Question & Answer

How is antidilution determined when multiple securities are involved?

(1)   {Planning} Laurie is thinking about investing in one or several of the following investment options: Corporate bonds (ordinary interest paid annually) Dividend-paying stock (qualified dividends) Life insurance (tax-exempt) Savings account Growth stock   a. Assuming all of the options earn similar returns before taxes, rank Laurie’s investment options from highest to lowest according to their after-tax returns.   b. Which of the investments employ the deferral and/or conversion tax planning strategies?   c. How does the time period of the investment affect the returns from these alternatives?   d. How do these alternative investments differ in terms of their nontax characteristics?

Identify some of the changes and injuries that can occur at or immediately below the surface of a metal.

What is a copolymer?

Name three factors that determine whether a taxpayer is required to file a tax return.

Why are bank regulators more concerned about a large bank failure than a small bank failure? (LO6)

A part to be turned in an engine lathe must have a surface finish of 1.5 µm. The part is made of a aluminum. The cutting speed is 1.5 m/s and the depth is 3.0 mm. The nose radius on the tool = 1.0 mm. Determine the feed that will achieve the specified surface finish.

Presented below is the December 31 trial balance of New York Boutique.   Instructions (a) Construct T-accounts and enter the balances shown. (b) Prepare adjusting journal entries for the following and post to the T-accounts. (Omit explanations.) Open additional T-accounts as necessary. (The books are closed yearly on December 31.) (1) Bad debt expense is estimated to be $1,400. (2) Equipment is depreciated based on a 7-year life (no salvage value). (3) Insurance expired during the year $2,550. (4) Interest accrued on notes payable $3,360. (5) Sales salaries and wages earned but not paid $2,400. (6) Advertising paid in advance $700. (7) Office supplies on hand $1,500, charged to Supplies Expense when purchased. (c) Prepare closing entries and post to the accounts.

Each of the following items must be considered in preparing a statement of cash flows for Cruz Fashions Inc. for the year ended December 31, 2014. 1. Fixed assets that had cost $20,000 61⁄2 years before and were being depreciated on a 10-year basis, with no estimated scrap value, were sold for $4,750. 2. During the year, goodwill of $15,000 was considered impaired and was completely written off to expense. 3. During the year, 500 shares of common stock with a stated value of $25 a share were issued for $32 a share. 4. The company sustained a net loss for the year of $2,100. Depreciation amounted to $2,000 and patent amortization was $400. 5. Uncollectible accounts receivable in the amount of $2,000 were written off against Allowance for Doubtful Accounts. 6. Investments (available-for-sale) that cost $12,000 when purchased 4 years earlier were sold for $10,600. The loss was considered ordinary. 7. Bonds payable with a par value of $24,000 on which there was an unamortized bond premium of $2,000 were redeemed at 101. The gain was credited to ordinary income. Instructions For each item, state where it is to be shown in the statement and then how you would present the necessary information, including the amount. Consider each item to be independent of the others. Assume that correct entries were made for all transactions as they took place.

Toro Co. has equipment with a carrying amount of $700,000. The value-in-use of the equipment is $705,000, and its fair value less costs of disposal is $590,000. The equipment is expected to be used in operations in the future. What amount (if any) should Toro report as an impairment to its equipment?

Why are some deductions called “abovetheline” deductions and others called “belowtheline” deductions?What is the “line”?

What is the technical difference between brazing and soldering?

If people are generally risk averse, why do so many people around the world take part in national lotteries?

Should management be excited if all variances for the period are           favourable?

Camille Sikorski was divorced in 2018. She currently owns and provides a home for her 15-year-old daughter Kaly. Kaly lived in Camille’s home for the entire year, and Camille paid for all the costs of maintaining the home. Camille received a salary of $105,000 and contributed $6,000 of it to a qualified retirement account (for AGI deduction). She also received $10,000 of alimony from her former husband (per divorce decree issued in 2018). Finally, Camille paid $15,000 of expenditures that qualified as itemized deductions.

Explain how the accounting method applied to mortgage-backed securities made it more difficult for banks to satisfy capital requirements during the credit crisis of 2008–2009. (LO2)

} 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?

Blue Devil Savings and Loan Association has a large number of 10-year fixed-rate mortgages and obtains most of its funds from short-term deposits. It uses the yield curve to assess the market’s anticipation of future interest rates. It believes that expectations of future interest rates are the major force in affecting the yield curve. Assume that an upward-sloping yield curve with a steep slope exists. Based on this information, should Blue Devil consider using financial futures as a hedging technique? Explain. (LO2)

Daria is considering investing in one of two partnerships that will build, own, and operate a hotel. One is located in Canada and one is located in Arizona. Assuming both investments will generate the same before-tax rate of return, which entity should Daria invest in when considering the after-tax consequences of the investment?  Assume Daria’s marginal tax rate is 37 percent, she will be a passive investor in the business, and she will report the flow-through income from either entity on her tax return. Explain (ignore any foreign tax credit issues).

