Question & Answer

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

Why and how did the Fed intervene in the commercial paper market during the 2008 credit crisis? (LO3)

Explain the adverse selection and moral hazard problems in insurance. Gorton Insurance Company wants to properly price its auto insurance, which protects against losses due to auto accidents. If Gorton wants to avoid the adverse selection and moral hazard problems, should it assess the behavior of insured people, uninsured people, or both groups? Explain. (LO1)

A specimen with 6.0 in starting gage length is subjected to a tensile test in which the grips holding the end of the test specimen are moved with a relative velocity = 1.0 in/sec. Construct a plot of the strain rate as a function of length as the specimen is pulled to a length = 8.0 in

What are some common examples of taxable and tax-free fringe benefits?

Explain how the liquidity position of finance companies differs from that of depository institutions such as commercial banks. (LO5)

Why do securities firms typically have some inside information that could affect future stock prices of other firms? (LO1)

Saprano Company, on January 2, 2014, entered into a contract with a manufacturing company to purchase room-size air conditioners and to sell the units on an installment plan with collections over approximately 30 months with no carrying charge. For income tax purposes, Saprano Company elected to report income from its sales of air conditioners according to the installment-sales method. Purchases and sales of new units were as follows. Units Purchased Units Sold Year Quantity Price Each Quantity Price Each 2014 1,400 $130 1,100 $200 2015 1,200 112 1,500 170 2016 900 136 800 205 Collections on installment sales were as follows. Collections Received 2014 2015 2016 2014 sales $42,000 $88,000 $ 80,000 2015 sales 51,000 110,000 2016 sales 34,600 In 2016, 50 units from the 2015 sales were repossessed and sold for $120 each on the installment plan. At the time of repossession, $2,000 had been collected from the original purchasers, and the units had a fair value of $3,000. General and administrative expenses for 2016 were $60,000. No charge has been made against current income for the applicable insurance expense from a 3-year policy expiring June 30, 2017, costing $7,200, and for an advance payment of $12,000 on a new contract to purchase air conditioners beginning January 2, 2017. Instructions Assuming that the weighted-average method is used for determining the inventory cost, including repossessed merchandise, prepare schedules computing for 2014, 2015, and 2016: (a) (1) The cost of goods sold on installments. (2) The average unit cost of goods sold on installments for each year. (b) The gross profit percentages for 2014, 2015, and 2016. (c) The gain or loss on repossessions in 2016. (d) The net income from installment sales for 2016. (Ignore income taxes.)

Ivan incorporated his sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation’s stock. The property transferred to the corporation had the following fair market values and adjusted tax bases.       FMV    Adjusted Tax Basis Inventory$    10,000$  15,000 Building      50,000    40,000 Land      60,000    30,000 Total$  120,000$  85,000   The fair market value of the corporation’s stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Ivan. The transaction met the requirements to be tax-deferred under §351.

Identify an industry that would have a high level of operating leverage. Briefly comment on your selection.

Why are laminated FRP products made by the spray-up method not as strong as similar products made by hand lay-up?

All else being equal, should taxpayers prefer to exclude income or defer it? Why?

What is blockchain technology? Why did it gain large popularity in such a short amount of time? (LO2)

Suppose the percent completion of ending WIP is overestimated at the end of year 1. How does this measurement error affect the process costing results in year 1 and year 2?

The financial records of LeRoi Jones Inc. were destroyed by fire at the end of 2014. Fortunately, the controller had kept certain statistical data related to the income statement as follows. 1. The beginning merchandise inventory was $92,000 and decreased 20% during the current year. 2. Sales discounts amount to $17,000. 3. 20,000 shares of common stock were outstanding for the entire year. 4. Interest expense was $20,000. 5. The income tax rate is 30%. 6. Cost of goods sold amounts to $500,000. 7. Administrative expenses are 20% of cost of goods sold but only 8% of gross sales. 8. Four-fifths of the operating expenses relate to sales activities. Instructions From the foregoing information prepare an income statement for the year 2014 in single-step form.

A manual assembly line is being designed for a product with annual demand = 100,000 units. The line will operate 50 wks/year, 5 shifts/wk, and 7.5 hr/shift. Work units will be attached to a continuously moving conveyor. Work content time = 42.0 min. Assume line efficiency = 0.97, balancing efficiency = 0.92, and repositioning time = 6 sec. Determine (a) hourly production rate to meet demand, (b) number of workers required, and (c) the number of workstations required if the estimated manning level is 1.4.

When might a shareholder have to rely on the “not essentially equivalent to a dividend” test in arguing that a stock redemption should be treated as an exchange for tax purposes?

In January 2015, Janeway Inc. doubled the amount of its outstanding stock by selling on the market an additional 10,000 shares to finance an expansion of the business. You propose that this information be shown by a footnote on the balance sheet as of December 31, 2014. The president objects, claiming that this sale took place after December 31, 2014, and therefore should not be shown. Explain your position.

Explain the nature of cryptocurrencies and their applications. (LO3)

On December 31, 2014, Faital Company acquired a computer from Plato Corporation by issuing a $600,000 zero-interest-bearing note, payable in full on December 31, 2018. Faital Company’s credit rating permits it to borrow funds from its several lines of credit at 10%. The computer is expected to have a 5-year life and a $70,000 salvage value. Instructions (Round answers to the nearest cent.) (a) Prepare the journal entry for the purchase on December 31, 2014. (b) Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective-interest method) on December 31, 2015. (c) Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2016.

1. Give some other examples of public goods. Does the provider of these goods (the government or local authority) charge for their use? If so, is the method of charging based on the amount of the good that people use? Is it a good method of charging? Could you suggest a better method? 2. Name some goods or services provided by the government or local authorities that are not public goods. 3. Are there ways in which we could overcome the free-rider problem? Start by thinking about the provision of a public good amongst a group of friends or neighbours.

Why does a partner’s tax basis in a partnership interest need to be adjusted annually?

In reviewing the tax rate schedule for a single taxpayer, Chuck notes that the tax on $75,000 is $5,226.25 plus 25 percent of the taxable income over $37,950.  What does the $5,226.25 represent?

What is the distinction between plastic sheet and film?

A tapered surface is to be turned on an automatic lathe. The workpiece is 750 mm long with minimum and maximum diameters of 100 mm and 200 mm at opposite ends. The automatic controls on the lathe permit the surface speed to be maintained at a constant value of 200 m/min by adjusting the rotational speed as a function of workpiece diameter. Feed = 0.25 mm/rev and depth of cut = 3.0 mm. The rough geometry of the piece has already been formed, and this operation will be the final cut. Determine (a) the time required to turn the taper and (b) the rotational speeds at the beginning and end of the cut.