Question & Answer

When a taxpayer sells an asset, what is the difference between realized and recognized gain or loss on the sale?

Rex and Felix are the sole shareholders of the Dogs and Cats Corporation (DCC). After several years of operations using the accrual method, they decided to liquidate the corporation and operate the business as a partnership. Rex has a tax basis in his shares of $60,000 and Felix has a tax basis in his shares of $20,000. Rex and Felix hired a lawyer to draw up the legal papers to dissolve the corporation, but they need some tax advice from you, their trusted accountant. DCC’s tax accounting balance sheet at the date of liquidation is as follows:  AssetsTax BasisFMV Cash$30,000$30,000 Accounts receivable 10,000 10,000 Inventory 10,000 20,000 Equipment 30,000 20,000 Building 15,000 30,000 Land   5,000   40,000     Total assets $100,000 $150,000   Liabilities Accounts payable $5,000 Mortgage payable - Building 10,000 Mortgage payable - Land 10,000 Total liabilities $25,000   Stockholders’ Equity Common stock - Rex (80%)$100,000 Common stock - Felix (20%) 25,000   Total shareholders’ equity$125,000   Required: a) Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming each shareholder receives a pro rata distribution of the corporation’s assets and assumes a pro rata amount of the liabilities.

Analysis of WIP T-account Jasper Company uses a job costing system. Overhead is allocated based on 120 per cent of direct labour cost. Last month’s transactions in the work in process account are shown here:       Only one job, number 850, was still in process at the end of the month. Job 850 was charged with $9000 in overhead for the month.   Required (a)          What is the ending balance in the WIP account? (b)          How much direct labour cost was used for job 850? (c)           What is the amount of direct materials used for job 850?

What impact would an increase in potential output have on the DAS curve? How would the long-term rate of economic growth be reflected by the DAS curve?

Is a corporation’s choice of its tax year independent from its year-end for financial accounting purposes?

Evergreen Corporation (calendar-year-end) acquired the following assets during the current year:

Bobbie works as an employee for Altron Corp. for the first half of the year and for Betel Inc. for rest of the year. She is relatively well paid. What FICA tax issues is she likely to encounter?  What FICA tax issues do Altron Corp. and Betel Inc. need to consider?

Describe the appeal and the difficulties of investing in a franchise as a route to small business ownership.

What policy prescriptions do the neoclassical and endogenous growth theories offer policy makers who are looking to raise their country’s long-run growth rate?

If a developing country has a comparative advantage in primary products, should the government allow market forces to dictate the pattern of trade?

1.    : One of the benefits of a strategy map is that it clearly communicates goals and how they are linked to everyone in the organization. Does a minimum-wage maintenance worker in a hospital really need to understand any goals beyond keeping the place clean? Discuss.

What are the three basic components of an automated system?

What are the most common metals used in die casting?

What is the range of carbon percentages which defines an iron-carbon alloy as cast iron?

What other factors will determine the MPP of land for industry?

Explain how the Fed’s monetary policy affects the unemployment level. (LO2)

Shimmer Inc. is a calendar-year-end, accrual-method corporation. This year, it sells the following long-term assets:

Where can authoritative IFRS be found related to investments?

When does tax allocation within a period become necessary? How should this allocation be handled?

Name some external benefits that are not included in GDP statistics?

Give an example of a transaction that results in: (a) A decrease in an asset and a decrease in a liability. (b) A decrease in one asset and an increase in another asset. (c) A decrease in one liability and an increase in another liability.

Dumars Corporation reports in the current liability section of its balance sheet at December 31, 2014 (its year-end), short-term obligations of $15,000,000, which includes the current portion of 12% long-term debt in the amount of $10,000,000 (matures in March 2015). Management has stated its intention to refinance the 12% debt whereby no portion of it will mature during 2015. The date of issuance of the financial statements is March 25, 2015. Instructions (a) Is management’s intent enough to support long-term classification of the obligation in this situation? (b) Assume that Dumars Corporation issues $13,000,000 of 10-year debentures to the public in January2015 and that management intends to use the proceeds to liquidate the $10,000,000 debt maturing in March 2015. Furthermore, assume that the debt maturing in March 2015 is paid from these proceeds prior to the issuance of the financial statements. Will this have any impact on the balance sheet classification at December 31, 2014? Explain your answer. (c) Assume that Dumars Corporation issues common stock to the public in January and that management intends to entirely liquidate the $10,000,000 debt maturing in March 2015 with the proceeds of this equity securities issue. In light of these events, should the $10,000,000 debt maturing in March 2015 be included in current liabilities at December 31, 2014? (d) Assume that Dumars Corporation, on February 15, 2015, entered into a financing agreement with a commercial bank that permits Dumars Corporation to borrow at any time through 2016 up to $15,000,000 at the bank’s prime rate of interest. Borrowings under the financing agreement mature three years after the date of the loan. The agreement is not cancelable except for violation of a provision with which compliance is objectively determinable. No violation of any provision exists at the date of issuance of the financial statements. Assume further that the current portion of long-term debt does not mature until August 2015. In addition, management intends to refinance the $10,000,000 obligation under the terms of the financial agreement with the bank, which is expected to be financially capable of honoring the agreement. (1) Given these facts, should the $10,000,000 be classified as current on the balance sheet at December 31, 2014? (2) Is disclosure of the refinancing method required?

Discuss the different types of budget variances that can be calculated.

Briefly describe the Glass-Steagall Act, and then explain how the related regulations have changed since it was enacted. (LO2)

What are the four most common elements in the earth's crust?