Question & Answer

Campbell, a single taxpayer, earns $400,000 in taxable income and $2,000 in interest from an investment in State of New York bonds.  Using the U.S. tax rate schedule, how much federal tax will she owe?  What is her average tax rate?  What is her effective tax rate?  What is her current marginal tax rate?

At January 1, 2014, Beidler Company reported retained earnings of $2,000,000. In 2014, Beidler discovered that 2013 depreciation expense was understated by $400,000. In 2014, net income was $900,000 and dividends declared were $250,000. The tax rate is 40%. Prepare a 2014 retained earnings statement for Beidler Company.

Presented below is net asset information related to the Carlos Division of Santana, Inc.   The purpose of the Carlos Division is to develop a nuclear-powered aircraft. If successful, traveling delays associated with refueling could be substantially reduced. Many other benefits would also occur. To date, management has not had much success and is deciding whether a write-down at this time is appropriate. Management estimated its future net cash flows from the project to be $400 million. Management has also received an offer to purchase the division for $335 million. All identifiable assets’ and liabilities’ book and fair value amounts are the same. Instructions (a) Prepare the journal entry (if any) to record the impairment at December 31, 2014. (b) At December 31, 2015, it is estimated that the division’s fair value increased to $345 million. Prepare the journal entry (if any) to record this increase in fair value.

: Describe the management changes brought about by a technology-driven workplace and those that facilitate a people-driven workplace.

Thinken Technology recently merged with College Electronix (CE), a computer graphics manufacturing firm. In performing a comprehensive audit of CE’s accounting system, Gerald Ott, internal audit manager for Thinken Technology, discovered that the new subsidiary did not record pension assets and liabilities, subject to GAAP. The net present value of CE’s pension assets was $15.5 million, the vested benefit obligation was $12.9 million, and the projected benefit obligation was $17.4 million. Ott reported this audit finding to Julie Habbe, the newly appointed controller of CE. A few days later, Habbe called Ott for his advice on what to do. Habbe started her conversation by asking, “Can’t we eliminate the negative income effect of our pension dilemma simply by terminating the employment of nonvested employees before the end of our fiscal year?” Instructions How should Ott respond to Habbe’s remark about firing nonvested employees?

Reward plan structure Whistlestop Adventure has grown from a one-man operation into a large, soon to be listed, adventure clothing and equipment company. For much of its four-year history, Whistlestop has used one company-wide incentive plan that all employees and managers participated in. The plan is based on equal sharing of a bonus pool determined on the basis of 10 per cent of all profits earned over $2 million. As the company has grown, the benchmark profit figure has changed, but otherwise the plan has remained substantially the same. The company founder explained that the plan was structured this way to encourage an organisational and team view, an objective that has permeated the company’s activities since its beginning.   With the impending stock exchange listing, the newly constituted remuneration committee has been working on the development of new incentive plan for executives and managers. The brief from the board includes the requirement to ‘develop an incentive plan in line with company’s strategy of revenue growth through high-quality products and customer service, and align the interests of the new executive team with shareholders’.   Required (a) If you were a member of the remuneration committee of Whistlestop how would you suggest the incentive plan be structured to meet the requirements set by the board? (b) What are the dangers for Whistlestop in moving away from the current incentive plan to a new one? How could these dangers be overcome? (LO2 and 4)

For what reasons should the percentage-of-completion method be used over the completed-contract method whenever possible?

Given the following tax structure, what minimum tax would need to be assessed on Shameika to make the tax progressive with respect to average tax rates?

Consider the argument that in the modern world of large-scale short-term international financial movements, the ability of individual countries to affect their exchange rate is very limited.

Would this uncertainty have a similar or a different effect on exporting companies and companies using imported inputs?

Why do managers need to measure, monitor, and motivate performance?

Given the following tax structure, what tax would need to be assessed on Venita to make the tax horizontally equitable?

What is meant by the term graduated measuring device?

Consider the following tax rate structure.  Is it horizontally equitable?  Why or why not?  Is it vertically equitable?  Why or why not?

Consider the following tax rate structure.  Is it horizontally equitable?  Why or why not?  Is it vertically equitable?  Why or why not?

Consider the following tax rate structure.  Is it horizontally equitable?  Why or why not?  Is it vertically equitable?  Why or why not?

Consider the following tax rate structure.  Is it horizontally equitable?  Why or why not?  Is it vertically equitable?  Why or why not?

Congress would like to increase tax revenues by 10 percent.  Assume that the average taxpayer in the United States earns $65,000 and pays an average tax rate of 15 percent.  If the income effect is in effect for all taxpayers, what average tax rate will result in a 10 percent increase in tax revenues?  This is an example of what type of forecasting?   Answer:

Using the Internet, find a comparison of income tax rates across states.  What state currently has the highest income tax rate?  In considering individual tax burdens across states, what other taxes should you consider?

Benita is concerned that she will not be able to complete her tax return by April 15.  Can she request an extension to file her return?  By what date must she do so? Assuming she requests an extension, what is the latest date that she could file her return this year without penalty?

Approximately what percentage of tax returns does the IRS audit?  What are the implications of this number for the IRS’s strategy in selecting returns for audit?

Explain the difference between the DIF system and the National Research Program. How do they relate to each other?

Horatio and Kelly were divorced at the end of last year. Neither Horatio nor Kelly remarried during the current year and Horatio moved out of state. Determine the filing status of Horatio and Kelly for the current year in the following independent situations:

Describe the differences between the three types of audits in terms of their scope and taxpayer type.

Simon just received a 30-day letter from the IRS indicating a proposed assessment. Does he have to pay the additional tax?  What are his options?