Question & Answer

What is the difference between threading and tapping?

Loveless Corporation had the following 2014 income statement. Revenues $100,000 Expenses 60,000 $ 40,000 In 2014, Loveless had the following activity in selected accounts. Allowance for Accounts Receivable Doubtful Accounts 1/1/14 20,000 1,200 1/1/14 Revenues 100,000 1,000 Write-offs Write-offs 1,000 1,840 Bad debt expense 90,000 Collections 12/31/14 29,000 2,040 12/31/14 Prepare Loveless’s cash flows from operating activities section of the statement of cash flows using (a) the direct method and (b) the indirect method.

Assume that commuters regard bus journeys as an inferior good and car journeys as a normal good. Using indifference curves, show how (a) a rise in incomes and (b) a fall in bus fares will affect the use of these two modes of transport. How could people’s tastes be altered so that bus journeys were no longer regarded as an inferior good? If tastes were altered in this way, what effect would it have on the indifference curves?

Hincapie Co. manufactures specialty bike accessories. The company is most well known for its product quality, and it has offered one of the best warranties in the industry on its higher-priced products—a lifetime guarantee. The warranty on these products is included in the sales price. Hincapie has a contract with a service company, which performs all warranty work on Hincapie products. Under the contract, Hincapie guarantees the service company at least $200,000 of warranty work for each year of the 3-year contract. The recent economic recession has been hard on Hincapie’s business, and sales for its higher-end products have been especially adversely impacted. As a result, Hincapie is planning to restructure its high-quality lines by moving manufacturing for those products into one of its other factories, shutting down assembly lines, and terminating workers. In order to keep some workers on-board, Hincapie plans to bring all warranty work in-house. It can terminate the current warranty contract by making a one-time termination payment of $75,000. The restructuring plans have been discussed by management during November 2013; they plan to get approval from the board of directors at the December board meeting and execute the restructuring in early 2014. Given the company’s past success, the accounting for restructuring activities has never come up. Hincapie would like you to do some research on how it should account for this restructuring according to IFRS. Instructions Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/ ). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.) (a) Identify the accounting literature that addresses the accounting for the various costs that will be incurred in the restructuring. (b) Advise Hincapie on the restructuring costs. When should Hincapie recognize liabilities arising from the restructuring? What costs can be included? What costs are excluded? (c) Does Hincapie have a liability related to the service contract? Explain. If Hincapie has a liability, at what amount should it be recorded?

What is dielectric strength as a material property?

This year, Janelle received $200,000 in life insurance proceeds. Under the following scenarios, how much of the $200,000 is taxable?

Using the information in E20-2, prepare a pension worksheet inserting January 1, 2014, balances, showing December 31, 2014, balances, and the journal entry recording pension expense.

In what circumstances is the IRS method for allocating expenses between personal use and rental use for vacation homes more beneficial to a taxpayer than the Tax Court method?

Mustafa’s tax basis in his partnership interest at the beginning of the year was $10,000. If his share of the partnership liabilities increased by $10,000 during the year and his share of partnership income for the year is $3,000, what is his tax basis in his partnership interest at the end of the year?

Management accounting function Differentiate between the management accounting function and the management accountant.

Is a current-year net operating loss of a C corporation available to offset income from the corporation in other years? Explain.

Tim Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $38,000. Purchases since January 1 were $72,000; freight-in, $3,400; purchase returns and allowances, $2,400. Sales are made at 331/3% above cost and totaled $100,000 to March 9. Goods costing $10,900 were left undamaged by the fire; remaining goods were destroyed. Instructions (a) Compute the cost of goods destroyed. (b) Compute the cost of goods destroyed, assuming that the gross profit is 331/3% of sales.

What are the two basic categories of structural frames used in stamping presses?

On December 31, 2014, Mercantile Corp. had a $10,000,000, 8% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2-year swap with Chicago First Bank to convert the fixed-rate debt to variable-rate debt. The terms of the swap indicate that Mercantile will receive interest at a fixed rate of 8.0% and will pay a variable rate equal to the 6-month LIBOR rate, based on the $10,000,000 amount. The LIBOR rate on December 31, 2014, is 7%. The LIBOR rate will be reset every 6 months and will be used to determine the variable rate to be paid for the following 6-month period. Mercantile Corp. designates the swap as a fair value hedge. Assume that the hedging relationship meets all the conditions necessary for hedge accounting. The 6-month LIBOR rate and the swap and debt fair values are as follows. Date 6-Month LIBOR Rate Swap Fair Value Debt Fair Value December 31, 2014 7.0% — $10,000,000 June 30, 2015 7.5% (200,000) 9,800,000 December 31, 2015 6.0% 60,000 10,060,000 Instructions (a) Present the journal entries to record the following transactions. (1) The entry, if any, to record the swap on December 31, 2014. (2) The entry to record the semiannual debt interest payment on June 30, 2015. (3) The entry to record the settlement of the semiannual swap amount receivables at 8%, less amount payable at LIBOR, 7%. (4) The entry to record the change in the fair value of the debt on June 30, 2015. (5) The entry to record the change in the fair value of the swap at June 30, 2015. (b) Indicate the amount(s) reported on the balance sheet and income statement related to the debt and swap on December 31, 2014. (c) Indicate the amount(s) reported on the balance sheet and income statement related to the debt and swap on June 30, 2015. (d) Indicate the amount(s) reported on the balance sheet and income statement related to the debt and swap on December 31, 2015.

