income taxes payable 10,486 26,491 Current maturities of long-term debt 16,592 6,649 Total current liabilities $493,797 $251,489 Instructions Answer the following questions. (a) What are the essential characteristics that make an item a liability? (b) How does one distinguish between a current liability and a long-term liability? (c) What are accrued liabilities? Give three examples of accrued liabilities that Micro might have. (d) What is the theoretically correct way to value liabilities? How are current liabilities usually valued? (e) Why are notes payable reported first in the current liabilities section? (f) What might be the items that comprise Micro’s liability for “Compensation to employees”?

(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 face milling operation is used to machine 6.0 mm from the top surface of a rectangular piece of aluminum 300 mm long by 125 mm wide in a single pass. The cutter follows a path that is centered over the workpiece. It has four teeth and is 150 mm in diameter. Cutting speed = 2.8 m/s, and chip load = 0.27 mm/tooth. Determine (a) the actual machining time to make the pass across the surface and (b) the maximum metal removal rate during cutting.

Juan and Bonita are married and have two dependent children living at home.This year, Juan is killed in an avalanche while skiing. a.What is Bonita’s filing status this year?

A fiberglass composite is composed of a matrix of vinyl ester and reinforcing fibers of E-glass. The volume fraction of E-glass is 35%. The remainder is vinyl ester. The density of the vinyl ester is 0.882 g/cm3 , and its modulus of elasticity is 3.60 GPa. The density of E-glass is 2.60 g/cm3 , and its modulus of elasticity is 76.0 GPa. A section of composite 1.00 cm by 50.00 cm by 200.00 cm is fabricated with the E-glass fibers running longitudinal along the 200-cm direction. Assume there are no voids in the composite. Determine the (a) mass of vinyl ester in the section, (b) mass of Eglass fibers in the section, and (c) the density of the composite

Compare the main sources and uses of funds for finance companies, insurance companies, and pension funds. (LO3)

Presented below are the comparative income and retained earnings statements for Denise Habbe Inc. for the years 2014 and 2015. LIFO Basis FIFO Basis 2014 2013 2014 2013 Sales $3,000 $3,000 $3,000 $3,000 Cost of goods sold 1,130 1,000 1,100 940 Operating expenses 1,000 1,000 1,000 1,000 Income before profi t-sharing 870 1,000 900 1,060 Profi t-sharing expense 87 100 96 100 Net income $ 783 $ 900 $ 804 $ 960 2015 2014 Sales $340,000 $270,000 Cost of sales 200,000 142,000 Gross profi t 140,000 128,000 Expenses 88,000 50,000 Net income $ 52,000 $ 78,000 Retained earnings (Jan. 1) $125,000 $ 72,000 Net income 52,000 78,000 Dividends (30,000) (25,000) Retained earnings (Dec. 31) $147,000 $125,000 The following additional information is provided: 1. In 2015, Denise Habbe Inc. decided to switch its depreciation method from sum-of-the-years’-digits to the straight-line method. The assets were purchased at the beginning of 2014 for $100,000 with an estimated useful life of 4 years and no salvage value. (The 2015 income statement contains depreciation expense of $30,000 on the assets purchased at the beginning of 2014.) 2. In 2015, the company discovered that the ending inventory for 2014 was overstated by $24,000; ending inventory for 2015 is correctly stated. Instructions Prepare the revised retained earnings statement for 2014 and 2015, assuming comparative statements. (Ignore income taxes.)

Differentiate between an originating temporary difference and a reversing difference.

Current setup time on a certain machine is 3.0 hr. Cost of downtime on this machine is estimated at $200/hr. Annual holding cost per part made on the equipment, Ch = $1.00. Annual demand for the part is 15,000 units. Determine (a) EOQ and (b) total inventory costs for this data. Also, determine (c) EOQ and (d) total inventory costs, if the changeover time could be reduced to six minutes.

Many governments around the world during the COVID-19 pandemic introduced job retention schemes allowing workers to be furloughed. Is this a use of fiscal policy to affect aggregate demand or aggregate supply?

Agustina, Bobby, and Claudia are equal owners in Lafter, an S corporation that was a C corporation several years ago. While Agustina and Bobby actively participate in running the company, Claudia has a separate day job and is a passive owner. Consider the following information for 2024:    • As of January 1, 2024, Agustina, Bobby, and Claudia each have a basis in Lafter stock of $15,000 and a debt basis of $0.  On January 1, the stock basis is also the at-risk amount for each shareholder. • Bobby and Claudia also are passive owners in Aggressive LLC, which allocated business income of $14,000 to each of them in 2024. Neither has any other source of passive income (besides Lafter, for Claudia).  • On March 31, 2024, Agustina lends $5,000 of her own money to Lafter. • Anticipating the need for basis to deduct a loss, on April 4, 2024, Bobby takes out a $10,000 loan to make a $10,000 capital contribution to Lafter. Bobby uses his automobile ($12,000 fair market value) as the sole collateral for his loan (nonrecourse).  • Lafter has an accumulated adjustments account balance of $45,000 as of January 1, 2024. • Lafter has C corporation earnings and profits of $15,000 as of January 1, 2024. • During 2024, Lafter reports a business loss of $75,000, computed as follows: Sales revenue $90,000 Cost of goods sold (85,000) Salary to Agustina (40,000) Salary to Bobby (40,000) Business (loss)($75,000) • Lafter also reported $12,000 of tax-exempt interest income.     a. What amount of Lafter’s 2024 business loss of $75,000 are Agustina, Bobby, and Claudia allowed to deduct on their individual tax returns?  What are each owner’s stock basis and debt basis (if applicable) and each owner’s at-risk amount with respect to the investment in Lafter at the end of 2024?

Are taxpayers allowed to deduct any from AGI deductions that are not itemized deductions?  Explain.

Some bank managers argue that U.S. banks’ access to capital is restricted because the capital requirements imposed by U.S. regulators are too high. Write a short essay that offers logical insights into why high capital requirements may restrict a bank’s access to capital. Also, describe why high capital requirements for all banks in the United States might actually allow the banks to have easier access to capital. Which of the arguments do you believe?

Briefly describe the impairment evaluation process and assessment of receivables on an individual or collective basis.