Question & Answer

How might a balanced scorecard be used?             (LO4)

The accounts listed below appeared in the December 31 trial balance of the Savard Theater.   Instructions (a) From the account balances listed above and the information given below, prepare the annual adjusting entries necessary on December 31. (Omit explanations.) (1) The equipment has an estimated life of 16 years and a salvage value of $24,000 at the end of that time. (Use straight-line method.) (2) The note payable is a 90-day note given to the bank October 20 and bearing interest at 8%. (Use 360 days for denominator.) (3) In December, 2,000 coupon admission books were sold at $30 each. They could be used for admission any time after January 1. (4) Advertising expense paid in advance and included in Advertising Expense $1,100. (5) Salaries and wages accrued but unpaid $4,700. (b) What amounts should be shown for each of the following on the income statement for the year? (1) Interest expense. (3) Advertising expense. (2) Admissions revenue. (4) Salaries and wages expense.

Can you think of any reasons why the predictions of the Cournot and Bertrand models of oligopoly are so different?

If supply is totally inelastic, what determines the rental value of capital equipment in the short run?

The accounting staff of Usher Inc. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet are not decipherable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2014.   Instructions (a) Determine the missing amounts in the 2014 pension worksheet, indicating whether the amounts are debits or credits. (b) Prepare the journal entry to record 2014 pension expense for Usher Inc. (c) The accounting staff has heard of a pension accounting procedure called “corridor amortization.” Is Usher required to record any amounts for corridor amortization in (1) 2014? In (2) 2015? Explain.

On September 30 of last year, Rex received some investment land from Holly as a gift. Holly’s basis was $50,000 and the land was valued at $40,000 at the time of the gift. Holly acquired the land five years ago. What are the amount and character of Rex’s recognized gain (loss) if he sells the land on May 12 this year at the following prices? a. $32,000 b. $70,000 c. $45,000   a. $8,000 short-term capital loss, computed as follows: Description Amount Explanation (1) Amount Realized$32,000 (2) Adjusted Basis 40,000 Rex’s basis is the fair market value of the land at the date of the gift. Gain (Loss) Recognized ($8,000) (1) – (2)

Mackenzie is considering conducting her business, Mac561, as either a single member LLC or an S corporation. Assume her marginal ordinary income tax rate is 37 percent, her marginal FICA rate on employee compensation is 1.45 percent, her marginal self-employment tax rate is 2.9 percent (her other self-employment income and/or salary exceeds the wage base limit for the 12.4 percent Social Security tax portion of the self-employment tax), and any employee compensation or self-employment income she receives is subject to the .9 percent additional Medicare tax. Also, assume Mac561 generated $200,000 of business income before considering the deduction for compensation Mac561 pays to Mackenzie and Mackenzie can claim the full qualified business income deduction on Mac561’s business income allocated to her. Determine Mackenzie’s after-tax cash flow from the entity’s business income and any compensation she receives from the business under the following assumptions:   a. Mackenzie conducted Mac561 as a single-member LLC.       Amount Description (1) Business income $200,000   (1)   Deduction for 50% of S.E. taxes (2,678) (6)   × 50% (3) QBI deduction (39,464) [(1) + (2)] × 20% (4) Net income taxable business income 157,858 (1) + (2) + (3) (5) Income tax paid by owner 58,407 (4) × .37 (6) Self-employment tax 5,356 (1) × .9235 × .029 (7) Additional Medicare tax 1,662 (1) × .9235 × .009 additional Medicare tax (8) Total tax $65,425 (5) + (6) + (7) After-tax cash flow $134,575 (1)   – (8)     b.      Mackenzie conducted Mac561 as an S corporation and she received a salary of $100,000. All business income allocated to her is also distributed to her.     Amount Description (1) Business income before comp. $200,000   (2) Salary (100,000)   (3) FICA deduction (1,450) (2) × .0145 employer’s portion (4) Business income allocation and distribution to owner 98,550 (1) + (2) + (3) (5) QBI deduction (19,710) (4) × 20% (6) Net taxable business income 78,840 (4) + (5) (7) Income tax on net business income (29,171) (6) × .37 (8) Salary received 100,000 (2) (9) Income tax on salary (37,000) (8) × .37 (10) Additional Medicare tax on salary (900) (8) × .009 (11) FICA tax paid (1,450) (2) × .0145 employee’s portion After-tax cash flow $130,029 (4) + (7) + (8) + (9) + (10) + (11)     c.       Mackenzie conducted Mac561 as an S corporation and she received a salary of $20,000. All business income allocated to her is also distributed to her.       Amount Description (1) Business income before comp. $200,000   (2) Salary (20,000)   (3) FICA deduction (290) (2) × .0145 employer’s portion (4) Business income allocation and distribution to owner 179,710 (1) + (2) + (3) (5) QBI deduction (35,942) (4) × 20% (6) Net taxable business income 143,768 (4) + (5) (7) Income tax on net business income (53,194) (6) × .37 (8) Salary received 20,000 (2) (9) Income tax on salary (7,400) (8) × .37 (10) Additional Medicare tax on salary (180) (8) × .009 (11) FICA tax paid (290) (2) × .0145 employee’s portion After-tax cash flow $138,646 (4) + (7) + (8) + (9) + (10) + (11)     d.  Which entity/compensation combination generated the most after-tax cash flow for Mackenzie? What are the primary contributing factors favoring this combination?

