Question & Answer

You are compiling the consolidated financial statements for Winsor Corporation International. The corporation’s accountant, Anthony Reese, has provided you with the segment  shown on the next page. Major Segments of Business WCI conducts funeral service and cemetery operations in the United States and Canada. Substantially all revenues of WCI’s major segments of business are from unaffi liated customers. Segment information for fi scal 2015, 2014, and 2013 follows. (thousands) Funeral Floral Cemetery Real Estate Dried Whey Limousine Consolidated Revenues 2015 $302,000 $10,000 $ 73,000 $ 2,000 $7,000 $12,000 $406,000 2014 245,000 6,000 61,000 4,000 4,000 4,000 324,000 2013 208,000 3,000 42,000 3,000 1,000 3,000 260,000 Operating Income 2015 74,000 1,500 18,000 (36,000) 500 2,000 60,000 2014 64,000 200 12,000 (28,000) 200 400 48,800 2013 54,000 150 6,000 (21,000) 100 350 39,600 Capital Expenditures 2015 26,000 1,000 9,000 400 300 1,000 37,700 2014 28,000 2,000 60,000 1,500 100 700 92,300 2013 14,000 25 8,000 600 25 50 22,700 Depreciation and Amortization 2015 13,000 100 2,400 1,400 100 200 17,200 2014 10,000 50 1,400 700 50 100 12,300 2013 8,000 25 1,000 600 25 50 9,700 Identifi able Assets 2015 334,000 1,500 162,000 114,000 500 8,000 620,000 2014 322,000 1,000 144,000 52,000 1,000 6,000 526,000 2013 223,000 500 78,000 34,000 500 3,500 339,500 Instructions Determine which of the above segments must be reported separately and which can be combined under the category “Other.” Then, write a one-page memo to the company’s accountant, Anthony Reese, explaining the following. (a) What segments must be reported separately and what segments can be combined. (b) What criteria you used to determine reportable segments. (c) What major items for each must be disclosed.

Explain how the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) reduced the perceived risk of savings institutions. (LO1)

Alice is single and self-employed in 2024.  Her net business profit on her Schedule C for the year is $190,000.  What are her self-employment tax liability and additional Medicare tax liability for 2024?

What is the difference between a future taxable amount and a future deductible amount? When is it appropriate to record a valuation account for a deferred tax asset?

n a turning operation on stainless steel with hardness = 200 HB, the cutting speed = 200 m/min, feed = 0.25 mm/rev, and depth of cut = 7.5 mm. How much power will the lathe draw in performing this operation if its mechanical efficiency = 90%. Use Table 21.2 to obtain the appropriate specific energy value

If a partner’s outside basis is less than the partnership’s inside basis in distributed assets, how does the partner determine their basis of the distributed assets in an operating distribution?

This year, Agustin’s distributive share from Eden Lakes Partnership includes $8,000 of interest income, $4,000 of net long-term capital gains, $2,000 net §1231 gain from the sale of property used in the partnership’s trade or business, and $83,000 of ordinary business income. a. Assume that Agustin materially participates in the partnership. How much of his distributive share from Eden Lakes Partnership is potentially subject to the net investment income tax? b. Assume that Agustin does not materially participate in the partnership. How much of his distributive share from the Eden Lakes partnership is potentially subject to the net investment income tax?

Jane Yoakam, president of Estefan Co., recently read an article that claimed that at least 100 of the country’s largest 500 companies were either adopting or considering adopting the last-in, first-out (LIFO) method for valuing inventories. The article stated that the firms were switching to LIFO to (1) neutralize the effect of inflation in their financial statements, (2) eliminate inventory profits, and (3) reduce income taxes. Ms. Yoakam wonders if the switch would benefit her company. Estefan currently uses the first-in, first-out (FIFO) method of inventory valuation in its periodic inventory system. The company has a high inventory turnover rate, and inventories represent a significant proportion of the assets. Ms. Yoakam has been told that the LIFO system is more costly to operate and will provide little benefit to companies with high turnover. She intends to use the inventory method that is best for the company in the long run rather than selecting a method just because it is the current fad. Instructions (a) Explain to Ms. Yoakam what “inventory profits” are and how the LIFO method of inventory valuation could reduce them. (b) Explain to Ms. Yoakam the conditions that must exist for Estefan Co. to receive tax benefits from a switch to the LIFO method.

Explain how venture capital (VC) funds finance private businesses as well as how they exit from their participation in a firm. (LO1)

For each of the following jobs, check through the above list of determinants (excluding the last), and try to decide whether demand would be relatively elastic or inelastic: firefighters; telesales operators; app developers; bus drivers; accountants; farm workers; car workers.

Roxanne Carter Corporation reported the following for 2014: net sales $1,200,000; cost of goods sold $750,000; selling and administrative expenses $320,000; and an unrealized holding gain on available-for-sale securities $18,000. Instructions Prepare a statement of comprehensive income, using (a) the one statement format, and (b) the two statement format. (Ignore income taxes and earnings per share.)

