Question & Answer

Benjaminrecently bought a truck in Alabama for his business in Georgia.  What different types of federal and state taxes may affect this transaction?

What are the major types of subsequent events? Indicate how each of the following “subsequent events” would be reported. (a) Collection of a note written off in a prior period. (b) Issuance of a large preferred stock offering. (c) Acquisition of a company in a different industry. (d) Destruction of a major plant in a flood. (e) Death of the company’s chief executive officer (CEO). (f) Additional wage costs associated with settlement of a four-week strike. (g) Settlement of a federal income tax case at considerably more tax than anticipated at year-end. (h) Change in the product mix from consumer goods to industrial goods.

For the following independent cases, determine whether economic income is present and, if so, whether it must be included in gross income. Identify a tax authority that supports your analysis.

On July 1, 2014, Moresan Company sold special-order merchandise on credit and received in return an interest-bearing note receivable from the customer. Moresan will receive interest at the prevailing rate for a note of this type. Both the principal and interest are due in one lump sum on June 30, 2015. On September 1, 2014, Moresan sold special-order merchandise on credit and received in return a zero-interest-bearing note receivable from the customer. The prevailing rate of interest for a note of this type is determinable. The note receivable is due in one lump sum on August 31, 2016. Moresan also has significant amounts of trade accounts receivable as a result of credit sales to its customers. On October 1, 2014, some trade accounts receivable were assigned to Indigo Finance Company on a non-notification (Moresan handles collections) basis for an advance of 75% of their amount at an interest charge of 8% on the balance outstanding. On November 1, 2014, other trade accounts receivable were sold on a without recourse basis. The factor withheld 5% of the trade accounts receivable factored as protection against sales returns and allowances and charged a finance charge of 3%. Instructions (a) How should Moresan determine the interest revenue for 2014 on the: (1) Interest-bearing note receivable? Why? (2) Zero-interest-bearing note receivable? Why? (b) How should Moresan report the interest-bearing note receivable and the zero-interest-bearing note receivable on its balance sheet at December 31, 2014? (c) How should Moresan account for subsequent collections on the trade accounts receivable assigned on October 1, 2014, and the payments to Indigo Finance? Why? (d) How should Moresan account for the trade accounts receivable factored on November 1, 2014? Why?

Mathys Inc. has recently hired a new independent auditor, Karen Ogleby, who says she wants “to get everything straightened out.” Consequently, she has proposed the following accounting changes in connection with Mathys Inc.’s 2014 financial statements. 1. At December 31, 2013, the client had a receivable of $820,000 from Hendricks Inc. on its balance sheet. Hendricks Inc. has gone bankrupt, and no recovery is expected. The client proposes to write off the receivable as a prior period item. 2. The client proposes the following changes in depreciation policies. (a) For office furniture and fixtures, it proposes to change from a 10-year useful life to an 8-year life. If this change had been made in prior years, retained earnings at December 31, 2013, would have been $250,000 less. The effect of the change on 2014 income alone is a reduction of $60,000. (b) For its new equipment in the leasing division, the client proposes to adopt the sum-of-theyears’- digits depreciation method. The client had never used SYD before. The first year the client operated a leasing division was 2014. If straight-line depreciation were used, 2014 income would be $110,000 greater. 3. In preparing its 2013 statements, one of the client’s bookkeepers overstated ending inventory by $235,000 because of a mathematical error. The client proposes to treat this item as a prior period adjustment. 4. In the past, the client has spread preproduction costs in its furniture division over 5 years. Because its latest furniture is of the “fad” type, it appears that the largest volume of sales will occur during the first 2 years after introduction. Consequently, the client proposes to amortize preproduction costs on a per-unit basis, which will result in expensing most of such costs during the first 2 years after the furniture’s introduction. If the new accounting method had been used prior to 2014, retained earnings at December 31, 2013, would have been $375,000 less. 5. For the nursery division, the client proposes to switch from FIFO to LIFO inventories because it believes that LIFO will provide a better matching of current costs with revenues. The effect of making this change on 2014 earnings will be an increase of $320,000. The client says that the effect of the change on December 31, 2013, retained earnings cannot be determined. 6. To achieve an appropriate recognition of revenues and expenses in its building construction division, the client proposes to switch from the completed-contract method of accounting to the percentage-of-completion method. Had the percentage-of-completion method been employed in all prior years, retained earnings at December 31, 2013, would have been $1,075,000 greater. Instructions (a) For each of the changes described above, decide whether: (1) The change involves an accounting principle, accounting estimate, or correction of an error. (2) Restatement of opening retained earnings is required. (b) What would be the proper adjustment to the December 31, 2013, retained earnings?

