Question & Answer

On January 2, 2014, Parton Company issues a 5-year, $10,000,000 note at LIBOR, with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.8%. Parton Company decides it prefers fixed-rate financing and wants to lock in a rate of 6%. As a result, Parton enters into an interest rate swap to pay 6% fixed and receive LIBOR based on $10 million. The variable rate is reset to 6.6% on January 2, 2015. Instructions (a) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2014. (b) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2015.

Suppose you asked your favorite AI query tool “How long is the carryover period for NOLs incurred in 2024?” and the AI tool responded as follows:   The carryover period for a net operating loss (NOL) incurred in 2024 would typically be up to 20 years. This means that the corporation or individual with the NOL can carry the loss forward and use it to offset taxable income in future tax years for up to 20 years from the year in which the NOL was generated.   Is the AI answer to the question correct?  Explain.

Renee operates a proprietorship selling collectibles over the Web. This year, Renee’s business reported revenue of $95.5 million and deducted $88.6 million in expenses and loss carryovers. Her business deductions included cost of goods sold of $48.5 million, sales commissions paid of $16.9 million, $10.5 million of interest paid on a mortgage, $10.7 million of depreciation, and $2 million deduction for a net operating loss carryover.

Assume Ellina earns a 10 percent after-tax rate of return and that she owes a friend $1,200. Would she prefer to pay the friend $1,200 today or $1,750 in four years?

Why might it equally result in average cost pricing?

How does a shaping process differ from a surface processing operation?

A shareholder receives appreciated noncash property in a corporate distribution and assumes a liability attached to the property. How does the assumption affect the amount of dividend the shareholder reports in gross income (assuming adequate E&P)?

What is an “ordinary and necessary” business expenditure?

What is asset stripping? (LO1)

What is the basic difference in the solidification (or melting) process between crystalline and noncrystalline structures?

A tensile test uses a test specimen that has a gage length of 50 mm and an area = 200 mm2 . During the test the specimen yields under a load of 98,000 N. The corresponding gage length = 50.23 mm. This is the 0.2 percent yield point. The maximum load of 168,000 N is reached at a gage length = 64.2 mm. Determine (a) yield strength, (b) modulus of elasticity, and (c) tensile strength. (d) If fracture occurs at a gage length of 67.3 mm, determine the percent elongation. (e) If the specimen necked to an area = 92 mm2 , determine the percent reduction in area.

Timpanogos Inc. is an accrual-method, calendar-year corporation. For 2024, it reported financial statement income after taxes of $1,342,000. Timpanogos provided the following information relating to its 2024 activities:   Life insurance proceeds as a result of CEO’s death $200,000   Revenue from sales (for book and tax purposes) 2,000,000   Cost of goods sold for book and tax purposes   300,000   Premiums paid on the key-person life insurance policies (the policies have no cash surrender value)     21,000   Charitable contributions     180,000   Interest income on tax-exempt bonds    40,000   Interest paid on loan obtained to purchase tax-exempt bonds     45,000   Rental income payments received and earned in 2024     15,000   Rental income payments received in 2023 but earned in 2024     10,000     Rental income payments received in 2024 but not earned by year-end    30,000   Tax depreciation    55,000   Book Depreciation    25,000   Net capital loss    42,000   Federal income tax expense for books 310,000       Required:  a. Reconcile book income to taxable income for Timpanogos Inc. Be sure to start with book income and identify all of the adjustments necessary to arrive at taxable income. b. Identify each book-tax difference as either permanent or temporary. c. Complete Schedule M-1 for Timpanogos. d. Compute Timpanogos, Inc.’s tax liability.

Noven Pharmaceuticals, Inc., headquartered in Miami, Florida, describes itself in a recent annual report as follows.   Noven also reported in its annual report that its activities to date have consisted of product development efforts, some of which have been independent and some of which have been completed in conjunction with Rhone-Poulenc Rorer (RPR) and Ciba-Geigy. The revenues so far have consisted of money received from licensing fees, “milestone” payments (payments made under licensing agreements when certain stages of the development of a certain product have been completed), and interest on its investments. The company expects that it will have significant revenue in the upcoming fiscal year from the launch of its first product, a transdermal estrogen delivery system. The current assets portion of Noven’s balance sheet follows. Cash and cash equivalents $12,070,272 Securities held to maturity 23,445,070 Inventory of supplies 1,264,553 Prepaid and other current assets 825,159 Total current assets $37,605,054 Inventory of supplies is recorded at the lower-of-cost (first-in, first-out)-or-net realizable value and consists mainly of supplies for research and development. Instructions (a) What would you expect the physical flow of goods for a pharmaceutical manufacturer to be most like: FIFO, LIFO, or random (flow of goods does not follow a set pattern)? Explain. (b) What are some of the factors that Noven should consider as it selects an inventory measurement method? (c) Suppose that Noven had $49,000 in an inventory of transdermal estrogen delivery patches. These patches are from an initial production run and will be sold during the coming year. Why do you think that this amount is not shown in a separate inventory account? In which of the accounts shown is the inventory likely to be? At what point will the inventory be transferred to a separate inventory account?

What are the three basic methods by which metals can be strengthened?