Explain how stock volatility changed during the credit crisis of 2008–2009. (LO4)

What are some aspects of business that require knowledge of taxation?  What are some aspects of personal finance that require knowledge of taxation?

Dillons Corporation made credit sales of $30,000 which are subject to 6% sales tax. The corporation also made cash sales which totaled $20,670 including the 6% sales tax. (a) Prepare the entry to record Dillons’ credit sales. (b) Prepare the entry to record Dillons’ cash sales.

Jack, a geologist, had been debating for years whether or not to venture out on his own and operate his own business. He had developed a lot of solid relationships with clients, and he believed that many of them would follow him if he were to leave his current employer. As part of a New Year’s resolution, Jack decided he would finally do it. Jack put his business plan together, and on January 1 of this year, Jack opened his doors for business as a C corporation called Geo-Jack (GJ). Jack is the sole shareholder. Jack reported the following financial information for the year (assume GJ reports on a calendar year, uses the accrual method of accounting, and elects to account for inventory).  a) In January, GJ rented a small business office about 12 miles from Jack’s home. GJ paid $10,000, which represented a damage deposit of $4,000 and rent for two years ($3,000 annually). b) GJ earned and collected $290,000 performing geological-related services and selling its specialized digging tool [see part (i)]. c) GJ received $50 interest from municipal bonds and $2,100 interest from other investments. d) GJ purchased some new equipment in February for $42,500. It claimed depreciation on these assets during the year in the amount of $6,540. e) GJ paid $7,000 to buy luxury season tickets for Jack’s parents for State University football games. f) GJ paid Jack’s father $10,000 for services that would have cost no more than $6,000 if Jack had hired any other local business to perform the services. While Jack’s dad was competent, he does not command such a premium from his other clients. g) In an attempt to get his name and new business recognized, GJ paid $7,000 for a one-page ad in the Geologic Survey. It also paid $15,000 in radio ads to be run through the end of December. h) GJ leased additional office space in a building downtown. GJ paid rent of $27,000 for the year. i) In November, Jack’s office was broken into, and equipment valued at $5,000 was stolen. The tax basis of the equipment was $5,500. Jack received $2,000 of insurance proceeds from the theft. j) GJ incurred a $4,000 fine from the state government for digging in an unauthorized digging zone. k) GJ contributed $3,000 to lobbyists for their help in persuading the state government to authorize certain unauthorized digging zones. l) On July 1, GJ paid $1,800 for an 18-month insurance policy for its business equipment. The policy covers the period July 1 of this year through December 31 of next year. m) GJ borrowed $20,000 to help with the company’s initial funding needs. GJ used $2,000 of the funds to invest in municipal bonds. At the end of the year, GJ paid the $1,200 of interest expense that accrued on the loan during the year. n) Jack lives 12 miles from the office. He carefully tracked his mileage and drove his truck 6,280 miles between the office and his home. He also drove an additional 7,200 miles between the office and traveling to client sites. Jack did not use the truck for any other purposes. He did not keep track of the specific expenses associated with the truck. However, while traveling to a client site, Jack received a $150 speeding ticket. GJ reimbursed Jack for business mileage and for the speeding ticket. o) GJ purchased two season tickets (20 games) to attend State University baseball games for a total of $1,100. Jack took existing and prospective clients to the games to maintain contact and find further work. This was very successful for Jack as GJ gained many new projects through substantial discussions with the clients following the games. p) GJ paid $3,500 for meals when sales employees met with prospective clients. q) GJ had a client who needed Jack to perform work in Florida. Because Jack had never been to Florida before, he booked an extra day and night for sightseeing. Jack spent $400 for airfare and booked a hotel for 3 nights ($120/night). (Jack stayed two days for business purposes and one day for personal purposes.) He also rented a car for $45 per day. The client provided Jack’s meals while Jack was doing business, but GJ paid all expenses. r) GJ paid a total of $10,000 of wages to employees during the year, and cost of goods sold was $15,000.  Required: a) What is GJ’s net business income for tax purposes for the year? b) As a C corporation, does GJ have a required tax year? If so, what would it be? c) If GJ were a sole proprietorship, would it have a required tax year-end? If so, what would it be? d) If GJ were an S corporation, would it have a required tax year-end? If so, what would it be?

The following information is available for Wenger Corporation for 2013 (its first year of operations). 1. Excess of tax depreciation over book depreciation, $40,000. This $40,000 difference will reverse equally over the years 2014–2017. 2. Deferral, for book purposes, of $20,000 of rent received in advance. The rent will be recognized in 2014. 3. Pretax financial income, $300,000. 4. Tax rate for all years, 40%. Instructions (a) Compute taxable income for 2013. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2013. (c) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014, assuming taxable income of $325,000.

Describe the growing-equity mortgage. How does it differ from a graduated-payment mortgage? (LO2)