Question & Answer

What types of information in addition to cost accounting are needed for management decisions?

Zurich Company reports pretax financial income of $70,000 for 2014. The following items cause taxable income to be different than pretax financial income. 1. Depreciation on the tax return is greater than depreciation on the income statement by $16,000. 2. Rent collected on the tax return is greater than rent recognized on the income statement by $22,000. 3. Fines for pollution appear as an expense of $11,000 on the income statement. Zurich’s tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2014. Instructions (a) Compute taxable income and income taxes payable for 2014. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014. (c) Prepare the income tax expense section of the income statement for 2014, beginning with the line “Income before income taxes.” (d) Compute the effective income tax rate for 2014.

The concept of the time value of money suggests that $1 today is not equal to $1 in the future. Explain why this is true.

Discuss why evaluating vertical equity simply based on tax rate structure may be less than optimal.

Read the following letter and help Shady Slim with his tax situation.  Assume that gross income is $172,900 (which consists only of salary) and filing status of single for purposes of this problem.

Explain the categories of task-oriented behavior and people-oriented behavior and how they are related to leader effectiveness in different situations and settings.

Using the information in E20-19, prepare a worksheet inserting January 1, 2014, balances, and showing December 31, 2014, balances. Prepare the journal entry recording postretirement benefit expense.

Carlos has located a regulation that appears to answer his tax research question.  He is concerned because the regulation is a temporary regulation.  Evaluate the authoritative weight of this type of regulation.  Should he feel more or less confident in his answer if the regulation is a proposed regulation?

How do banks use duration analysis? (LO3)

What are some of the methods used to cure adhesives?

How are the terms “probable,” “reasonably possible,” and “remote” related to contingent liabilities?

Is a qualifying relative always a qualifying person for purposes of determining head of household filing status?

Tweedie Company issues 10,000 shares of restricted stock to its CFO, Mary Tokar, on January 1, 2014. The stock has a fair value of $500,000 on this date. The service period related to this restricted stock is 5 years. Vesting occurs if Tokar stays with the company until December 31, 2018. The par value of the stock is $10. At December 31, 2014, the fair value of the stock is $450,000. Instructions (a) Prepare the journal entries to record the restricted stock on January 1, 2014 (the date of grant), and December 31, 2015. (b) On July 25, 2018, Tokar leaves the company. Prepare the journal entry (if any) to account for this forfeiture.

Identify at least two situations in which application of different accounting methods or accounting estimates results in difficulties in comparing companies.

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for investments.

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.

What are the benefits of peer-to-peer lending over bank lending, and how does it operate? (LO4)

Agassi Corporation is preparing the comparative financial statements to be included in the annual report to stockholders. Agassi employs a fiscal year ending May 31. Income from operations before income taxes for Agassi was $1,400,000 and $660,000, respectively, for fiscal years ended May 31, 2015 and 2014. Agassi experienced an extraordinary loss of $400,000 because of an earthquake on March 3, 2015. A 40% combined income tax rate pertains to any and all of Agassi Corporation’s profits, gains, and losses. Agassi’s capital structure consists of preferred stock and common stock. The company has not issued any convertible securities or warrants and there are no outstanding stock options. Agassi issued 40,000 shares of $100 par value, 6% cumulative preferred stock in 2011. All of this stock is outstanding, and no preferred dividends are in arrears. There were 1,000,000 shares of $1 par common stock outstanding on June 1, 2013. On September 1, 2013, Agassi sold an additional 400,000 shares of the common stock at $17 per share. Agassi distributed a 20% stock dividend on the common shares outstanding on December 1, 2014. These were the only common stock transactions during the past 2 fiscal years. Instructions (a) Determine the weighted-average number of common shares that would be used in computing earnings per share on the current comparative income statement for: (1) The year ended May 31, 2014. (2) The year ended May 31, 2015. (b) Starting with income from operations before income taxes, prepare a comparative income statement for the years ended May 31, 2015 and 2014. The statement will be part of Agassi Corporation’s annual report to stockholders and should include appropriate earnings per share presentation. (c) The capital structure of a corporation is the result of its past financing decisions. Furthermore, the earnings per share data presented on a corporation’s financial statements is dependent upon the capital structure. (1) Explain why Agassi Corporation is considered to have a simple capital structure. (2) Describe how earnings per share data would be presented for a corporation that has a complex capital structure.

What does it mean to “flip” shares? Why would investors want to flip shares? (LO3)

At December 31, 2013, Belmont Company had a net deferred tax liability of $375,000. An explanation of the items that compose this balance is as follows3 Resulting Balances Temporary Differences in Deferred Taxes 1. Excess of tax depreciation over book depreciation $200,000 2. Accrual, for book purposes, of estimated loss contingency from pending lawsuit that is expected to be settled in 2014. The loss will be deducted on the tax return when paid. (50,000) 3. Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment. 225,000 $375,000 In analyzing the temporary differences, you find that $30,000 of the depreciation temporary difference will reverse in 2014, and $120,000 of the temporary difference due to the installment sale will reverse in 2014. The tax rate for all years is 40%. Instructions Indicate the manner in which deferred taxes should be presented on Belmont Company’s December 31, 2013, balance sheet.

On October 1, 2014, Chung, Inc. assigns $1,000,000 of its accounts receivable to Seneca National Bank as collateral for a $750,000 note. The bank assesses a finance charge of 2% of the receivables assigned and interest on the note of 9%. Prepare the October 1 journal entries for both Chung and Seneca.

Leon Tyler’s VISA balance is $793.15. He may pay it off in 12 equal end-of-month payments of $75 each. What interest rate is Leon paying?

Kraft Enterprises owns the following assets at December 31, 2014. Cash in bank—savings account 68,000 Checking account balance 17,000 Cash on hand 9,300 Postdated checks 750 Cash refund due from IRS 31,400 Certifi cates of deposit (180-day) 90,000 What amount should be reported as cash?

What is a whisker?

What is NAIC, and what is its purpose? (LO2)