Question & Answer

Tim is 45 years old and considering enrolling in an insurance program that provides for long-term care insurance. He is curious about whether the insurance premiums are deductible as a medical expense. If so, he wants to know the maximum amount that can be deducted in any year.

AAA Inc. acquired a machine in year 1. In May of year 3, it sold the asset. Can AAA find its year 3 depreciation percentage for the machine on the MACRS table? If not, what adjustment must AAA make to its full-year depreciation percentage to determine its year 3 depreciation?

What are some common examples of the timing strategy?

Geraldo recently won a lottery and chose to receive $100,000 today instead of an equivalent amount in 10 years, computed using an 8 percent rate of return. Today, he learned that interest rates are expected to increase in the future. Is this good news for Geraldo given his decision?

Reichenbach Co., organized in 2013, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2014 and 2015. Intangible Assets 7/1/14 8-year franchise; expiration date 6/30/22 $ 48,000 10/1/14 Advance payment on laboratory space (2-year lease) 24,000 12/31/14 Net loss for 2013 including state incorporation fee, $1,000, and related legal fees of organizing, $5,000 (all fees incurred in 2013) 16,000 1/2/15 Patent purchased (10-year life) 84,000 3/1/15 Cost of developing a secret formula (indefinite life) 75,000 4/1/15 Goodwill purchased (indefinite life) 278,400 6/1/15 Legal fee for successful defense of patent purchased above 12,650 9/1/15 Research and development costs 160,000 Instructions Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2015, recording any necessary amortization and reflecting all balances accurately as of that date. (Ignore income tax effects.)

Arness Woodcrafters sells $250,000 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 5% and retains an amount equal to 4% of accounts receivable. Arness estimates the fair value of the recourse liability to be $8,000. Prepare the journal entry for Arness to record the sale.

The following account balances were included in the trial balance of Twain Corporation at June 30, 2014. Sales revenue $1,578,500 Depreciation expense (offi ce Sales discounts 31,150 furniture and equipment) $ 7,250 Cost of goods sold 896,770 Property tax expense 7,320 Salaries and wages expense (sales) 56,260 Bad debt expense (selling) 4,850 Sales commissions 97,600 Maintenance and repairs Travel expense (salespersons) 28,930 expense (administration) 9,130 Delivery expense 21,400 Offi ce expense 6,000 Entertainment expense 14,820 Sales returns and allowances 62,300 Telephone and Internet expense (sales) 9,030 Dividends received 38,000 Depreciation expense (sales equipment) 4,980 Interest expense 18,000 Maintenance and repairs expense (sales) 6,200 Income tax expense 102,000 Miscellaneous selling expenses 4,715 Depreciation understatement Offi ce supplies used 3,450 due to error—2011 (net of tax) 17,700 Telephone and Internet expense Dividends declared on (administration) 2,820 preferred stock 9,000 Dividends declared on common stock 37,000 The Retained Earnings account had a balance of $337,000 at July 1, 2013. There are 80,000 shares of common stock outstanding. Instructions (a) Using the multiple-step form, prepare an income statement and a retained earnings statement for the year ended June 30, 2014. (b) Using the single-step form, prepare an income statement and a retained earnings statement for the year ended June 30, 2014.

Francis Corporation purchased an asset at a cost of $50,000 on March 1, 2014. The asset has a useful life of 8 years and a salvage value of $4,000. For tax purposes, the MACRS class life is 5 years. Compute tax depreciation for each year 2014–2019.

On July 1, 2014, Crowe Co. pays $15,000 to Zubin Insurance Co. for a 3-year insurance policy. Both companies have fiscal years ending December 31. For Crowe Co., journalize the entry on July 1 and the adjusting entry on December 31.

Describe the U.S. government’s efforts to infuse capital into all of the very large banks during the credit crisis. (LO6)

In general, how do the disproportionate distribution rules ensure that partners recognize their share of partnership ordinary income?

Based on the analysis in Figure 21.13, what would an impulse response function look like for the rate of inflation?

In a turning operation on aluminum, cutting speed = 900 ft/min, feed = 0.020 in/rev, and depth of cut = 0.250 in. What horsepower is required of the drive motor, if the lathe has a mechanical efficiency = 87%? Use Table 21.2 to obtain the appropriate unit horsepower value.

1.    : Assume that Southern University decides to raise its admission standards. What plan might it develop to achieve this goal?

The Taurin Partnership (calendar-year-end entity) has the following assets as of December 31 of the current year: Tax Basis FMV Cash $ 45,000 $ 45,000 Accounts receivable 15,000 30,000 Inventory 81,000 120,000    Totals $ 141,000 $ 195,000 On December 31, Taurin distributes $15,000 of cash, $10,000 (FMV) of accounts receivable, and $40,000 (FMV) of inventory to Emma (a one-third partner) in termination of her partnership interest. Emma’s basis in her partnership interest immediately prior to the distribution is $40,000. a. What are the amount and character of Emma’s recognized gain or loss on the distribution? b. What is Emma’s basis in the distributed assets? c. If Emma’s basis before the distribution was $55,000 rather than $40,000, what is Emma’s recognized gain or loss and what is her basis in the distributed assets?

1.       : Imagine yourself as a potential member of a team responsible for designing a new package for a breakfast cereal. Do you think interpersonal skills would be equally important if the team is organized to interact on a face-to-face basis versus as a virtual team? Why or why not? Might different types of interpersonal skills be required for the two types of teams? Be specific.

Equipment was purchased on January 2, 2014, for $24,000, but no portion of the cost has been charged to depreciation. The corporation wishes to use the straight-line method for these assets, which have been estimated to have a life of 10 years and no salvage value. What effect does this error have on net income in 2014? What entry is necessary to correct for this error, assuming that the books are not closed for 2014?

Suppose you asked your favorite AI learning tool “What basis does a shareholder take in property received in a liquidating distribution?” and the AI tool provided the following response:

Is a shareholder allowed to increase their basis in S corporation stock by their share of the corporation’s liabilities, as partners are able to increase the basis of their ownership interest by their share of partnership liabilities?  Explain.

There exists a view that the UK is too small an economy to benefit from competition in many industries, with firms failing to reach minimum efficient scale. What does this imply for competition policy?

1. Draw Kate’s and Simon’s demand curves for potatoes on one diagram. Note that you will use the same vertical scale as in Figure 2.1, but you will need a quite different horizontal scale. 2. At what price is their demand the same? 3. What explanations could there be for the quite different shapes of their two demand curves? 4. Assume that Kate and Simon are the only two consumers in the market. Show how the market demand curve can be derived from their individual demand curves.

Joey is a 25 percent owner of Loopy LLC. He no longer wants to be involved in the business. What options does Joey have to exit the business?

What are some of the basic types of microsystem devices?

In its December 31, 2014, balance sheet Oakley Corporation reported as an asset, “Net notes and accounts receivable, $7,100,000.” What other disclosures are necessary?

Matt Ryan Corporation is interested in building its own soda can manufacturing plant adjacent to its existing plant in Partyville, Kansas. The objective would be to ensure a steady supply of cans at a stable price and to minimize transportation costs. However, the company has been experiencing some financial problems and has been reluctant to borrow any additional cash to fund the project. The company is not concerned with the cash flow problems of making payments, but rather with the impact of adding additional long-term debt to its balance sheet. The president of Ryan, Andy Newlin, approached the president of the Aluminum Can Company (ACC), its major supplier, to see if some agreement could be reached. ACC was anxious to work out an arrangement, since it seemed inevitable that Ryan would begin its own can production. The Aluminum Can Company could not afford to lose the account. After some discussion, a two-part plan was worked out. First, ACC was to construct the plant on Ryan’s land adjacent to the existing plant. Second, Ryan would sign a 20-year purchase agreement. Under the purchase agreement, Ryan would express its intention to buy all of its cans from ACC, paying a unit price which at normal capacity would cover labor and material, an operating management fee, and the debt service requirements on the plant. The expected unit price, if transportation costs are taken into consideration, is lower than current market. If Ryan did not take enough production in any one year and if the excess cans could not be sold at a high enough price on the open market, Ryan agrees to make up any cash shortfall so that ACC could make the payments on its debt. The bank will be willing to make a 20-year loan for the plant, taking the plant and the purchase agreement as collateral. At the end of 20 years, the plant is to become the property of Ryan. Instructions (a) What are project financing arrangements using special-purpose entities? (b) What are take-or-pay contracts? (c) Should Ryan record the plant as an asset together with the related obligation? (d) If not, should Ryan record an asset relating to the future commitment? (e) What is meant by off-balance-sheet financing?