The following article appeared in the Wall Street Journal. Bond Markets Giant Commonwealth Edison Issue Hits Resale Market With $70 Million Left Over new york—Commonwealth Edison Co.’s slow-selling new 9¼% bonds were tossed onto the resale market at a reduced price with about $70 million still available from the $200 million offered Thursday, dealers said. The Chicago utility’s bonds, rated double-A by Moody’s and double-A-minus by Standard & Poor’s, originally had been priced at 99.803, to yield 9.3% in 5 years. They were marked down yesterday the equivalent of about $5.50 for each $1,000 face amount, to about 99.25, where their yield jumped to 9.45%. Instructions (a) How will the development above affect the accounting for Commonwealth Edison’s bond issue? (b) Provide several possible explanations for the markdown and the slow sale of Commonwealth Edison’s bonds.

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)

Mary Tokar is comparing a GAAP-based company to a company that uses IFRS. Both companies report equity investments. The IFRS company reports unrealized losses on these investments under the heading “Reserves” in its equity section. However, Mary can find no similar heading in the GAAP-based company financial statements. Can Mary conclude that the GAAP-based company has no unrealized gains or losses on its non-trading equity investments? Explain

The first audit of the books of Bruce Gingrich Company was made for the year ended December 31, 2015. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are: 1. At the beginning of 2013, the company purchased a machine for $510,000 (salvage value of $51,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation, but failed to deduct the salvage value in computing the depreciation base for the 3 years. 2. At the end of 2014, the company failed to accrue sales salaries of $45,000. 3. A tax lawsuit that involved the year 2013 was settled late in 2015. It was determined that the company owed an additional $85,000 in taxes related to 2013. The company did not record a liability in 2013 or 2014 because the possibility of loss was considered remote, and charged the $85,000 to a loss account in 2015. 4. Gingrich Company purchased a copyright from another company early in 2013 for $45,000. Gingrich had not amortized the copyright because its value had not diminished. The copyright has a useful life at purchase of 20 years. 5. In 2015, the company wrote off $87,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings. Instructions Prepare the journal entries necessary in 2015 to correct the books, assuming that the books have not been closed. Disregard effects of corrections on income tax.

Agazzi Repair Shop had the following transactions during the first month of business as a proprietorship. Journalize the transactions. (Omit explanations.) Aug. 2 Invested $12,000 cash and $2,500 of equipment in the business. 7 Purchased supplies on account for $500. (Debit asset account.) 12 Performed services for clients, for which $1,300 was collected in cash and $670 was billed to the clients. 15 Paid August rent $600. 19 Counted supplies and determined that only $270 of the supplies purchased on August 7 are still on hand.

What are the requirements to contribute to a health savings account? What limits are imposed on the contributions and deductions?

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marksand- Spencer-Annual-report-and-financial-statements-2012.pdf. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) What alternative formats could M&S have adopted for its statement of financial position? Whichformat did it adopt? (b) Identify the various techniques of disclosure M&S might have used to disclose additional pertinentfinancial information. Which technique does it use in its financials? (c) In what classifications are M&S’s investments reported? What valuation basis does M&S use to report its investments? How much working capital did M&S have on 31 March 2012? On 2 April 2011? (d) What were M&S’s cash flows from its operating, investing, and financing activities for 2012? What were its trends in net cash provided by operating activities over the period 2011 to 2012? Explain why the change in accounts payable and in accrued and other liabilities is added to net income to arrive at net cash provided by operating activities. (e) Compute M&S’s (1) current cash debt coverage, (2) cash debt coverage, and (3) free cash flow for 2012. What do these ratios indicate about M&S’s financial conditions?

] Assume that Ernesto purchased a digital camera on July 10 of year 1 for $3,000. In year 1, 80 percent of his camera usage was for his business and 20 percent was for his personal photography activities. This was the only asset he placed in service during year 1. Ignoring any potential §179 expense and bonus depreciation, answer the questions for each of the following alternative scenarios: a. What is Ernesto’s depreciation deduction for the camera in year 1? b. What would be Ernesto’s depreciation deduction for the camera in year 2 if his year 2 usage were 75 percent business and 25 percent for personal use? c. What would be Ernesto’s depreciation deduction for the camera in year 2 if his year 2 usage were 45 percent business and 55 percent for personal use?

Gershwin Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash payment of $120,000 on April 1, 2014. The franchise grants Gershwin the right to sell certain products and services for a period of 8 years. Prepare Gershwin’s April 1 journal entry and December 31 adjusting entry.

How should a debt callable by the creditor be reported in the debtor’s financial statements?

What is the difference between tax avoidance and tax evasion?

What are the two most common titanium compounds that are coated onto cutting tools by chemical vapor deposition?

What are the major factors considered in determining what depreciation method to use?

On January 2, 2014, MacCloud Co. issued a 4-year, $100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note. As a result, on January 2, 2014, MacCloud Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.7% for the first 6 months on $100,000. At each 6-month period, the variable rate will be reset. The variable rate is reset to 6.7% on June 30, 2014. Instructions (a) Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2014. (b) Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2014.