What is the difference between industrial stitching and stapling?

Explain the purpose behind the §1231 look-back rule.

Describe the book-tax differences that arise from nonqualified stock options.

The value of the dollar is monitored by bond market participants over time. a. Explain why expectations of a weak dollar could reduce bond prices in the United States. b. On some occasions, news of the dollar’s weakening has not had any impact on the bond markets. Assuming that no other information offsets the weakening dollar, explain why the bond markets may not have responded to the dollar’s decline. (LO2)

If fringe benefits (such as long holidays, company cars, free clothing/uniforms, travel allowances and health insurance) were included, do you think the level of inequality would increase or decrease? Explain why.

What are some of the cybersecurity issues facing fintech companies? (LO5)

1. Why is it easier to use taxes and subsidies to tackle the problem of car exhaust pollution than to tackle the problem of peak-time traffic congestion in cities? 2. CFCs in fridges were known to cause environmental damage and their use has been banned in most countries. Why has this approach been adopted rather than the tax solution?

Exquisite Furniture designs and manufactures custom furniture from exotic materials. Explain why spoilage is sometimes recorded as a cost for a specific job and other times as overhead for this entity.

Bella Partnership is an equal partnership in which each of the partners has a basis in their partnership interest of $10,000. Bella reports the following balance sheet: Assets: Tax Basis FMV Inventory $ 20,000 $ 30,000 Land 10,000 15,000    Totals $ 30,000 $ 45,000 Liabilities and capital: Capital- Toby 10,000 - Kaelin 10,000 - Andrew 10,000   Totals $ 30,000 a. Identify the hot assets if Toby decides to sell his partnership interest. Are these assets “hot” for purposes of distributions? b. If Bella distributes the land to Toby in complete liquidation of his partnership interest, what tax issues should be considered?

Assume that there are 200 consumers in the market. Of these, 100 have schedules like Kate’s and 100 have schedules like Simon’s. What would be the total market demand schedule for potatoes now?                                Price(pence per kg) Total market demand(kg)             20             40             60             80           100                 4400                 2600                 1400                   800                   600 1. How much would be demanded at a price of 30p per kilogram? 2. Assuming that demand does not change from month to month, plot the annual market demand for potatoes.

Ames Company reported 2014 net income of $151,000. During 2014, accounts receivable increased by $13,000 and accounts payable increased by $9,500. Depreciation expense was $44,000. Prepare the cash flows from operating activities section of the statement of cash flows.

Derive an expression for true strain as a function of D and Do for a tensile test specimen of round cross section, where D = the instantaneous diameter of the specimen and Do is its original diameter.

Explain the similarities and dissimilarities between depreciation, amortization, and depletion. Describe the cost recovery method used for each of the four asset types (personal property, real property, intangible property, and natural resources).

Katie, a single taxpayer, is a shareholder in the S Corporation, Engineers One, a civil engineering company. This year, Katie’s share of net business income from Engineers One is $200,000 (net of the associated for AGI self-employment tax deduction). Assume that Katie’s allocation of wages paid by Engineers One to its employees is $300,000 and her allocation of Engineers One’s qualified property is $150,000 (unadjusted basis of equipment, all purchased within past three years). Assume Katie has no other business income and no capital gains or qualified dividends. Her taxable income before the deduction for qualified business income is $400,000. a. Calculate Katie’s deduction for qualified business income. b. Assume the same facts provided above, except Katie’s net business income from Engineers One is $400,000 (net of the associated for AGI self-employment tax deduction) and taxable income before the deduction for qualified business income is $350,000.

Risk classification framework Harley–Davidson, Inc. has found itself having to confront a number of risk-related issues. These have mainly related to: (a) the need to increase the number of recalls due to faults (b) surging costs of making the repairs to faulty motorbikes (c) increasing pressure on market share.   Required Classify each of the three events above according to the risk classification framework (strategic, operational, legal and regulatory, and financial). (LO6)

What is the opportunity cost of holding money? Is it the real or the nominal rate of interest? Explain.

Assume the bonds in BE14-2 were issued at 103. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight-line amortization semiannually.

What does the term devitrification mean?

If people are generally risk averse, why do so many people around the world take part in national lotteries?

What is the predominant chemical compound in almost all glass products?