Question & Answer

Presented below are selected ledger accounts of Tucker Corporation as of December 31, 2014. Cash $ 50,000 Administrative expenses 100,000 Selling expenses 80,000 Net sales 540,000 Cost of goods sold 210,000 Cash dividends declared (2014) 20,000 Cash dividends paid (2014) 15,000 Discontinued operations (loss before income taxes) 40,000 Depreciation expense, not recorded in 2013 30,000 Retained earnings, December 31, 2013 90,000 Effective tax rate 30% Instructions (a) Compute net income for 2014. (b) Prepare a partial income statement beginning with income from continuing operations before income tax, and including appropriate earnings per share information. Assume 10,000 shares of common stock were outstanding during 2014.

Jeremy is a calendar-year taxpayer who sometimes leases his business equipment to local organizations. He recorded the following receipts this year. Indicate the extent to which these payments are taxable income to Jeremy this year if Jeremy is (1) a cash-method taxpayer and (2) an accrual-method taxpayer.

Why will the multiplier effect of government transfer payments such as child benefit, pensions and social security be less than the full multiplier effect given by government expenditure on goods and services. Will this ‘transfer payments multiplier’ be the same as the tax multiplier? (Clue: will the recipients of such benefits have the same mpcd as the average person?)

On January 1, 2014, Roosevelt Company purchased 12% bonds, having a maturity value of $500,000, for $537,907.40. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2014, and mature January 1, 2019, with interest receivable December 31 of each year. Roosevelt’s business model is to hold these bonds to collect contractual cash flows. Instructions (a) Prepare the journal entry at the date of the bond purchase. (b) Prepare a bond amortization schedule. (c) Prepare the journal entry to record the interest received and the amortization for 2014. (d) Prepare the journal entry to record the interest received and the amortization for 2015.

Why might market-orientated supply-side policies have undesirable side effects on aggregate demand?

The TimpRiders LP has operated a motorcycle dealership for a number of years. Amir is the limited partner, Francesca is the general partner, and they share capital and profits equally. Francesca works full time managing the partnership. Both the partnership and the partners report on a calendar-year basis. At the start of the current year, Amir and Francesca had bases of $10,000 and $3,000 respectively, and the partnership did not have any liabilities. During the current year, the partnership reported the following results from operations: Net sales $650,000 Cost of goods sold $500,000 Operating expenses $160,000 Short-term capital loss $2,000 Tax-exempt interest $2,000 §1231 gain $6,000 On the last day of the year, the partnership distributed $3,000 each to Amir and Francesca. a. What outside basis do Amir and Francesca have in their partnership interests at the end of the year? b. How much of their losses are currently not deductible by Amir and Francesca because of the tax-basis limitation? c. To what extent does the passive activity loss limitation apply in restricting their deductible losses for the year? d. Using the information provided, prepare TimpRiders’ page 1 and Schedule K to be included with its Form 1065 for the current year. Also, prepare a Schedule K-1 for Amir and Francesca.

Cannondale Company purchased an electric wax melter on April 30, 2014, by trading in its old gas model and paying the balance in cash. The following data relate to the purchase. List price of new melter $15,800 Cash paid 10,000 Cost of old melter (5-year life, $700 salvage value) 11,200 Accumulated depreciation—old melter (straight-line) 6,300 Secondhand fair value of old melter 5,200 Instructions Prepare the journal entry(ies) necessary to record this exchange, assuming that the exchange (a) has commercial substance, and (b) lacks commercial substance. Cannondale’s fiscal year ends on December 31, and depreciation has been recorded through December 31, 2013.

