Question & Answer

What does viscoelasticity mean, when applied to a polymer melt?

Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship.  In late December she received a $20,000 bill from her accountant for consulting services related to her small business.  Isabel can pay the $20,000 bill anytime before January 30 of next year without penalty.  Assume her marginal tax rate is 40 percent this year and next year, and that she can earn an after-tax rate of return of 12 percent on her investments.  When should she pay the $20,000 bill—this year or next?

What is the fundamental feature that distinguishes fusion welding from solid-state welding?

Explain the dilemma faced by banks when determining the optimal amount of capital to hold. A bank’s capital is less than 10 percent of its assets. How do you think this percentage would compare to that of manufacturing corporations? How would you explain this difference? (LO3)

Equity mutual funds and private equity funds generate returns for their investors in different ways. Which type of fund do you think would be better able to capitalize on a weak, publicly traded firm that has ignored all forms of shareholder activism? (LO1, LO5)

What is a part family?

What does vulcanization do to the rubber?

Consider the prevailing conditions for inflation (including oil prices), the economy, interest rates, and any other factors that could affect exchange rates. Based on these conditions, do you think the euro’s value will likely appreciate or depreciate against the dollar for the remainder of this semester? Offer some logic to support your answer. Which factor do you think will have the biggest impact on the euro’s exchange rate? (LO2)

What is the relationship between the coefficient of friction and the friction angle in the orthogonal cutting model?

On its year 1 financial statements, Seatax Corporation, an accrual-method taxpayer, reported federal income tax expense of $570,000.  On its year 1 tax return, it reported a tax liability of $650,000. During year 1, Seatax made estimated tax payments of $700,000. What book-tax difference, if any, associated with its federal income tax expense should Seatax have reported when computing its year 1 taxable income?  Is the difference favorable or unfavorable?  Is it temporary or permanent?

On January 1, 2014, Lennon Industries had stock outstanding as follows. 6% Cumulative preferred stock, $100 par value, issued and outstanding 10,000 shares $1,000,000 Common stock, $10 par value, issued and outstanding 200,000 shares 2,000,000 To acquire the net assets of three smaller companies, Lennon authorized the issuance of an additional 160,000 common shares. The acquisitions took place as shown below. On May 14, 2014, Lennon realized a $90,000 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000. On December 31, 2014, Lennon recorded net income of $300,000 before tax and exclusive of the gain. Instructions Assuming a 50% tax rate, compute the earnings per share data that should appear on the financial statements of Lennon Industries as of December 31, 2014. Assume that the expropriation is extraordinary.

] Brown Thumb Landscaping is a calendar-year, accrual-method taxpayer. In September, Brown Thumb negotiated a $14,000 contract for services it would provide to the city in November of the current year. The contract specifies that Brown Thumb will receive $4,000 in October as a down payment for these services, and it will receive the remaining $10,000 in January of next year.

What was TALF, and why did the Fed create it? (LO3)

Melindainvests $200,000 in a City of Heflin bond that pays 6 percent interest.  Alternatively, Melindacould have invested the $200,000 in a bond recently issued by Surething Inc. that pays 8 percent interest with similar risk and othernontax characteristics to the City of Heflin bond.  Assume Melinda’s marginal tax rate is 25 percent.

The following is a summary of all relevant transactions of Vicario Corporation since it was organized in 2014. In 2014, 15,000 shares were authorized and 7,000 shares of common stock ($50 par value) were issued at a price of $57. In 2015, 1,000 shares were issued as a stock dividend when the stock was selling for $60. Three hundred shares of common stock were bought in 2016 at a cost of $64 per share. These 300 shares are still in the company treasury. In 2015, 10,000 preferred shares were authorized and the company issued 5,000 of them ($100 par value) at $113. Some of the preferred stock was reacquired by the company and later reissued for $4,700 more than it cost the company. The corporation has earned a total of $610,000 in net income after income taxes and paid out a total of $312,600 in cash dividends since incorporation. Instructions Prepare the stockholders’ equity section of the balance sheet in proper form for Vicario Corporation as of December 31, 2016. Account for treasury stock using the cost method.

Explain the role of credit rating agencies in facilitating the flow of funds from investors into the mortgage market (through mortgage-backed securities). (LO4)

Indicate the amount (if any) that Josh can deduct as an ordinary and necessary business deduction in each of the following situations and explain your solution.

An annual report of Ford Motor Corporation states, “Net income a share is computed based upon the average number of shares of capital stock of all classes outstanding. Additional shares of common stock may be issued or delivered in the future on conversion of outstanding convertible debentures, exercise of outstanding employee stock options, and for payment of defined supplemental compensation. Had such additional shares been outstanding, net income a share would have been reduced by 10¢ in the current year and 3¢ in the previous year. . . . As a result of capital stock transactions by the company during the current year (primarily the purchase of Class A Stock from Ford Foundation), net income a share was increased by 6¢.” What information is provided by this note?

Explain how to calculate a weighted average contribution margin per unit.

In what order are the loss limitation rules applied to limit partners’ losses from partnerships?

Aruna, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as §1231 assets. The first is machinery and will generate a $10,000 §1231 loss on the sale. The second is land that will generate a $7,000 §1231 gain on the sale. Aruna’s ordinary marginal tax rate is 32 percent. a. Assuming she sells both assets in December of year 1 (the current year), what effect will the sales have on Aruna’s tax liability? b. Assuming that Aruna sells the land in December of year 1 and the machinery in January of year 2, what effect will the sales have on Aruna’s tax liability for each year? c. Explain why selling the assets in separate years will result in greater tax savings for Aruna.

Sally Medavoy will invest $8,000 a year for 20 years in a fund that will earn 12% annual interest. If the first payment into the fund occurs today, what amount will be in the fund in 20 years? If the first payment occurs at year-end, what amount will be in the fund in 20 years?

Define the term fusion weld.

Explain how underwriting costs and accounting and legal fees associated with the issuance of stock should be recorded.

The partnership agreement of the G&P general partnership states that Gary will receive a guaranteed payment of $13,000, and that Gary and Prudence will share the remaining profits or losses in a 45∕55 ratio. For year 1, the G&P partnership reports the following results: Sales revenue $70,000 Gain on sale of land (§1231) $8,000 Cost of goods sold ($38,000) Depreciation - MACRS ($9,000) Employee wages ($14,000) Cash charitable contributions ($3,000) Municipal bond interest $2,000 Other expenses ($2,000)