Question & Answer

Explain why a partnership might not want to make a §754 election to allow special basis adjustments.

Explain the difference between equity REITs and mortgage REITs. Which type would likely be a better hedge against high inflation? Why? (LO5)

What do you understand by people’s expectations of inflation becoming ‘anchored’? Why might this be important for actual rates of inflation?

What items will increase a partner’s basis in the partnership interest?

1.      : Recommend to the president that a meeting be arranged with the sales representatives entitled to a bonus and tell them that their checks were going to be delayed until Tacoma’s financial picture clarified. The sales reps would be told that the company had a legal right to delay payment and that it may not be able to pay the bonuses if its financial situation continues to deteriorate.

Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend has never been declared. Presented below is a brief financial summary of Matheny Inc. operations. ($000 omitted) 2015 2014 2013 2012 2011 Sales revenue $20,000 $16,000 $14,000 $6,000 $4,000 Net income 2,400 1,400 800 700 250 Average total assets 22,000 19,000 11,500 4,200 3,000 Current assets 8,000 6,000 3,000 1,200 1,000 Working capital 3,600 3,200 1,200 500 400 Common shares: Number of shares  outstanding (000) 2,000 2,000 2,000 20 20 Average market price $9 $6 $4 — — Instructions (a) Suggest factors to be considered by the board of directors in establishing a dividend policy. (b) Compute the return on assets, profit margin on sales, earnings per share, price-earnings ratio, and current ratio for each of the 5 years for Matheny Inc. (c) Comment on the appropriateness of declaring a cash dividend at this time, using the ratios computed in part (b) as a major factor in your analysis.

In an orthogonal cutting operation, the tool has a rake angle = 15°. The chip thickness before the cut = 0.30 mm and the cut yields a deformed chip thickness = 0.65 mm. Calculate (a) the shear plane angle and (b) the shear strain for the operation.

On January 1, 2014, Irwin Animation sold a truck to Peete Finance for $33,000 and immediately leased it back. The truck was carried on Irwin’s books at $28,000. The term of the lease is 5 years, and title transfers to Irwin at lease-end. The lease requires five equal rental payments of $8,705 at the end of each year. The appropriate rate of interest is 10%, and the truck has a useful life of 5 years with no salvage value. Prepare Irwin’s 2014 journal entries.

Which is a more appropriate tax rate to use to compare taxpayers’ tax burdens – the average or the effective tax rate?  Why?

What would be the rate of economic growth if 20 per cent of national income were saved and invested and the marginal capital/output ratio was 5/2?

Do theories of the long-run and short-run consumption functions help us to understand consumer reactions to a change in taxes? (See section 17.1 and Case Studies 17.1 – 17.4 on the student website.

Name the four principal steps in chemical machining

What is the role of an actuary relative to pension plans? What are actuarial assumptions?

On July 1, 2014, Wallace Company, a calendar-year company, sold special-order merchandise on credit and received in return an interest-bearing note receivable from the customer. Wallace Company will receive interest at the prevailing rate for a note of this type. Both the principal and interest are due in one lump sum on June 30, 2015. Instructions When should Wallace Company report interest revenue from the note receivable? Discuss the rationale for your answer. Part 2: On December 31, 2014, Wallace Company had significant amounts of accounts receivable as a result of credit sales to its customers. Wallace uses the allowance method based on credit sales to estimate bad debts. Past experience indicates that 2% of credit sales normally will not be collected. This pattern is expected to continue. Instructions (a) Discuss the rationale for using the allowance method based on credit sales to estimate bad debts. Contrast this method with the allowance method based on the balance in the trade receivables accounts. (b) How should Wallace Company report the allowance for doubtful accounts on its balance sheet at December 31, 2014? Also, describe the alternatives, if any, for presentation of bad debt expense in Wallace Company’s 2014 income statement.

What factors must be present for income shifting to be a viable strategy?

What are the main assets of life insurance companies? Identify the main categories. What is the main use of funds by life insurance companies? (LO3)

What would be the amount paid out in Figure 3.14 if instead of the government buying the surpluses, export subsidies were given to farmers so as to guarantee them a price (plus subsidy) of Pmin?

Explain why regulators might argue that the assistance they provided to Bear Stearns during the credit crisis was necessary. (LO5)

What is the required method of amortizing discount and premium on bonds payable? Explain the procedures.

Which is likely to show the greater variation from one person to another at any given level of income: the short-run mpc or the long-run mpc?

1.    How do you think the “MeToo” movement and publicity might affect the behavior of male managers toward women in an organization? How do you think corporate policies toward romantic relationships among employees might change? Explain.

Jennie’s grandmother paid her tuition this fall to State University (an eligible educational institution).  Jennie is claimed as a dependent by her parents, but she also files her own tax return.  Can Jennie claim an education credit for the tuition paid by her grandmother?  What difference would it make, if any, if Jennie did not qualify as a dependent of her parents (or anyone else)?

Assume that the government cuts its expenditure and thereby runs a public-sector surplus. (a)  What will this do initially to equilibrium national income? (b)  What will it do to the demand for money and initially to interest rates? (c)  Under what circumstances will it lead to (i) a decrease in money supply; (ii) no change in money supply? (d)  What effect will (i) and (ii) have on the rate of interest compared with its original level?

Under what circumstances will a partner recognize a loss from an operating distribution?

In what way may short-term demand-management policies help to stabilise the economy? What problems occur in the use of such policies?