Question & Answer

An annual report of Crestwood Industries states, “The company and its subsidiaries have longterm leases expiring on various dates after December 31, 2014. Amounts payable under such commitments, without reduction for related rental income, are expected to average approximately $5,711,000 annually for the next 3 years. Related rental income from certain subleases to others is estimated to average $3,094,000 annually for the next 3 years.” What information is provided by this note?

Homestake Mining Company is a 120-year-old international gold mining company with substantial gold mining operations and exploration in the United States, Canada, and Australia. At year-end, Homestake reported the following items related to income taxes (thousands of dollars). Total current taxes $ 26,349 Total deferred taxes (39,436) Total income and mining taxes (the provision for taxes per its income statement) (13,087) Deferred tax liabilities $303,050 Deferred tax assets, net of valuation allowance of $207,175 95,275 Net deferred tax liability $207,775 Note 6: The classifi cation of deferred tax assets and liabilities is based on the related asset or liability creating the deferred tax. Deferred taxes not related to a specifi c asset or liability are classifi ed based on the estimated period of reversal. Tax loss carryforwards (U.S., Canada, Australia, and Chile) $71,151 Tax credit carryforwards $12,007 Instructions (a) What is the significance of Homestake’s disclosure of “Current taxes” of $26,349 and “Deferred taxes” of $(39,436)? (b) Explain the concept behind Homestake’s disclosure of gross deferred tax liabilities (future taxable amounts) and gross deferred tax assets (future deductible amounts). (c) Homestake reported tax loss carryforwards of $71,151 and tax credit carryforwards of $12,007. How do the carryback and carryforward provisions affect the reporting of deferred tax assets and deferred tax liabilities?

Dustin has a contract to provide services to Dado Enterprises. In November of this year, Dustin billed Dado $10,000 for the services he rendered during the year. Dado is an accrual-method proprietorship that is owned and operated by Dustin’s father.  a) What amount of revenue must Dustin recognize this year if Dustin uses the cash method and Dado remits payment and Dustin receives payment for the services in December of this year? What amount can Dado deduct this year? b) What amount of revenue must Dustin recognize this year if Dustin uses the accrual method, and Dado remits payment for the services in December of this year? What amount can Dado deduct this year? c) What amount of revenue must Dustin recognize this year if Dustin uses the cash method and Dado remits payment for the services in January of next year? What amount can Dado deduct this year? d) What amount of revenue must Dustin recognize this year if Dustin uses the accrual method and Dado remits payment for the services in January of next year? What amount can Dado deduct this year?

In 2024, Lisa and Fred, a married couple, have taxable income of $400,000.  If they were to file separate tax returns, Lisa would have reported taxable income of $225,000 and Fred would have reported taxable income of $175,000.  What is the couple’s marriage penalty or benefit?

Name the accounts debited and credited for each of the following transactions. (a) Billing a customer for work done. (b) Receipt of cash from customer on account. (c) Purchase of office supplies on account. (d) Purchase of 15 gallons of gasoline for the delivery truck.

How are CVP analysis and breakeven analysis related?

On November 24, 2014, 26 passengers on Windsor Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for damages totaling $9,000,000 were filed on January 11, 2015, against the airline by 18 injured passengers. The airline carries no insurance. Legal counsel has studied each suit and advised Windsor that it can reasonably expect to pay 60% of the damages claimed. The financial statements for the year ended December 31, 2014, were issued February 27, 2015. Instructions (a) Prepare any disclosures and journal entries required by the airline in preparation of the December 31, 2014, financial statements. (b) Ignoring the November 24, 2014, accident, what liability due to the risk of loss from lack of insurance coverage should Windsor Airlines record or disclose? During the past decade, the company has experienced at least one accident per year and incurred average damages of $3,200,000. Discuss fully.

Shanahan Construction Company has entered into a contract beginning January 1, 2014, to build a parking complex. It has been estimated that the complex will cost $600,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $900,000. The following data pertain to the construction period. 2014 2015 2016 Costs to date $270,000 $450,000 $610,000 Estimated costs to complete 330,000 150,000 –0– Progress billings to date 270,000 550,000 900,000 Cash collected to date 240,000 500,000 900,000 Instructions (a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period. (b) Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period.

Explain the meaning of the following terms: (a) commonsize analysis, (b) vertical analysis, (c) horizontal analysis, and (d) percentage analysis.

Why were bank regulators concerned about credit default swaps during the credit crisis? (LO2)

How have growth rates varied over the decades? Does the answer vary by country?

Describe the major constraint inherent in the presentation of accounting information.

What type of disclosure or accounting do you believe is necessary for the following items? (a) Because of a general increase in the number of labor disputes and strikes, both within and outside the industry, there is an increased likelihood that a company will suffer a costly strike in the near future. (b) A company reports an extraordinary item (net of tax) correctly on the income statement. No other mention is made of this item in the annual report. (c) A company expects to recover a substantial amount in connection with a pending refund claim for a prior year’s taxes. Although the claim is being contested, counsel for the company has confirmed the client’s expectation of recovery.

Why does Congress provide the dividends-received deduction for corporations receiving dividends?

What is rolling in the context of the bulk deformation processes?

Briefly explain the accounting requirements for stock compensation plans under GAAP.

The cone-shaped part in Problem 33.5 is to be built using laminated-object manufacturing. Layer thickness = 0.20 mm. The laser beam can cut the sheet stock at a velocity of 500 mm/s. Compute an estimate for the time required to build the part, if 10 s are lost each layer to lower the height of the platform that holds the part and advance the sheet stock in preparation for the next layer. Ignore cutting of the cross-hatched areas outside of the part since the cone should readily drop out of the stack owing to its geometry.

Sesame Company purchased a computer system for $74,000 on January 1, 2013. It was depreciated based on a 7-year life and an $18,000 salvage value. On January 1, 2015, Sesame revised these estimates to a total useful life of 4 years and a salvage value of $10,000. Prepare Sesame’s entry to record 2015 depreciation expense.

Indicate the amount (if any) that Josh can deduct as an ordinary and necessary business deduction in each of the following situations and explain your solution.

What limitations apply to the amount of the allowable dividends-received deduction?

A manual assembly line has 17 workstations with one operator per station. Total work content time to assemble the product = 22.2 minutes. The production rate of the line = 36 units per hour. A synchronous transfer system is used to advance the products from one station to the next, and the transfer time = 6 seconds. The workers remain seated along the line. Proportion uptime = 0.90. Determine the balance efficiency.

Explain how TARP was expected to help resolve problems during the credit crisis. (LO6)

Explain why the credit crisis affected the ability of financial institutions to access short-term financing in the money markets. (LO1)

Ilya and Olga are brother and sister. Ilya owns 200 shares of stock in Parker Corporation. Is Olga deemed to own Ilya’s 200 shares under the family attribution rules that apply to stock redemptions?

What are the five basic parts of an internal research memo?