Question & Answer

Virginia Corporation is a calendar-year corporation.  At the beginning of 2024, its election to be taxed as an S corporation became effective.  Virginia Corp.’s balance sheet at the end of 2023 reflected the following assets (it did not have any earnings and profits from its prior years as a C corporation). Asset Adjusted basis FMV Cash $20,000 $20,000 Accounts receivable 40,000 40,000 Inventory 90,000 200,000 Land 150,000 175,000   Totals $300,000 $435,000   In 2024, Virginia Corp. reported business income of $50,000 (this would have been its taxable income if it were still a C corporation). What is Virginia’s built-in gains tax in each of the following alternative scenarios?

If capital moves from developed to less developed countries, and labour moves from less developed to developed countries, what effects will these factor movements have on wage rates and the return on capital in the two types of country?

Several years ago, your client, Brooks Robinson, started an office-cleaning service. His business was very successful, owing much to his legacy as the greatest defensive third baseman in major league history and his nickname, “The Human Vacuum Cleaner.”  Brooks operated his business as a sole proprietorship and used the cash-basis method of accounting. Brooks was advised by his attorney that it is too risky to operate his business as a sole proprietorship and that he should incorporate to limit his liability. Brooks has come to you for advice on the tax implications of incorporation. His balance sheet is presented below. Under the terms of the incorporation, Brooks would transfer the assets to the corporation in return for 100 percent of the company’s common stock. The corporation would also assume the company’s liabilities (payables and mortgage).

At December 31, 2014, Higley Corporation has one temporary difference which will reverse and cause taxable amounts in 2015. In 2014, a new tax act set taxes equal to 45% for 2014, 40% for 2015, and 34% for 2016 and years thereafter. Instructions Explain what circumstances would call for Higley to compute its deferred tax liability at the end of 2014 by multiplying the cumulative temporary difference by: (a) 45%. (b) 40%. (c) 34%.

Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $20,000 of legal services for a client. Manny typically requires his clients to pay his bills immediately upon receipt. Assume Manny’s marginal tax rate is 37 percent this year and next year, and that he can earn an after-tax rate of return of 12 percent on his investments. Should Manny send his client the bill in December or January?

Distinguish between minimum rental payments and minimum lease payments, and indicate what is included in minimum lease payments.

Shawn receives stock in an S corporation when it is formed in a tax-deferred transaction by contributing land with a tax basis of $50,000 and encumbered by a $20,000 mortgage. What is Shawn’s initial basis in his S corporation stock?

Turtle Creek Partnership had the following revenues, expenses, gains, losses, and distributions: Sales revenue $40,000 Long-term capital gains $2,000 Cost of goods sold ($13,000) Depreciation - MACRS ($3,000) Amortization of organization costs ($1,000) Guaranteed payments to partners for general management ($10,000) Cash distributions to partners ($2,000)

The total solidification times of three casting shapes are to be compared: (1) a sphere, (2) a cylinder, in which the length-to-diameter ratio = 1.0, and (3) a cube. For all three geometries, the volume = 1000 cm3 . The same casting alloy is used in the three cases. (a) Determine the relative solidification times for each geometry. (b) Based on the results of part (a), which geometric element would make the best riser? (c) If the mold constant = 3.5 min/cm2 in Chvorinov's rule, compute the total solidification time for each casting.

Ottawa Corporation owns machinery that cost $20,000 when purchased on July 1, 2011. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance in accumulated depreciation of $8,400 at December 31, 2014. The machinery is sold on September 1, 2015, for $10,500. Prepare journal entries to (a) update depreciation for 2015 and (b) record the sale.

Why might the predictions of the rational choice model generally approximate human behaviour in many situations?

Until the end of year 0, Magic Carpets (MC) was a C corporation with a calendar year-end.  At the beginning of year 1, it elected to be taxed as an S corporation.  MC uses the LIFO method to value its inventory.  At the end of year 0, under the LIFO method, its inventory of rugs was valued at $150,000. Under the FIFO method, the rugs would have been valued at $170,000.  How much LIFO recapture tax must MC pay, and what is the due date of the first payment under the following alternative scenarios?

Demonstrate with a supply and demand curve diagram the incidence of a subsidy when demand is price elastic and supply is price inelastic.

Make out a case for adopting a policy of individual tradable carbon permits, allocated to all citizens within a country. Could such a policy be extended globally?

Devon Harris Company sells 10% bonds having a maturity value of $2,000,000 for $1,855,816. The bonds are dated January 1, 2014, and mature January 1, 2019. Interest is payable annually on January 1. Instructions Set up a schedule of interest expense and discount amortization under the straight-line method. (Round answers to the nearest cent.)

Flintstone Corporation is owned equally by Fred and his sister Wilma, each of whom holds 1,000 shares in Flintstone. Wilma wants to reduce her ownership in the company, and it is decided that Flintstone will redeem 250 of her shares for $25,000 per share on December 31 of this year. Wilma’s tax basis in each share is $5,000.  Flintstone has current E&P of $10,000,000 and accumulated E&P at the beginning of the year is $50,000,000.

What type of general guidelines may be specified for a trust that is managing a pension fund? (LO6)

Explain why an increase in the money supply can affect other short-term interest rates in different ways. Include the potential impact of the money supply on the supply of and the demand for loanable funds when answering this question. (LO2)

Celine Dion Company issued $600,000 of 10%, 20-year bonds on January 1, 2014, at 102. Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight-line method of amortization for bond premium or discount. Instructions Prepare the journal entries to record the following. (a) The issuance of the bonds. (b) The payment of interest and the related amortization on July 1, 2014. (c) The accrual of interest and the related amortization on December 31, 2014.

What is the composition of green sand in the green-sand molding process?

What is isothermal forming?

What kinds of questions about future cash flows do investors and creditors attempt to answer with information in the income statement?

An article in the financial press entitled “Important Information in Annual Reports This Year” noted that annual reports include a management’s discussion and analysis section. What would this section contain?

True centrifugal casting is performed horizontally to make large diameter copper tube sections. The tubes have a length = 1.0 m, diameter = 0.25 m, and wall thickness = 15 mm. (a) If the rotational speed of the pipe = 700 rev/min, determine the G-factor on the molten metal. (b) Is the rotational speed sufficient to avoid \"rain?\" (c) What volume of molten metal must be poured into the mold to make the casting if solidification shrinkage and contraction after solidification are considered? Solidification shrinkage for copper = 4.5%, and solid thermal contraction = 7.5%

The following defined pension data of Doreen Corp. apply to the year 2014. Defi ned benefi t obligation, 1/1/14 (before amendment) $560,000 Plan assets, 1/1/14 546,200 Pension asset/liability 13,800 Cr. On January 1, 2014, Doreen Corp., through plan amendment, grants past service benefi ts having a present value of 120,000 Discount rate 9% Service cost 58,000 Contributions (funding) 65,000 Actual return on plan assets 49,158 Benefi ts paid to retirees 40,000 Instructions For 2014, prepare a pension worksheet for Doreen Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts.