Question & Answer

Discuss the reasons why individuals generally prefer capital gains over ordinary gains. Explain why corporate taxpayers might prefer capital gains over ordinary gains.

Job Costing, determination of manufacturing overhead rates One Glass Brewery estimates the following activity for the coming year:       At the end of the financial period the following information was collected:       Required (a)   What was the predetermined manufacturing overhead rate calculated at the beginning of the year? (b)   What was the actual manufacturing overhead rate for the year? (c)    Explain the difference between the rates calculated in (a) and (b) above.

Structuring a compensation plan   Required Describe the factors that need to be considered when structuring a compensation plan for executives. (LO2 and 4)

2. What are the advantages and disadvantages of presenting data graphically with the axes starting from zero?

Gary and Lakesha were married on December 31 last year. They are now preparing their taxes for the April 15 deadline and are unsure of their filing status. a.    What filing status options do Gary and Lakesha have for last year?

Jim was injured in an accident and his surgeon botched the medical procedure. Jim recovered $5,000 from the doctor for pain and suffering and $2,000 for emotional distress. Determine the taxability of these payments and briefly explain to Jim the apparent rationale for including or excluding these payments from gross income.

(FASB and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false. 1. GAAP is the term used to indicate the whole body of FASB authoritative literature. 2. Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements. 3. The primary governmental body that has influence over the FASB is the SEC. 4. The FASB has a government mandate and therefore does not have to follow due process in issuing a standard

Why will investment affect both actual (short-term) growth and the long-term growth in potential output? What will be the implications if these two effects differ in magnitude?

Jim was injured in an accident and his surgeon botched the medical procedure.  Jim recovered $5,000 from the doctors for pain and suffering and $2,000 for emotional distress.  Determine the taxability of these payments and briefly explain to Jim the apparent rationale for including or excluding these payments from gross income.

Discuss the appropriate treatment in the income statement for the following items: (a) Loss on discontinued operations. (b) Non-controlling interest allocation.

Explain how variable costing income statements can be reconciled to absorption costing income statements.

What is the difference between external customers and internal customers in TQM?

Joseph contributed $22,000 in cash and equipment with a tax basis of $5,000 and a fair market value of $11,000 to Berry Hill Partnership in exchange for a partnership interest. a. What is Joseph’s tax basis in his partnership interest? b. What is Berry Hill’s basis in the equipment?

Mike Crane is an audit senior of a large public accounting firm who has just been assigned to the Frost Corporation’s annual audit engagement. Frost has been a client of Crane’s firm for many years. Frost is a fast-growing business in the commercial construction industry. In reviewing the fixed asset ledger, Crane discovered a series of unusual accounting changes, in which the useful lives of assets, depreciated using the straight-line method, were substantially lowered near the midpoint of the original estimate. For example, the useful life of one dump truck was changed from 10 to 6 years during its fifth year of service. Upon further investigation, Mike was told by Kevin James, Frost’s accounting manager, “I don’t really  your problem. After all, it’s perfectly legal to change an accounting estimate. Besides, our CEO likes to see big earnings!” Instructions Answer the following questions. (a) What are the ethical issues concerning Frost’s practice of changing the useful lives of fixed assets? (b) Who could be harmed by Frost’s unusual accounting changes? (c) What should Crane do in this situation?

Gottlieb Co. owes $199,800 to Ceballos Inc. The debt is a 10-year, 11% note. Because Gottlieb Co. is in financial trouble, Ceballos Inc. agrees to accept some property and cancel the entire debt. The property has a book value of $90,000 and a fair value of $140,000. Instructions (a) Prepare the journal entry on Gottlieb’s books for debt restructure. (b) Prepare the journal entry on Ceballos’s books for debt restructure.

Supply Explain how the ample reserves framework that the Fed currently uses has a different impact on the money supply than the open market operations that the Fed used prior to the credit crisis. (LO2)

What factors determine the effectiveness of discretionary fiscal policy?

In a torsion test, a torque of 5000 ft-lb is applied which causes an angular deflection = 1° on a thin-walled tubular specimen whose radius = 1.5 in, wall thickness = 0.10 in, and gage length = 2.0 in. Determine (a) the shear stress, (b) shear strain, and (c) shear modulus, assuming the specimen had not yet yielded. (d) If the specimen fails at a torque = 8000 ft-lb and an angular deflection = 23°, calculate the shear strength of the metal

Roundtree Manufacturing Co. is preparing its year-end financial statements and is considering the accounting for the following items. 1. The vice president of sales had indicated that one product line has lost its customer appeal and will be phased out over the next 3 years. Therefore, a decision has been made to lower the estimated lives on related production equipment from the remaining 5 years to 3 years. 2. The Hightone Building was converted from a sales office to offices for the Accounting Department at the beginning of this year. Therefore, the expense related to this building will now appear as an administrative expense rather than a selling expense on the current year’s income statement. 3. Estimating the lives of new products in the Leisure Products Division has become very difficult because of the highly competitive conditions in this market. Therefore, the practice of deferring and amortizing preproduction costs has been abandoned in favor of expensing such costs as they are incurred. Identify and explain whether each of the above items is a change in principle, a change in estimate, or an error.

Suppose the hole in Problem 26.10 were to be cut using EDM rather than ECM. Using a discharge current = 20 amps (which would be typical for EDM), how long would it take to cut the hole? From Table 4.1, the melting temperature of iron is 2802°F.

How do the tax laws treat family members for purposes of limiting the number of owners an S corporation may have?

What is meant by hysteresis when applied to unemployment? How do you account for this phenomenon in the 1980s?

Some argue that having various organizations establish accounting principles iswasteful and inefficient. Rather than mandating accounting rules, each company could voluntarily disclosethe type of information it considered important. In addition, if an investor wants additional information, the investor could contact the company and pay to receive the additional information desired. Instructions Comment on the appropriateness of this viewpoint.

The meaning of the term “fund” depends on the context in which it is used. Explain its meaning when used as a noun. Explain its meaning when it is used as a verb.

Why do ratings agencies assign ratings to commercial paper? (LO1)