Question & Answer

Mark received 10 ISOs at the time he started working for Hendricks Corporation five years ago, when Hendricks’s price was $5 per share (each option gives him the right to purchase 10 shares of Hendricks Corporation stock for $5 per share). Now that Hendricks’s share price is $35 per share, Mark intends to exercise all of his options and hold all of his shares for more than one year. Assume that more than a year after exercise, Mark sells the stock for $35 a share. What are Mark’s tax consequences on the grant date, the exercise date, and the date he sells the shares, assuming his ordinary marginal rate is 32 percent and his long-term capital gains rate is 15 percent?

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

Why might it equally result in average cost pricing?

What is asset stripping? (LO1)

Refer to the accounting change by Wertz Construction Company in BE22-1. Wertz has a profitsharing plan, which pays all employees a bonus at year-end based on 1% of pretax income. Compute the indirect effect of Wertz’s change in accounting principle that will be reported in the 2014 income statement, assuming that the profit-sharing contract explicitly requires adjustment for changes in income numbers.

What is an “ordinary and necessary” business expenditure?

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?

When must a company recognize an asset retirement obligation?

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?

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

This year, Bobcat Corporation reports a deficit in current E&P of ($300,000) that accrued evenly throughout the year. At the beginning of the year, Bobcat’s accumulated E&P was $200,000. Bobcat distributed $200,000 to its sole shareholder, Melanie, on June 30 of this year. Melanie’s tax basis in her Bobcat stock before the distribution was $75,000.

Why is raw material preparation more important in the processing of new ceramics than for traditional ceramics?

What is a chaplet?

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)

Soon after beginning the year-end audit work on March 10 at Engone Company, the auditor has the following conversation with the controller. Controller: The year ended March 31st should be our most profitable in history and, as a consequence, the board of directors has just awarded the officers generous bonuses. Auditor: I thought profits were down this year in the industry, according to your latest interim report. Controller: Well, they were down, but 10 days ago we closed a deal that will give us a substantial increase for the year. Auditor: Oh, what was it? Controller: Well, you remember a few years ago our former president bought stock in Henderson Enterprises because he had those grandiose ideas about becoming a conglomerate. For 6 years we have not been able to sell this stock, which cost us $3,000,000 and has not paid a nickel in dividends. Thursday we sold this stock to Bimini Inc. for $4,000,000. So, we will have a gain of $700,000 ($1,000,000 pretax) which will increase our net income for the year to $4,000,000, compared with last year’s $3,800,000. As far as I know, we’ll be the only company in the industry to register an increase in net income this year. That should help the market value of the stock! Auditor: Do you expect to receive the $4,000,000 in cash by March 31st, your fiscal year-end? Controller: No. Although Bimini Inc. is an excellent company, they are a little tight for cash because of their rapid growth. Consequently, they are going to give us a $4,000,000 zero-interestbearing note with payments of $400,000 per year for the next 10 years. The first payment is due on March 31 of next year. Auditor: Why is the note zero-interest-bearing? Controller: Because that’s what everybody agreed to. Since we don’t have any interest-bearing debt, the funds invested in the note do not cost us anything and besides, we were not getting any dividends on the Henderson Enterprises stock. Instructions Do you agree with the way the controller has accounted for the transaction? If not, how should the transaction be accounted for?

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

As noted in Example 1-2, tolls, parking meter fees, and annual licensing fees are not considered taxes.  Can you identify other fees that are similar?

} Suppose you asked your favorite AI query tool the following question: “Are athletic scholarships that require student participation in a specific sport taxable for federal income tax purposes?”  The AI tool provided the following response:

Why are metals heat treated?

The yield strength of a certain metal = 50,000 lb/in2 and its modulus of elasticity = 22 x 106 lb/in2. It is to be used for the outer ring of a press-fit assembly with a mating shaft made of the same metal. The nominal inside diameter of the ring is 1.000 in and its outside diameter = 2.500 in. Using a safety factor = 2.0, determine the maximum interference that should be used with this assembly.

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.

1.    : Using Porter’s competitive strategies, how would you describe the strategies of Walmart and T.J. Maxx?

Presented below is the current liabilities section of Micro Corporation. ($000) 2015 2014 Current liabilities Notes payable $ 68,713 $ 7,700 Accounts payable 179,496 101,379 Compensation to employees 60,312 31,649 Accrued liabilities 158,198 77,621 Income taxes payable 10,486 26,491 Current maturities of long-term debt 16,592 6,649 Total current liabilities $493,797 $251,489 Instructions Answer the following questions. (a) What are the essential characteristics that make an item a liability? (b) How does one distinguish between a current liability and a long-term liability? (c) What are accrued liabilities? Give three examples of accrued liabilities that Micro might have. (d) What is the theoretically correct way to value liabilities? How are current liabilities usually valued? (e) Why are notes payable reported first in the current liabilities section? (f) What might be the items that comprise Micro’s liability for “Compensation to employees”?

What is the Guerin process?

Gamila, James, Helen, and Carlos each own an equal interest in GJHC Partnership, a calendar-year-end, cash-method entity. On January 1 of the current year, James’ basis in his partnership interest is $62,000. For the taxable year, the partnership generates $80,000 of ordinary income and $30,000 of dividend income. For the first 5 months of the year, GJHC generates $25,000 of ordinary income and no dividend income. On June 1, James sells his partnership interest to Robert for a cash payment of $70,000. The partnership has the following assets and no liabilities at the sale date: Tax Basis FMV Cash $ 27,000 $ 27,000 Land held for investment 80,000 100,000    Totals $ 107,000 $ 127,000 a. Assuming GJHC’s operating agreement provides that the proration method will be used to allocate income or loss when partners’ interests change during the year, what is James’ basis in his partnership interest on June 1 just prior to the sale? b. What are the amount and character of James’s recognized gain or loss on the sale? c. If GJHC uses an interim closing of the books, what are the amount and character of James’s recognized gain or loss on the sale?