Question & Answer

Callaway Golf Co. leases telecommunication equipment. Assume the following data for equipment leased from Photon Company. The lease term is 5 years and requires equal rental payments of $31,000 at the beginning of each year. The equipment has a fair value at the inception of the lease of $138,000, an estimated useful life of 8 years, and no residual value. Callaway pays all executory costs directly to third parties. Photon set the annual rental to earn a rate of return of 10%, and this fact is known to Callaway. The lease does not transfer title or contain a bargain-purchase option. How should Callaway classify this lease?

At the end of 2014, Sawyer Company is conducting an impairment test and needs to develop a fair value estimate for machinery used in its manufacturing operations. Given the nature of Sawyer’s production process, the equipment is for special use. (No secondhand market values are available.) The equipment will be obsolete in 2 years, and Sawyer’s accountants have developed the following cash flow information for the equipment. 7 9 Net Cash Flow Probability Year Estimate Assessment 2015 $6,000 40% 9,000 60% 2016 $ (500) 20% 2,000 60% 4,000 20% Scrap value 2016 $ 500 50% 900 50% Instructions Using expected cash flow and present value techniques, determine the fair value of the machinery at the end of 2014. Use a 6% discount rate. Assume all cash flows occur at the end of the year.

1.              : Tell Carolyn Campbell that employee volunteerism is important to the company and that while her performance evaluation will not be affected by her decision, she should consider helping Hayes because it is an opportunity to help a worthy community project.

What are the elements in the ceramic material Sialon?

Who pays the second level of tax on a C corporation’s income? What is the tax rate applicable to the second level of tax, and when is it levied?

What is the technical difference between mixing and blending in powder metallurgy?

Refer to the data for Barwood Corporation in BE16-6. Repeat the requirements assuming that instead of options, Barwood granted 2,000 shares of restricted stock.

On April 1, 2014, Rasheed Company assigns $400,000 of its accounts receivable to the Third National Bank as collateral for a $200,000 loan due July 1, 2014. The assignment agreement calls for Rasheed Company to continue to collect the receivables. Third National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type). Instructions (a) Prepare the April 1, 2014, journal entry for Rasheed Company. (b) Prepare the journal entry for Rasheed’s collection of $350,000 of the accounts receivable during the period from April 1, 2014, through June 30, 2014. (c) On July 1, 2014, Rasheed paid Third National all that was due from the loan it secured on April 1, 2014. Prepare the journal entry to record this payment.

Bob’s Lottery, Inc. has decided to offer winners a choice of $100,000 in 10 years or some amount currently. Assume that Bob’s Lottery Inc. earns a 10 percent after-tax rate of return. What amount should Bob’s offer lottery winners currently to be indifferent between the two choices?

Discuss the accounting treatment or disclosure that should be accorded a declared but unpaid cash dividend, an accumulated but undeclared dividend on cumulative preferred stock, and a stock dividend distributable.

Allie received a $50,000 distribution from her 401(k) account this year that she established while working for Big Stories, Inc. Assuming her marginal ordinary tax rate is 24 percent, how much tax and penalty will Allie pay on the distribution under the following circumstances?

Statement of Financial Accounting Concepts No. 5 identifies four characteristics that an item must have before it is recognized in the financial statements. What are these four characteristics?

Mikaere’s basis in the Jimsoo Partnership is $53,000. In a proportionate liquidating distribution, Mikaere receives cash of $7,000 and two capital assets: (1) Land A with a fair market value of $20,000 and a basis to Jimsoo of $16,000 and (2) Land B with a fair market value of $10,000 and a basis to Jimsoo of $16,000. Jimsoo has no liabilities. a. How much gain or loss will Mikaere recognize on the distribution? What is the character of any recognized gain or loss? b. What is Mikaere’s basis in the distributed assets? c. If the two parcels of land had been inventory to Jimsoo, what are the tax consequences to Mikaere (amount and character of gain or loss and basis in distributed assets)?