14   Sustainability threats and opportunities The World Coal Institute claims that coal provides over 26.5 per cent of global primary energy needs and generates over 41.5 per cent of the world’s electricity. Coal is one of the cheapest forms of fuel available on the planet. However, burning fuel produces carbon dioxide which contributes to excessive greenhouse gas emissions and global warming. Rather than change energy sources, Clean Coal Technologies (CCTs) have been promoted as a means of reducing emissions, reducing waste as well as increase the efficiency (or amount of energy) gained from coal.72   Required Referring to the information in this problem and drawing on comprehensive example 2, discuss some of the sustainability management threats and opportunities for the future of Australian coal producers. (LO1, 2, 3, 4 and 5)

In year 0, Canon purchased a machine to use in its business for $56,000. In year 3, Canon sold the machine for $42,000. Between the date of the purchase and the date of the sale, Canon depreciated the machine by $32,000.  a. What are the amount and character of the gain or loss Canon will recognize on the sale, assuming that it is a partnership?  b. What are the amount and character of the gain or loss Canon will recognize on the sale, assuming that it is a corporation? c. What are the amount and character of the gain or loss Canon will recognize on the sale, assuming that it is a corporation and the sale proceeds were increased to $60,000?  d. What are the amount and character of the gain or loss Canon will recognize on the sale, assuming that it is a corporation and the sale proceeds were decreased to $20,000?

Geri has a certificate of deposit at the local bank. The interest on this certificate was credited to their account on December 31 of last year but they didn’t withdraw the interest until January of this year. When is the interest income taxed?

In a tensile test a metal begins to neck at a true strain = 0.28 with a corresponding true stress = 345.0 MPa. Without knowing any more about the test, can you estimate the strength coefficient and the strain-hardening exponent in the flow curve equation?

The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable written off in the current year. Date Customer Amount March 31 E. L. Masters Company $7,800 June 30 Stephen Crane Associates 6,700 September 30 Amy Lowell’s Dress Shop 7,000 December 31 R. Frost, Inc. 9,830 Dickinson Corporation follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts. All of Dickinson Corporation’s sales are on a 30-day credit basis. Sales for the current year total $2,200,000, and research has determined that bad debt losses approximate 2% of sales. Instructions (a) Do you agree or disagree with Dickinson’s policy concerning recognition of bad debt expense? Why or why not? (b) By what amount would net income differ if bad debt expense was computed using the percentageof- sales approach?

Ethical decision-making timely reporting of sustainability budget problems A dilemma that individuals face is whether to be truthful when it appears that a project is over budget. Being over budget typically means that actual costs exceed budgeted costs or that a planned timeline will not be met. People often delay reporting an over-budget condition either because they believe they can catch up later or because they wish to delay negative repercussions. Unfortunately, information delays prevent managers from responding rapidly and decisively to delays in project timing and cost overruns, leading to additional dissatisfaction and inefficiencies.   Suppose an energy company establishes a budget of professional hours for a particular sustainability audit job. The hours are broken down by audit area with one area being the valuation of ‘clean energy’ inventory and cost of goods sold. During the last year, the audit client adopted new procedures for assigning product costs to individual units. The audit budget includes extra hours for the estimated time needed to document and assess the reasonableness of the new method.   Many factors could cause this part of the audit to be over budget. Consider the following two scenarios: 1.       The client failed to establish appropriate records needed to easily audit the new method, and this part of the audit will require more than the budgeted time to complete. 2.       The auditor assigned to this part of the audit is inexperienced and is unable to complete the work in the budgeted time.   Regardless of the reason for the overage, managers in charge of the audit need to be notified as soon as possible so that they can consider possible ways to realign staff and complete the total job on time. In addition, in the first scenario the audit entity might be able to bill the client for the extra work involved if the audit contract includes a provision for such price adjustments. However, this scenario would most likely require the client to be notified promptly, while the work is still being performed. In the second scenario, the overage may result in a poor performance evaluation, especially if the auditor has similar problems in other audit areas. Yet the overage may be considered reasonable in light of the auditor’s inexperience. Even so, the auditor should be able to accomplish the following: ·           develop alternative estimates of time and resource requirements for a project ·           effectively facilitate and control the project process and take corrective action as needed Therefore, the auditor must quickly recognise an impending overage and formulate appropriate strategies for completing the task as efficiently as possible. The auditor also needs to keep her supervisor apprised of the situation and seek help, when needed.       Required (a)     Have you ever failed to meet a deadline on a group project? If so, what were the reasons for the delay? When and how did you report the delay to your team members? Has someone else ever failed to meet a deadline? Does a failure to meet an agreed-upon deadline create an ethical problem? Why? (b)     Explore the responsibilities, expectations, assumptions, incentives, and consequences for this problem from different perspectives, including: §  the team member who is late §  other team members §  the team’s client. (c)     Draft a policy statement that you could adopt with future team members to handle project delays. How might this policy lead to improved team performance? (d)     Think about your future career. How can you work toward developing your professional responsibility as a member of a work team? (LO 2 and 5)

Using the information in E20-2, prepare a pension worksheet inserting January 1, 2014, balances, showing December 31, 2014, balances, and the journal entry recording pension expense.

Tim is 45 years old and considering enrolling in an insurance program that provides for long-term care insurance. He is curious about whether the insurance premiums are deductible as a medical expense. If so, he wants to know the maximum amount that can be deducted in any year.

Of what merit is the contention that the allowance method lacks the objectivity of the direct write-off method? Discuss in terms of accounting’s measurement function.

What is the fundamental difference between a fusion weld and a solid state weld?

Jerry is a 30 percent partner in the JJM Partnership when he sells his entire interest to Lucia for $56,000 cash. At the time of the sale, Jerry’s basis in JJM is $32,000. JJM does not have any debt or hot assets. What is Jerry’s gain or loss on the sale of his interest?