Baker Corporation owned a building located in Kansas. Baker used the building for its business operations. Last year, a tornado hit the property and completely destroyed it. This year, Baker received an insurance settlement. Baker had originally purchased the building for $350,000 and had claimed a total of $100,000 of depreciation deductions against the property. What are Baker’s realized and recognized gain or (loss) on this transaction and what is its basis in the new building in the following alternative scenarios? a. Baker received $450,000 in insurance proceeds and spent $450,000 rebuilding the building during the current year. b. Baker received $450,000 in insurance proceeds and spent $500,000 rebuilding the building during the current year. c. Baker received $450,000 in insurance proceeds and spent $400,000 rebuilding the building during the current year. d. Baker received $450,000 in insurance proceeds and spent $450,000 rebuilding the building during the next three years.

What are some of the common law issues that a tax practitioner may face with respect to their duties and how might a tax practitioner avoid these issues?

What is the continuity law as it applies to the flow of molten metal in casting?

Earnings per share” (EPS) is the most featured, single financial statistic about modern corporations. Daily published quotations of stock prices have recently been expanded to include for many securities a “times earnings” figure that is based on EPS. Stock analysts often focus their discussions on the EPS of the corporations they study. Instructions (a) Explain how dividends or dividend requirements on any class of preferred stock that may be outstanding affect the computation of EPS. (b) One of the technical procedures applicable in EPS computations is the “treasury-stock method.” Briefly describe the circumstances under which it might be appropriate to apply the treasury-stock method. (c) Convertible debentures are considered potentially dilutive common shares. Explain how convertible debentures are handled for purposes of EPS computations.

Using the facts in problem 48, what minimum tax would need to be assessed on Shameika to make the tax progressive with respect to effective tax rates?

] Louis files as a single taxpayer. In April of this year he received a $900 refund of state income taxes that he paid last year. How much of the refund, if any, must Louis include in gross income under the following independent scenarios? Assume the standard deduction last year was $13,850.

As a newly enrolled accounting major, you are anxious to better understand accounting institutions and sources of accounting literature. As a first step, you decide to explore the FASB Conceptual Framework. Instructions Go to the FASB website, http://www.fasb.org, to access the FASB Concepts Statements. When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following items. (Provide paragraph citations.) (a) What is the objective of financial reporting? (b) What other means are there of communicating information, besides financial statements? (c) Indicate some of the users and the information they are most directly concerned with in economic decision-making.

You are the vice president of finance of Sandy Alomar Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March 31, 2014. These schedules appear below. Sales Cost of Gross ($5 per unit) Goods Sold Margin Schedule 1 $150,000 $124,900 $25,100 Schedule 2 150,000 129,400 20,600 The computation of cost of goods sold in each schedule is based on the following data. Cost Total Units per Unit Cost Beginning inventory, January 1 10,000 $4.00 $40,000 Purchase, January 10 8,000 4.20 33,600 Purchase, January 30 6,000 4.25 25,500 Purchase, February 11 9,000 4.30 38,700 Purchase, March 17 11,000 4.40 48,400 Jane Torville, the president of the corporation, cannot understand how two different gross margins can be computed from the same set of data. As the vice president of finance, you have explained to Ms. Torville that the two schedules are based on different assumptions concerning the flow of inventory costs, i.e., FIFO and LIFO. Schedules 1 and 2 were not necessarily prepared in this sequence of cost flow assumptions. Instructions Prepare two separate schedules computing cost of goods sold and supporting schedules showing the composition of the ending inventory under both cost flow assumptions.