A three-axis CNC machining center is tended by a worker who loads and unloads parts between machining cycles. The machining cycle takes 5.75 min, and the worker takes 2.80 min using a hoist to unload the part just completed and load and fixture the next part onto the machine worktable. A proposal has been made to install a two-position pallet shuttle at the machine so that the worker and the machine tool can perform their respective tasks simultaneously rather than sequentially. The pallet shuttle would transfer the parts between the machine worktable and the load/unload station in 15 sec. Determine (a) the current cycle time for the operation and (b) the cycle time if the proposal is implemented. What is the percentage increase in hourly production rate that would result from using the pallet shuttle?

Why might the relationship between the demand for money and the rate of interest be an unstable one?

Neumann Company computed earnings per share as follows. Net incomeCommon shares outstanding at year-end Neumann has a simple capital structure. What possible errors might the company have made in the computation? Explain.

Explain the difference between service cost and prior service cost.

How will the size of normal ‘profit’ vary with the general state of the economy?

Starr Co. had sales revenue of $540,000 in 2014. Other items recorded during the year were: Cost of goods sold $330,000 Salaries and wages expense 120,000 Income tax expense 25,000 Increase in value of company reputation 15,000 Other operating expenses 10,000 Unrealized gain on value of patents 20,000 Prepare a single-step income statement for Starr for 2014. Starr has 100,000 shares of stock outstanding.

Sheryl Crow Equipment Company sold 500 Rollomatics during 2014 at $6,000 each. During 2014, Crow spent $20,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis. Instructions (a) Prepare 2014 entries for Crow using the expense warranty approach. Assume that Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years. (b) Prepare 2014 entries for Crow assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $150,000 relates to sales of warranty contracts. Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years. Estimate revenues to be recognized on the basis of costs incurred and estimated costs.

Assess the operation and success of the HIPC programme?

Explain why a taxpayer might choose one tax year-end over another if given a choice.

What is the limitation on a deductible IRA contribution?

Explain how to estimate the beta of a stock. Explain why beta serves as a measure of the stock’s risk. (LO4)

What is a partnership interest, and what specific economic rights or entitlements are included with it?

Using the facts from the previous problem, Oriole Corporation proposes to pay Larry $100,000 and give him an installment note that will pay him $30,000 per year for the next 10 years plus a market rate of interest. Will this arrangement allow Larry to treat the redemption as an exchange?

Ehlo Company is a multiproduct firm. Presented below is information concerning one of its products, the Hawkeye. Date Transaction Quantity Price/Cost 1/1 Beginning inventory 1,000 $12 2/4 Purchase 2,000 18 2/20 Sale 2,500 30 4/2 Purchase 3,000 23 11/4 Sale 2,200 33 Instructions Compute cost of goods sold, assuming Ehlo uses: (a) Periodic system, FIFO cost flow. (d) Perpetual system, LIFO cost flow. (b) Perpetual system, FIFO cost flow. (e) Periodic system, weighted-average cost flow. (c) Periodic system, LIFO cost flow. (f) Perpetual system, moving-average cost flow.

What is the difference between the APBO and the EPBO? What are the components of postretirement expense?

Assume there are just two firms (X and Y) and they are considering which of two alternative prices to charge. The decisions are made simultaneously: i.e. without either firm knowing the choice of its rival. The various profits are illustrated in the following pay-off matrix: (a)  What is firm Y’s best response to each of the different prices firm X could charge? Does firm Y have a dominant strategy? (b)  What is firm X’s best response to each of the different prices firm Y could charge? Does firm X have a dominant strategy?     (c)  What is/are the Nash equilibrium/equilbria? What is the most likely outcome of this game? Explain your answer.

How do the AMT tax rates compare to the regular income tax rates?

John Olerud Ltd., a local retailing concern in the Bronx, New York, has decided to change from the conventional retail inventory method to the LIFO retail method starting on January 1, 2015. The company recomputed its ending inventory for 2014 in accordance with the procedures necessary to switch to LIFO retail. The inventory computed was $212,600. Instructions Assuming that John Olerud Ltd.’s ending inventory for 2014 under the conventional retail inventory method was $205,000, prepare the appropriate journal entry on January 1, 2015.