Question & Answer

Differentiate between “financial statements” and “financialreporting.”

Lanny and Shirley are recently divorced and do not live together.  Shirley has custody of their child, Art, and Lanny pays Shirley $22,000 per year.  All property was divided equally. a.       How much should Shirley include in income if Lanny’s payments are made in cash but will cease if Shirley dies or remarries? b.       How much should Shirley include in income if $12,000 of Lanny’s payments is designated as “nonalimony” in the divorce decree? c.       How much should Shirley include in income if Lanny’s payments drop to $15,000 once Art reaches the age of 18?

In the movie Wall Street, Bud Fox is a broker who conducts trades for Gordon Gekko’s firm. Gekko purchases shares of firms that he believes are undervalued. Various scenes in the movie offer excellent examples of concepts discussed in this chapter. (LO3, LO4, LO6) a. Bud Fox comments to Gordon Gekko that a firm’s breakup value is twice its market price. What is Bud suggesting in this statement? How would employees of the firm respond to Bud’s statement? b. When Bud informs Gekko that another investor, Mr. Wildman, is secretly planning to acquire a target firm in Pennsylvania, Gekko tells Bud to buy a large amount of this stock. Why? c. Gekko says “Wonder why fund managers can’t beat the S&P 500? Because they are sheep.” What is Gekko’s point? How does it relate to market efficiency?

Shimei Inc. purchased computer equipment on March 1, 2014, for $31,000. The computer equipment has a useful life of 10 years and a salvage value of $1,000. For tax purposes, the MACRS class life is 5 years. Instructions (a) Assuming that the company uses the straight-line method for book and tax purposes, what is the depreciation expense reported in (1) the financial statements for 2014 and (2) the tax return for 2014? (b) Assuming that the company uses the double-declining-balance method for both book and tax purposes, what is the depreciation expense reported in (1) the financial statements for 2014 and (2) the tax return for 2014? (c) Why is depreciation for tax purposes different from depreciation for book purposes even if the company uses the same depreciation method to compute them both?

Wolverine Corporation made a distribution of $500,000 to Jin Inc. in partial liquidation of the company on December 31 of this year. Jin Inc. owns 100 percent of Wolverine Corporation. The distribution was in exchange for 50 percent of Jin Inc.’s stock in the company. At the time of the distribution, the shares had a fair market value of $200 per share. Jin Inc.’s tax basis in the shares was $50 per share. Wolverine had E&P of $8,000,000 at the time of the distribution.

What does viscoelasticity mean, when applied to a polymer melt?

Describe the characteristics that a measure of money should have if it is to be manipulated by the Fed. (LO2)

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 are the major lessor groups in the United States? What advantage does a captive have in a leasing arrangement?

What is the fundamental feature that distinguishes fusion welding from solid-state welding?

Outline the key steps in a costing framework.

Shauna and Danielle decided to liquidate their jointly owned corporation, Woodward Fashions Inc. (WFI).  After liquidating its remaining inventory and paying off its remaining liabilities, WFI had the following tax accounting balance sheet.     FMV        Tax basisAppreciation Cash$  200,000$     200,000 Building      50,000         10,000        40,000 Land    150,000         90,000        60,000 Total$  400,000$     300,000$    100,000

Elaine pays $40,000 cash for Martha’s one-third interest in Lakewood Partnership. Just prior to the sale, Martha’s basis in Lakewood is $140,000. Lakewood reports the following balance sheet: Assets: Tax Basis FMV Cash $ 50,000 $ 50,000 Land 370,000 70,000    Totals $ 420,000 $ 120,000 Liabilities and capital: Capital- Mary $140,000 - Martha 140,000 - Margaret 140,000   Totals $ 420,000 Assume the land had been purchased several years ago and the partnership does not have a §754 election in place. a. What are the amount and character of Martha’s recognized gain or loss on the sale? b. What is Elaine’s basis in her partnership interest? c. If Lakewood were to sell the land for $70,000 shortly after the sale of Martha’s partnership interest, how much gain or loss would Elaine recognize?

What does vulcanization do to the rubber?

On its year 1 financial statements, Seatax Corporation, an accrual-method taxpayer, reported federal income tax expense of $570,000.  On its year 1 tax return, it reported a tax liability of $650,000. During year 1, Seatax made estimated tax payments of $700,000. What book-tax difference, if any, associated with its federal income tax expense should Seatax have reported when computing its year 1 taxable income?  Is the difference favorable or unfavorable?  Is it temporary or permanent?

What is the relationship between the coefficient of friction and the friction angle in the orthogonal cutting model?

Consider the prevailing conditions for inflation (including oil prices), the economy, interest rates, and any other factors that could affect exchange rates. Based on these conditions, do you think the euro’s value will likely appreciate or depreciate against the dollar for the remainder of this semester? Offer some logic to support your answer. Which factor do you think will have the biggest impact on the euro’s exchange rate? (LO2)

On January 1, 2014, Lennon Industries had stock outstanding as follows. 6% Cumulative preferred stock, $100 par value, issued and outstanding 10,000 shares $1,000,000 Common stock, $10 par value, issued and outstanding 200,000 shares 2,000,000 To acquire the net assets of three smaller companies, Lennon authorized the issuance of an additional 160,000 common shares. The acquisitions took place as shown below. On May 14, 2014, Lennon realized a $90,000 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000. On December 31, 2014, Lennon recorded net income of $300,000 before tax and exclusive of the gain. Instructions Assuming a 50% tax rate, compute the earnings per share data that should appear on the financial statements of Lennon Industries as of December 31, 2014. Assume that the expropriation is extraordinary.

] Brown Thumb Landscaping is a calendar-year, accrual-method taxpayer. In September, Brown Thumb negotiated a $14,000 contract for services it would provide to the city in November of the current year. The contract specifies that Brown Thumb will receive $4,000 in October as a down payment for these services, and it will receive the remaining $10,000 in January of next year.

Suppose you asked your favorite AI query tool “For purposes of §721, what constitutes property?” and the AI tool responded as follows:

Illini Corporation reported taxable income of $500,000 from operations for this year. In addition, the company distributed an automobile to its sole shareholder, Yuki. The auto’s fair market value was $30,000 and its tax basis to Illini was $0. The auto’s E&P tax basis was $15,000. Illini had accumulated E&P of $1,500,000 at the beginning of the year.

What was TALF, and why did the Fed create it? (LO3)

Explain the role of credit rating agencies in facilitating the flow of funds from investors into the mortgage market (through mortgage-backed securities). (LO4)

Melindainvests $200,000 in a City of Heflin bond that pays 6 percent interest.  Alternatively, Melindacould have invested the $200,000 in a bond recently issued by Surething Inc. that pays 8 percent interest with similar risk and othernontax characteristics to the City of Heflin bond.  Assume Melinda’s marginal tax rate is 25 percent.

Why is the shielded metal arc-welding (SMAW) process difficult to automate?