Jane Ellerby and Sam Callison are discussing the recent fraud that occurred at LowRental Leasing, Inc. The fraud involved the improper reporting of revenue to ensure that the company would have income in excess of $1 million. What is fraudulent financial reporting, and how does it differ from an embezzlement of company funds?

Joseph contributed $22,000 in cash and equipment with a tax basis of $5,000 and a fair market value of $11,000 to Berry Hill Partnership in exchange for a partnership interest. a. What is Joseph’s tax basis in his partnership interest? b. What is Berry Hill’s basis in the equipment?

Determine the shape factor for metallic particles of the following ideal shapes: (a) sphere, (b) cubic, (c) cylindrical with length-to-diameter ratio of 1:1, (d) cylindrical with length-to-diameter ratio of 2:1, and (e) a disk-shaped flake whose thickness-to-diameter ratio is 1:10.

The Fed’s open market operations can change the money supply, which can affect the risk-free rate offered on bonds. Why might the Fed’s policy also affect the risk premium on corporate bonds? (LO2)

Vargo Corp. owes $270,000 to First Trust. The debt is a 10-year, 12% note due December 31, 2014. Because Vargo Corp. is in financial trouble, First Trust agrees to extend the maturity date to December 31, 2016, reduce the principal to $220,000, and reduce the interest rate to 5%, payable annually on December 31. Instructions (a) Prepare the journal entries on Vargo’s books on December 31, 2014, 2015, 2016. (b) Prepare the journal entries on First Trust’s books on December 31, 2014, 2015, 2016.

What is the difference between primary and secondary authorities?  Explain the role of each authority type in conducting tax research.

Potlatch Corporation has issued various types of bonds such as term bonds, income bonds, and debentures. Differentiate between term bonds, mortgage bonds, debenture bonds, income bonds, callable bonds, registered bonds, bearer or coupon bonds, convertible bonds, commodity-backed bonds, and deep discount bonds.

Why is the drying step, so important in the processing of traditional ceramics, usually not required in processing of new ceramics?

Hart Golf Co. uses titanium in the production of its specialty drivers. Hart anticipates that it will need to purchase 200 ounces of titanium in November 2014, for clubs that will be shipped in the spring and summer of 2015. However, if the price of titanium increases, this will increase the cost to produce the clubs, which will result in lower profit margins. To hedge the risk of increased titanium prices, on May 1, 2014, Hart enters into a titanium futures contract and designates this futures contract as a cash flow hedge of the anticipated titanium purchase. The notional amount of the contract is 200 ounces, and the terms of the contract give Hart the option to purchase titanium at a price of $500 per ounce. The price will be good until the contract expires on November 30, 2014. Assume the following data with respect to the price of the call options and the titanium inventory purchase Spot Price for Date November Delivery May 1, 2014 $500 per ounce June 30, 2014 520 per ounce September 30, 2014 525 per ounce Instructions Present the journal entries for the following dates/transactions. (a) May 1, 2014—Inception of futures contract, no premium paid. (b) June 30, 2014—Hart prepares financial statements. (c) September 30, 2014—Hart prepares financial statements. (d) October 5, 2014—Hart purchases 200 ounces of titanium at $525 per ounce and settles the futures contract. (e) December 15, 2014—Hart sells clubs containing titanium purchased in October 2014 for $250,000. The cost of the finished goods inventory is $140,000. (f) Indicate the amount(s) reported in the income statement related to the futures contract and the inventory transactions on December 31, 2014.

Many investors that purchased the mortgage-backed securities just before the credit crisis believed that they were misled because these securities were riskier than they thought. Who was at fault? (LO5)

What is meant by solvency? What information in the balance sheet can be used to assess a company’s solvency?

Felipe, a single taxpayer, is a technology consultant who operates as a sole proprietorship.  Felipe’s net business income is $600,000 (net of the associated for AGI self-employment tax deduction), he pays wages of $100,000 to his employees, and he has $200,000 of qualified property (unadjusted basis).  Felipe’s taxable income before the deduction for qualified business income is $500,000. Assume he has no capital gains or qualified dividends. a. Calculate Felipe’s deduction for qualified business income.           b. How would your answer to (a) change if Felipe was an investment broker.