Question & Answer

When the records of Debra Hanson Corporation were reviewed at the close of 2015, the errors listed below were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years 2014 and 2015. 2014 2015 Over- Under- No Over- Under- No Item statement statement Effect statement statement Effect 1. Failure to record amortization of patent in 2015. 2. Failure to record the correct amount of ending 2014 inventory. The amount was understated because of an error in calculation. 3. Failure to record merchandise purchased in 2014. Merchandise was also omitted from ending inventory in 2014 but was not yet sold. 4. Failure to record accrued interest on notes payable in 2014; that amount was recorded when paid in 2015. 5. Failure to refl ect supplies on hand on balance sheet at end of 2014.

Explain the difference between pretax financial income and taxable income.

When should liabilities for each of the following items be recorded on the books of an ordinary business corporation? (a) Acquisition of goods by purchase on credit. (b) Officers’ salaries. (c) Special bonus to employees. (d) Dividends. (e) Purchase commitments.

How does the change in cross-sectional area of a test specimen in a compression test differ from its counterpart in a tensile test specimen?

Suki and Steve own 50 percent capital and profits interests in Lorinda LLC. Lorinda operates the local minor league baseball team and owns the stadium where the team plays. Although the liability incurred to build the stadium was paid off several years ago, Lorinda owes its general creditors $300,000 (at the beginning of the year) that is not secured by firm property or guaranteed by any of the members. At the beginning of 2024, Suki and Steve had a tax basis of $170,000 in their LLC interests, including their share of liabilities owed to the general creditors. Shortly before the end of the year, they each received a $10,000 cash distribution, even though Lorinda’s ordinary business loss for the year was $400,000. Because of the time commitment to operate a baseball team, both Suki and Steve spent more than 1,500 hours during the year operating Lorinda. Both Suki and Steve are single, and neither of them has any business income or losses from other sources. a. Determine how much of the Lorinda loss Suki and Steve will each be able to deduct on their current tax returns, and list their losses suspended by the tax basis, at-risk, and passive activity loss limitations. b. Assume that sometime before receiving the $10,000 cash distribution, Steve is advised by his tax advisor that his marginal tax rate will be abnormally high during the current year because of an unexpected windfall. To help Steve utilize more of the losses allocated from Lorinda in the current year, his advisor recommends refusing the cash distribution and personally guaranteeing $100,000 of Lorinda’s liabilities, without the right to be reimbursed by Suki. If Steve follows his advisor’s recommendations, how much additional Lorinda loss can he deduct on his current tax return? How does Steve’s decision affect the amount of loss Suki can deduct on her current return and the amount and type of her suspended losses?

When the FASB issues new pronouncements, the implementation date is usually 12 months from date of issuance, with early implementation encouraged. Karen Weller, controller, discusses with her financial vice president the need for early implementation of a rule that would result in a fairer presentation of the company’s financial condition and earnings. When the financial vice president determines that early implementation of the rule will adversely affect the reported net income for the year, he discourages Weller from implementing the rule until it is required. Instructions Answer the following questions. (a) What, if any, is the ethical issue involved in this case? (b) Is the financial vice president acting improperly or immorally? (c) What does Weller have to gain by advocacy of early implementation? (d) Which stakeholders might be affected by the decision against early implementation?

Explain how state and local governments benefit from the provisions that allow taxpayers to exclude interest on state and local bonds from their gross income.

Explain why taxpayers are allowed to exclude gifts and inheritances from gross income even though these payments are realized and clearly provide taxpayers with the wherewithal to pay

Describe the kinds of insurance premiums an employer can pay on behalf of an employee without triggering includible compensation to the employee.

How are state-sponsored 529 educational savings plans taxed if investment returns are used for educational purposes? Are the returns taxed differently if they are not ultimately used to pay for education costs?

On three diagrams like Figure 7.8, illustrate the effect on price, quantity and profit of each of the following: (a) a rise in demand; (b) a rise in fixed costs; (c) a rise in variable costs. In each case show only the AR, MR, AC, and MC curves.

Production rate for a certain assembled product is 47.5 units per hour. The total assembly work content time = 32 minutes of direct manual labor. The line operates at 95% uptime. Ten workstations have two workers on opposite sides of the line so that both sides of the product can be worked on simultaneously. The remaining stations have one worker. Repositioning time lost by each worker is 0.2 min/cycle. It is known that the number of workers on the line is two more than the number required for perfect balance. Determine (a) number of workers, (b) number of workstations, (c) the balancing efficiency, and (d) average manning level.

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 $6,300. a.       Last year Louis claimed itemized deductions of $6,550.  Louis’s itemized deductions included state income taxes paid of $1,750. b.       Last year Louis had itemized deductions of $4,800 and he chose to claim the standard deduction.  Louis’s itemized deductions included state income taxes paid of $1,750. c.       Last year Louis claimed itemized deductions of $7,740.  Louis’s itemized deductions included state income taxes paid of $2,750.

What is meant by the term structural adhesive?

The total work content for a product assembled on a manual production line is 48 min. The work is transported using a continuous overhead conveyor that operates at a speed of 3 ft/min. There are 24 workstations on the line, one-third of which have two workers; the remaining stations each have one worker. Repositioning time per worker is 9 sec, and uptime efficiency of the line is 95%. (a) What is the maximum possible hourly production rate if line is assumed to be perfectly balanced? (b) If the actual production rate is only 92% of the maximum possible rate determined in part (a), what is the balance efficiency on the line?

Using an available tax service or the Internet, identify three basic tax planning ideas or tax tips suggested for year-end tax planning.  Which basic tax strategy from this chapter does each planning idea employ?

Discuss the basic accounting problem that arises in handling each of the following situations. (a) Assets purchased by issuance of common stock. (b) Acquisition of plant assets by gift or donation. (c) Purchase of a plant asset subject to a cash discount. (d) Assets purchased on a long-term credit basis. (e) A group of assets acquired for a lump sum. (f) An asset traded in or exchanged for another asset.

If a disastrous harvest of rice were confined to a particular country, would (a) the world price and (b) its own domestic price of rice fluctuate significantly? What would happen to the country’s export earnings and the earnings of individual farmers?

What is an autoclave

a.       Because Nikki’s 28.57% discount ($14,000 – $10,000/$14,000) is less than Shine Company’s gross profit percentage, the bargain purchase from her employer does not result in taxable income. b.     Nikki will recognize $25 of taxable income from the discounted services provided by Shine Company.  Discounts more than 20% for services are taxable. Thus, Nikki’s taxable discount is $25 ($125 Discount received – (20% x $500)=$25).

Distinguish between redrawing and reverse drawing.

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.

Assume that the multiplier has a value of 3. Now assume that the government decides to increase aggregate demand in an attempt to reduce unemployment. It raises government expenditure by £100 million with no increase in taxes. Firms, anticipating a rise in their sales, increase investment by £200 million, of which £50 million consists of purchases of foreign machinery. How much will national income rise? (Assume ceteris paribus.)

Alexander Enterprises leases property to Hamilton, Inc. Because Hamilton, Inc. is experiencing financial difficulty, Alexander agrees to receive five rents of $20,000 at the end of each year, with the rents deferred 3 years. What is the present value of the five rents discounted at 12%?

What type of earnings per share presentation is required in a complex capital structure?