Question & Answer

Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2014 information related to P. Bride Company ($000 omitted). Administrative expense Offi cers’ salaries $ 4,900 Depreciation of offi ce furniture and equipment 3,960 Cost of goods sold 60,570 Rent revenue 17,230 Selling expense Delivery expense 2,690 Sales commissions 7,980 Depreciation of sales equipment 6,480 Sales revenue 96,500 Income tax 9,070 Interest expense 1,860 Instructions (a) Prepare an income statement for the year 2014 using the multiple-step form. Common shares outstanding for 2014 total 40,550 (000 omitted). (b) Prepare an income statement for the year 2014 using the single-step form. (c) Which one do you prefer? Discuss.

Draw a similar diagram to Figure 24.7 showing how the price of an individual good imported into country A is determined.

Should the Fed have the power to provide assistance to firms, such as Bear Stearns, that are not commercial banks? (LO5)

Maria has been operating Mansfield Park as a C corporation and decides she would like to make an S election. What is the earliest the election will become effective under each of these alternative scenarios? a. Maria is on top of things and makes the election on January 1, 2024. Effective Jan. 1, 2024 b. Maria is mostly on top of things and makes the election on January 15, 2024. Effective Jan. 1, 2024 c. Maria makes the election on February 10, 2024. She needed a little time to convince a C corporate shareholder to sell its stock to a qualifying shareholder. That process took all

Clyde is a cash method taxpayer who reports on a calendar-year basis.  This year Paylate Corporation has decided to pay Clyde a year-end bonus of $1,000.  Determine the amount Clyde should include in his gross income this year under the following circumstances: a.       Paylate Corporation wrote the check and put it in his office mail slot on December 30 of this year, but Clyde did not bother to stop by the office to pick it up until after year-end. b.       Paylate Corporation mistakenly wrote the check for $100.  Clyde received the remaining $900 after year-end. c.       Paylate Corporation mailed the check to Clyde before the end of the year, (and it was delivered before year-end). Although Clyde expected the bonus payment, he decided not to collect his mail until after year-end. d.       Clyde picked up the check in December, but the check could not be cashed immediately because it was postdated January 10.

Restin Co. uses the gross method to record sales made on credit. On June 1, 2014, it made sales of $50,000 with terms 3/15, n/45. On June 12, 2014, Restin received full payment for the June 1 sale. Prepare the required journal entries for Restin Co.

Assume TDW Corporation’s (calendar-year-end) has 2024 taxable income of $950,000 for purposes of computing the §179 expense. The company acquired the following assets during 2024:

George and Wanda received $30,200 of Social Security benefits this year ($12,000 for George; $18,200 for Wanda). They also received $5,000 of interest from jointly owned City of Ranburne Bonds and dividend income. What amount of the Social Security benefits must George and Wanda include in their gross income under the following independent situations?

Donald Lennon is the president, founder, and majority owner of Wichita Medical Corporation, an emerging medical technology products company. Wichita is in dire need of additional capital to keep operating and to bring several promising products to final development, testing, and production. Donald, as owner of 51% of the outstanding stock, manages the company’s operations. He places heavy emphasis on research and development and long-term growth. The other principal stockholder is Nina Friendly who, as a nonemployee investor, owns 40% of the stock. Nina would like to deemphasize the R & D functions and emphasize the marketing function to maximize short-run sales and profits from existing products. She believes this strategy would raise the market price of Wichita’s stock. All of Donald’s personal capital and borrowing power is tied up in his 51% stock ownership. He knows that any offering of additional shares of stock will dilute his controlling interest because he won’t be able to participate in such an issuance. But, Nina has money and would likely buy enough shares to gain control of Wichita. She then would dictate the company’s future direction, even if it meant replacing Donald as president and CEO. The company already has considerable debt. Raising additional debt will be costly, will adversely affect Wichita’s credit rating, and will increase the company’s reported losses due to the growth in interest expense. Nina and the other minority stockholders express opposition to the assumption of additional debt, fearing the company will be pushed to the brink of bankruptcy. Wanting to maintain his control and to preserve the direction of “his” company, Donald is doing everything to avoid a stock issuance and is contemplating a large issuance of bonds, even if it means the bonds are issued with a high effective-interest rate. Instructions (a) Who are the stakeholders in this situation? (b) What are the ethical issues in this case? (c) What would you do if you were Donald?

Identify some of the advantages of surface-mount technology over conventional through-hole technology.

Explain how you would derive a figure for households’ disposable income if you were starting from a figure for GDP?

Briefly describe the plastic extrusion process.

] Circuit Corporation (CC) is a calendar-year, accrual-method taxpayer. CC manufactures and sells electronic circuitry. On November 15 of this year, CC enters into a contract with Equip Corp (EC) that provides CC with exclusive use of EC’s specialized manufacturing equipment for the five-year period beginning on January 1 of next year. Pursuant to the contract, CC pays EC $100,000 on December 30 of this year. How much of this expenditure is CC allowed to deduct this year and next year?

How are defined benefit plans different from defined contribution plans? How are they similar?

Explain how the Galleon Fund case led to stronger enforcement against insider trading. (LO4)

Under what circumstances will a partner recognize a gain from an operating distribution?

What is the difference between powder injection molding and metal injection molding?

Ralph owns a building that he is trying to lease. Ralph is a calendar-year, cash-method taxpayer and is trying to evaluate the tax consequences of three different lease arrangements. Under lease 1, the building rents for $500 per month, payable on the first of the next month, and the tenant must make a $500 security deposit that is refunded at the end of the lease. Under lease 2, the building rents for $5,500 per year, payable at the time the lease is signed, but no security deposit is required. Under lease 3, the building rents for $500 per month, payable at the beginning of each month, and the tenant must pay a security deposit of $1,000 that is to be applied toward the rent for the last two months of the lease.

According to research, have mutual funds outperformed the market? Explain. Would mutual funds be attractive to some investors even if they are not expected to outperform the market? Explain. (LO6)

Simon just received a 30-day letter from the IRS indicating a proposed assessment.  Does he have to pay the additional tax?  What are his options?

What determines if a taxpayer is required to file a tax return?  If a taxpayer is not required to file a tax return, does this mean that the taxpayer should not file a tax return?

For each of the following situations, indicate how much the taxpayer is required to include in gross income and explain your answer:

Johanne transferred investment property to S&J Corporation in exchange for 60 percent of the S&J Corporation stock (60 shares valued at $115,000). The property's fair market value was $190,000 and its tax basis to Johanne was $60,000. The investment property was subject to a $75,000 mortgage that S&J Corporation assumed on the transfer (not treated as boot).   a. Assuming the transfer qualifies under §351, what are the amount and character of the gain Johanne must recognize on the exchange?  b. What is Johanne's tax basis in the S&J stock he received in the exchange? c. Assume that in addition to the investment property, Johanne transferred inventory with a fair market value of $30,000 and a tax basis of $20,000 for additional S&J Corporation stock. What are the amount and character of gain Johanne must recognize on the exchange of the investment property and inventory for stock? d. Assuming the facts in part (c), what is Johanne's basis in the S&J stock he received in the exchange? e. Assume the original facts except that the liability assumed by S&J Corporation would give rise to a deduction when paid. What are the amount and character of gain Johanne must recognize on the exchange? f. Assuming the facts in part (e), what is Johanne's basis in the S&J stock he received in the exchange?

Explain how and why the option premiums may change in response to a surprise announcement that the Fed will increase interest rates, even if stock prices are not affected. (LO2)

Relative to arm’s-length transactions, why do related-person transactions receive more IRS scrutiny?