Question & Answer

Below is a payroll sheet for Otis Import Company for the month of September 2014. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8% and the maximum for both is $7,000. Assume a 10% federal income tax rate for all employees and a 7.65% FICA tax on employee and employer on a maximum of $113,700. In addition, 1.45% is charged both employer and employee for an employee’s wages in excess of $113,700 per employee. Income Unemployment Tax Earnings September Tax Name to Aug. 31 Earnings Withholding FICA State Federal B.D. Williams $ 6,800 $ 800 D. Raye 6,500 700 K. Baker 7,600 1,100 F. Lopez 13,600 1,900 A. Daniels 107,000 13,000 B. Kingston 112,000 16,000 Instructions (a) Complete the payroll sheet and make the necessary entry to record the payment of the payroll. (b) Make the entry to record the payroll tax expenses of Otis Import Company. (c) Make the entry to record the payment of the payroll liabilities created. Assume that the company pays all payroll liabilities at the end of each month.

Janet is a cash-basis calendar-year taxpayer.  She received a check for services provided in the mail during the last week of December.  However, rather than cash the check, Janet decided to wait until the following January because she believes that her delay will cause the income to be realized and recognized next year.  What would you tell her?  Would it matter if she didn’t open the envelope?  Would it matter if she refused to check her mail during the last week of December?  Explain.

Lahey Corp. has three defined benefit pension plans as follows. Pension Assets Projected Benefi t (at Fair Value) Obligation Plan X $600,000 $500,000 Plan Y 900,000 720,000 Plan Z 550,000 700,000 How will Lahey report these multiple plans in its financial statements?

Paladin Inc. reported taxable income of $1,000,000 this year and paid federal

Elastomers and thermosetting polymers are both cross-linked. Why are their properties so different?

Assuming that Y rises each year as a result of increases in productivity, can money supply rise without causing inflation? Would this destroy the validity of the quantity theory?

Describe the roles of market makers. (LO2)

Why is it desirable to use energy sources for welding that have high heat densities?

Thinken Technology recently merged with College Electronix (CE), a computer graphics manufacturing firm. In performing a comprehensive audit of CE’s accounting system, Gerald Ott, internal audit manager for Thinken Technology, discovered that the new subsidiary did not record pension assets and liabilities, subject to GAAP. The net present value of CE’s pension assets was $15.5 million, the vested benefit obligation was $12.9 million, and the projected benefit obligation was $17.4 million. Ott reported this audit finding to Julie Habbe, the newly appointed controller of CE. A few days later, Habbe called Ott for his advice on what to do. Habbe started her conversation by asking, “Can’t we eliminate the negative income effect of our pension dilemma simply by terminating the employment of nonvested employees before the end of our fiscal year?” Instructions How should Ott respond to Habbe’s remark about firing nonvested employees?

Tom was just hired by Acme Corporation and has decided to purchase disability insurance.  This insurance promises to pay him weekly benefits to replace his salary should he be unable to work because of disability.  Disability insurance is also available through Acme as part of its compensation plan.  Acme pays these premiums as a nontaxable fringe benefit, but the plan promises to pay about 10 percent less in benefits.  If Tom elects to have Acme pay the premiums, then his compensation will be reduced by an equivalent amount.  Should tax considerations play a role in Tom’s choice to buy disability insurance through Acme or on his own?  Explain.

What was the growth rate in manufacturing output from (a) 2005 to 2006; (b) 2008 to 2009; 2019 to 2020?

What are some of the simple measures used to assess the feasibility of a proposed cup-drawing operation?

Collinsworth Co. reported sales on an accrual basis of $100,000. If accounts receivable increased $30,000 and the allowance for doubtful accounts increased $9,000 after a write-off of $2,000, compute cash sales.

An end milling operation is carried out along a straight line path that is 325 mm long. The cut is in a direction parallel to the x-axis on an NC machining center. Cutting speed = 30 m/min and chip load = 0.06 mm. The end milling cutter has two teeth and its diameter = 16.0 mm. The x-axis uses a DC servomotor connected directly to a leadscrew whose pitch = 6.0 mm. The feedback sensing device is an optical encoder that emits 400 pulses per revolution. Determine (a) feed rate and time to complete the cut, and (b) rotational speed of the motor and the pulse rate of the encoder at the feed rate indicated.

Locate the IRS Web site at www.irs.gov/ .  For every $100 the IRS collected, how much was spent on the IRS collection efforts?  What tax system criterion does this information help you to evaluate with respect to the current U.S. tax system?

What is accomplished when a bank integrates its liability management with its asset management? (LO1)

According to rational choice theory, the money you’ve already spent – known as ‘sunk costs’ (see page 161) – should be excluded from decision making. However, there is considerable evidence that it does affect consumer behaviour. Using loss aversion, can you explain why this might be the case.

61. Joaquin is a 30 percent partner in the SBD Partnership, a calendar-year-end entity. As of the end of this year, Joaquin has an outside basis in his interest in SBD of $188,000, which includes his share of the $60,000 of partnership liabilities. On December 31, SBD makes a proportionate distribution of the following assets to Joaquin: Tax BasisFMV Cash $ 40,000 $40,000 Inventory 55,000 65,000 Land 30,000 45,000 Totals $ 125,000 $150,000 a. What are the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Joaquin if the distribution is an operating distribution? b. What are the tax consequences (amount and character of recognized gain or loss, basis in distributed assets) of the distribution to Joaquin if the distribution is a liquidating distribution? c. Compare and contrast the results from parts (a) and (b).

What is the tax base for the Social Security and Medicare taxes for an employee or employer?  What is the tax base for Social Security and Medicare taxes for a self-employed individual?  Is the self-employment tax in addition to or in lieu of federal income tax?

CVP Single product   (LO3) SmallScale Publishing has just commenced business and will sell only one title, “New to Business”. Market analysis has indicated that sales for the next 6 months should be 5 000 copies. The accountant has provided information that shows variable costs are $100 per title with fixed costs expected to be $200 000. The book is expected to sell for $150. Required (a) Calculate the breakeven number of books to be sold. (b)           Calculate the estimated profit for the first six months.

Differentiate between the direct method and the indirect method by discussing each method.

Explain how bond prices may be affected by money supply growth, oil prices, and economic growth. (LO2)

Discuss the liquidity risk experienced by life insurance companies and by property and casualty (PC) insurance companies. (LO5)

In each of the following independent cases the company closes its books on December 31. 1. Sanford Co. sells $500,000 of 10% bonds on March 1, 2014. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2017. The bonds yield 12%. Give entries through December 31, 2015. 2. Titania Co. sells $400,000 of 12% bonds on June 1, 2014. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2018. The bonds yield 10%. On October 1, 2015, Titania buys back $120,000 worth of bonds for $126,000 (includes accrued interest). Give entries through December 1, 2016. 3 4 Instructions For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.)

Compare and contrast the built-in loss duplication rule as it relates to §351 with the built-in loss disallowance rule as it applies to a complete liquidation.