Shetland Inc. had pretax financial income of $154,000 in 2014. Included in the computation of that amount is insurance expense of $4,000 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $10,000. Prepare Shetland’s journal entry to record 2014 taxes, assuming a tax rate of 45%.

Stephanie Delaney, CPA, is the newly hired director of corporate taxation for Acme Incorporated, which is a publicly traded corporation. Ms. Delaney’s first job with Acme was the review of the company’s accounting practices on deferred income taxes. In doing her review, she noted differences between tax and book depreciation methods that permitted Acme to realize a sizable deferred tax liability on its balance sheet. As a result, Acme paid very little in income taxes at that time. Delaney also discovered that Acme has an explicit policy of selling off plant assets before they reversed in the deferred tax liability account. This policy, coupled with the rapid expansion of its plant asset base, allowed Acme to “defer” all income taxes payable for several years, even though it always has reported positive earnings and an increasing EPS. Delaney checked with the legal department and found the policy to be legal, but she’s uncomfortable with the ethics of it. Instructions Answer the following questions. (a) Why would Acme have an explicit policy of selling plant assets before the temporary differences reversed in the deferred tax liability account? (b) What are the ethical implications of Acme’s “deferral” of income taxes? (c) Who could be harmed by Acme’s ability to “defer” income taxes payable for several years, despite positive earnings? (d) In a situation such as this, what are Ms. Delaney’s professional responsibilities as a CPA?

Joseph contributed $22,000 in cash and equipment with a tax basis of $5,000 and a fair market value of $11,000 to Berry Hill Partnership in exchange for a partnership interest. a. What is Joseph’s tax basis in his partnership interest? b. What is Berry Hill’s basis in the equipment?

Gator Inc. reported taxable income of $1,000,000 this year and paid federal income taxes of $210,000. Included in the company’s computation of taxable income is gain from the sale of a depreciable asset of $50,000. The income tax basis of the asset was $100,000. The E&P basis of the asset using the alternative depreciation system was $175,000. Compute Gator’s current E&P.

Sam and Devon agree to go into business together selling college-licensed clothing. According to the agreement, Sam will contribute inventory valued at $100,000 in return for 80 percent of the stock in the corporation. Sam’s tax basis in the inventory is $60,000. Devon will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualified as organizational expenditures).  The accounting services are valued at $25,000.

Distinguish the tax treatment of an NOL incurred in 2017 and an NOL incurred in 2024.

1. Does the benefit principle conflict with either vertical or horizontal equity? 2. Would this be a good principle to apply in the case of health care?

Presented below is an excerpt from the financial statements of H. J. Heinz Company. Segment and Geographic Data The company is engaged principally in one line of business—processed food products—which represents over 90% of consolidated sales. Information about the business of the company by geographic area is presented in the table below. There were no material amounts of sales or transfers between geographic areas or between affi liates, and no material amounts of United States export sales. Foreign (in thousands of United Western U.S. dollars) Domestic Kingdom Canada Europe Other Total Worldwide Sales $2,381,054 $547,527 $216,726 $383,784 $209,354 $1,357,391 $3,738,445 Operating income 246,780 61,282 34,146 29,146 25,111 149,685 396,465 Identifi able assets 1,362,152 265,218 112,620 294,732 143,971 816,541 2,178,693 Capital expenditures 72,712 12,262 13,790 8,253 4,368 38,673 111,385 Depreciation expense 42,279 8,364 3,592 6,355 3,606 21,917 64,196 Instructions (a) Why does H. J. Heinz not prepare segment information on its products or services? (b) What are export sales, and when should they be disclosed? (c) Why are sales by geographical area important to disclose?

Brooklyn files as a head of household for 2024.  They claimed the standard deduction of $21,900 for regular tax purposes.  Their regular taxable income was $80,000.  What is Brooklyn’s AMTI?

Your client took accounting a number of years ago and was unaware of comprehensive income reporting. He is not convinced that any accounting standards exist for comprehensive income. Instructions Go to http://aahq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses. (a) What authoritative literature addresses comprehensive income? When was it issued? (b) Provide the definition of comprehensive income. (c) Define classifications within net income and give examples. (d) Define classifications within other comprehensive income and give examples. (e) What are reclassification adjustments?

Eva received $60,000 in compensation payments from JAZZ Corp. during 2024.  Eva incurred $5,000 in business expenses relating to her work for JAZZ Corp.  JAZZ did not reimburse Eva for any of these expenses.  Eva is single and deducts a standard deduction of $14,600.  Based on these facts, answer the following questions: a. Assume that Eva is considered to be an employee.  What amount of FICA taxes is she required to pay for the year?