At what company was the Six Sigma quality program first used?

Lee is 30 years old and single. Lee paid all the costs of maintaining his household for the entire year. Determine Lee’s filing status in each of the following alternative situations: a. Lee is Ashton’s uncle. Ashton is 15 years old and has gross income of $6,000. Ashton lived in Lee’s home from April 1 through the end of the year. b. Lee is Ashton’s uncle. Ashton is 20 years old, is not a full-time student, and has gross income of $7,000. Ashton lived in Lee’s home from April 1 through the end of the year. c. Lee is Ashton’s uncle. Ashton is 22 years old and was a full-time student from January through April. Ashton’s gross income was $6,000. Ashton lived in Lee’s home from April 1 through the end of the year. d. Lee is Ashton’s cousin. Ashton is 18 years old, has gross income of $3,000, and is not a full-time student. Ashton lived in Lee’s home from April 1 through the end of the year. e. Lee and Ashton are cousins. Ashton is 18 years old, has gross income of $3,000, and is not a full-time student. Ashton lived in Lee’s home for the entire year.

Michelle operates several food trucks. Indicate the amount (if any) that she can deduct as an ordinary and necessary business deductions in each of the following situations and explain your solution.

: Explain how factors such as creating an open communication climate, the choice of communication channels, candor, questions, and nonverbal communications influence the quality of communication.

Assume Congress increases the dividend tax rate to the ordinary tax rate while leaving all other tax rates unchanged. How would this change affect the overall tax rate on corporate taxable income?

An article in Barron’s noted the following. Okay. Last fall, someone with a long memory and an even longer arm reached into that bureau drawer and came out with a moldy cheese sandwich and the equally moldy notion of corporate forecasts. We tried to find out what happened to the cheese sandwich—but, rats!, even recourse to the Freedom of Information Act didn’t help. However, the forecast proposal was dusted off, polished up and found quite serviceable. The SEC, indeed, lost no time in running it up the old flagpole—but no one was very eager to salute. Even after some of the more objectionable features—compulsory corrections and detailed explanations of why the estimates went awry—were peeled off the original proposal. Seemingly, despite the Commission’s smiles and sweet talk, those craven corporations were still afraid that an honest mistake would lead them down the primrose path to consent decrees and class action suits. To lay to rest such qualms, the Commission last week approved a “Safe Harbor” rule that, providing the forecasts were made on a reasonable basis and in good faith, protected corporations from litigation should the projections prove wide of the mark (as only about 99% are apt to do). Instructions (a) What are the arguments for preparing profit forecasts? (b) What is the purpose of the “safe harbor” rule? (c) Why are corporations concerned about presenting profit forecasts?

What is a best-efforts agreement? (LO1)

Job costing, over- and underapplied overhead, journal entries Shane’s Shovels produces small, custom earth-moving equipment for landscaping companies. Manufacturing overhead is allocated to work in process using an estimated overhead rate. During April, transactions for Shane’s Shovels included the following:       Beginning and ending work in process were both zero.   Required (a)     What was the cost of jobs completed in April? (b)     Was manufacturing overhead underapplied or overapplied? By how much? (c)      Write out the journal entries for these transactions, including the adjustment.

Many London councils now have residents’ street parking permits, with charges that vary according to the carbon emissions of the registered vehicle. Explain the thinking behind this policy.

Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position. (a) The fundamental qualitative characteristics that make accounting information useful are relevance and verifiability. (b) Relevant information only has predictive value, confirmatory value, or both. (c) Information that is a faithful representation is characterized as having predictive or confirmatory value. (d) Comparability pertains only to the reporting of information in a similar manner for different companies. (e) Verifiability is solely an enhancing characteristic for faithful representation. (f) In preparing financial reports, it is assumed that users of the reports have reasonable knowledge of business and economic activities.