Question & Answer

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.

Hui is currently considering investing in municipal bonds that earn 6 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 8 percent. If Hui’s tax rate is 22 percent, which bond should Hui choose? Which bond should Hui choose if the rate is 32 percent? At what tax rate would Hui be indifferent between the bonds? What strategy is this decision based upon?

Describe how a piece of glass is heat treated to produce tempered glass.

Discuss briefly the three approaches that have been suggested for reporting changes in accounting principles.

Explain the difference between service cost and prior service cost.

1.              What decision style did John Tate use (Exhibit 9.5) and what mistakes do you think he made with the way he solved the problem of limited office space? Explain.

Nottebart Corporation has outstanding 10,000 shares of $100 par value, 6% preferred stock and 60,000 shares of $10 par value common stock. The preferred stock was issued in January 2014, and no dividends were declared in 2014 or 2015. In 2016, Nottebart declares a cash dividend of $300,000. How will the dividend be shared by common and preferred stockholders if the preferred is (a) noncumulative and (b) cumulative?

Salen Company finances some of its current operations by assigning accounts receivable to a finance company. On July 1, 2014, it assigned, under guarantee, specific accounts amounting to $150,000. The finance company advanced to Salen 80% of the accounts assigned (20% of the total to be withheld until the finance company has made its full recovery), less a finance charge of ½% of the total accounts assigned. On July 31, Salen Company received a statement that the finance company had collected $80,000 of these accounts and had made an additional charge of ½% of the total accounts outstanding as of July 31. This charge is to be deducted at the time of the first remittance due Salen Company from the finance company. (Hint: Make entries at this time.) On August 31, 2014, Salen Company received a second statement from the finance company, together with a check for the amount due. The statement indicated that the finance company had collected an additional $50,000 and had made a further charge of ½% of the balance outstanding as of August 31. Instructions Make all entries on the books of Salen Company that are involved in the transactions above.

When High Horizon LLC was formed, Maude contributed the following assets in exchange for a 25 percent capital and profits interest in the LLC: Maude: Basis Fair Market Value Cash $ 20,000 $ 20,000 Land* 100,000 360,000 Totals $ 120,000 $ 380,000

In recent years, private equity funds have grown substantially. Will the creation of private equity funds increase the semistrong form of market efficiency in the stock market? Explain. (LO5)

Explain why regulators might argue that the assistance they provided to Bear Stearns during the credit crisis was necessary. (LO5)

The market value of Lake Corporation’s inventory has declined below its cost. Sheryl Conan, the controller, wants to use the loss method to write down inventory because it more clearly discloses the decline in market value and does not distort the cost of goods sold. Her supervisor, financial vice president Dick Wright, prefers the cost-of-goods-sold method to write down inventory because it does not call attention to the decline in market value. Instructions Answer the following questions. (a) What, if any, is the ethical issue involved? (b) Is any stakeholder harmed if Dick Wright’s preference is used? (c) What should Sheryl Conan do?

Dillon rented his personal residence at Lake Tahoe for 14 days while he was vacationing in Ireland. He resided in the home for the remainder of the year. Rental income from the property was $6,500. Expenses associated with use of the home for the entire year were as follows:

When does tax allocation within a period become necessary? How should this allocation be handled?

1.      : Continue NIX’s zero-tolerance policy toward shoplifting. It’s the right thing to do—and it will pay off in the end in higher profitability because the chain’s reputation for being tough on crime will reduce overall losses from theft.

1.       : In zero-based budgeting, every account starts at $0, and every dollar added to the budget is supported by an actual, documented need. Identify the possible advantages of zero-based budgeting.

Give some examples of how correcting problems in one part of the economy will create problems elsewhere.

1.       : Lana Lowery, a regional manager for a 100-person inside-sales team, notices that the team’s best performer is struggling. Her sales are down 20 percent from a year ago, and she frequently arrives late for work, looking upset. Lowery needs to find out why her performance is suffering. What advice would you give Lowery for communicating with this employee? Which communication channel should she use? What would be the relative importance of candor, listening, and asking questions? Explain.

How would you set about judging whether an industry had a genuine case for infant/senile industry protection?

Given the higher capital requirements now imposed on them, why might banks be even more interested in underwriting corporate debt issues? (LO2)

What are the major types of subsequent events? Indicate how each of the following “subsequent events” would be reported. (a) Collection of a note written off in a prior period. (b) Issuance of a large preferred stock offering. (c) Acquisition of a company in a different industry. (d) Destruction of a major plant in a flood. (e) Death of the company’s chief executive officer (CEO). (f) Additional wage costs associated with settlement of a four-week strike. (g) Settlement of a federal income tax case at considerably more tax than anticipated at year-end. (h) Change in the product mix from consumer goods to industrial goods.

While completing undergraduate schoolwork in information systems, Dallin Bourne and Michael Banks decided to start a technology support company called eSys Answers. During year 1, they bought the following assets and incurred the following start-up fees:

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?)

While James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing careers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes for weddings, birthdays, and other celebrations.  James and Paul formed the business at the beginning of 2024, and each contributed $50,000 in exchange for a 50 percent ownership interest.  GTE also borrowed $200,000 from a local bank.  Both James and Paul had to personally guarantee the loan.  Both owners provide significant services for the business. The following information pertains to GTE’s 2024 activities.   • GTE uses the cash method of accounting (for both book and tax purposes) and reports income on a calendar-year basis.   • GTE received $450,000 of sales revenue and reported $210,000 of cost of goods sold (it did not have any ending inventory). • GTE paid $30,000 compensation to James, $30,000 compensation to Paul, and $40,000 of compensation to other employees (assume these amounts include applicable payroll taxes, if any). • GTE paid $15,000 of rent for a building and equipment, $20,000 for advertising, $14,000 in interest expense, $4,000 for utilities, and $2,000 for supplies. • GTE contributed $5,000 to charity. • GTE received a $1,000 qualified dividend from a great stock investment (it owned 2 percent of the corporation distributing the dividend), and it recognized $1,500 in short-term capital gain when it sold some of the stock. • On December 1, 2024, GTE distributed $20,000 to James and $20,000 to Paul. • GTE has qualified property of $300,000 (unadjusted basis).   Required: a. Assume James and Paul formed GTE as an S corporation.   • Complete GTE’s Form 1120-S page 1; Form 1120-S, Schedule K; and Paul’s Form 1120-S Schedule K-1 (note that you should use 2023 tax forms).  • Compute the tax basis of Paul’s stock in GTE at the end of 2024. • What amount of Paul’s income from GTE is subject to FICA or self-employment taxes? • What amount of income, including its character, will Paul recognize on the $20,000 distribution he receives on December 1? • What amount of tax does GTE pay on the $1,000 qualified dividend it received?

Is the character of partnership income/gains and expenses/losses determined at the partnership or partner level? Why?