Question & Answer

1.    : Consider the six characteristics of entrepreneurs described in this chapter. Which two traits do you think are most like those of managers in large companies? Which two are least like those of managers in large companies?

For purposes of the deduction for qualified business income, what is a specified service trade or business and why is it important?

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?

Tomba Corporation had 300,000 shares of common stock outstanding on January 1, 2014. On May 1, Tomba issued 30,000 shares. (a) Compute the weighted-average number of shares outstanding if the 30,000 shares were issued for cash. (b) Compute the weighted-average number of shares outstanding if the 30,000 shares were issued in a stock dividend.

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

Bart is the favorite nephew of his aunt Thelma. Thelma transferred several items of value to Bart. For each of the following transactions, determine the effect on Bart’s gross income:

In 2014, Gurney Construction Company agreed to construct an apartment building at a price of $1,200,000. The information relating to the costs and billings for this contract is shown below. 2014 2015 2016 Costs incurred to date $280,000 $600,000 $ 785,000 Estimated costs yet to be incurred 520,000 200,000 –0– Customer billings to date 150,000 500,000 1,200,000 Collection of billings to date 120,000 320,000 940,000 Instructions (a) Assuming that the percentage-of-completion method is used, (1) compute the amount of gross profit to be recognized in 2014 and 2015, and (2) prepare journal entries for 2015. (b) For 2015, show how the details related to this construction contract would be disclosed on the balance sheet and on the income statement.

Oscar, Felix, and Marv are all one-third partners in the capital and profits of Eastside General Partnership. In addition to their normal share of the partnership’s annual income, Oscar and Felix receive annual guaranteed payments of $7,000 to compensate them for additional services they provide. Eastside’s income statement for the current year reflects the following revenues and expenses: Sales revenue $ 420,000 Dividend income 5,700 Short-term capital gains 2,800 Cost of goods sold (210,000) Employee wages (115,000) Depreciation expense (28,000) Guaranteed payments (14,000) Miscellaneous expenses (9,500) Overall net income $ 52,000 In addition, Eastside owed creditors $120,000 at the beginning of the year but managed to pay down its liabilities to $90,000 by the end of the year. All partnership liabilities are allocated equally among the partners. Finally, Oscar, Felix and Marv had a tax basis of $80,000 in their interests at the beginning of the year. a. What tax basis do the partners have in their partnership interests at the end of the year? b. Assume the partners began the year with a tax basis of $10,000 and all the liabilities were paid off on the last day of the year. How much gain will the partners recognize when the liabilities are paid off? What tax basis do the partners have in their partnership interests at the end of the year?

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

Describe the roles of market makers. (LO2)

What are some of the reasons that the components of income tax expense should be disclosed and a reconciliation between the effective tax rate and the statutory tax rate be provided?

What is graphite?

What are the primary characteristics of an annuity?Differentiate between an “ordinary annuity” and an “annuity due.”

Kathleen Battle says, “Retained earnings should be reported as an asset, since it is earnings which are reinvested in the business.” How would you respond to Battle?

Your friend just told you about a penny stock that they purchased, which increased in price from $0.10 to $0.50 per share. You start investigating penny stocks, and after conducting a large amount of research, you find a stock with a quoted price of $0.05. Upon further investigation, you notice that the ask price for the stock is $0.08 and that the bid price is $0.01. Discuss the possible reasons for this wide bid–ask spread. (LO2)

A sheet-metal part 3.0 mm thick and 20.0 mm long is bent to an included angle = 60° and a bend radius = 7.5 mm in a V-die. The metal has a yield strength = 220 MPa and a tensile strength = 340 MPa. Compute the required force to bend the part, given that the die opening dimension = 15 mm.

Wertz Construction Company decided at the beginning of 2014 to change from the completedcontract method to the percentage-of-completion method for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2014, pretax income under the two methods was as follows: percentage-of-completion $120,000, and completed-contract $80,000. The tax rate is 35%. Prepare Wertz’s 2014 journal entry to record the change in accounting principle.

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.

What effect will the following have on the mpc: (a)     the rate of income tax rises; (b)     the economy begins to recover from recession; (c)     people anticipate that the rate of inflation is about to rise; (d)     the government redistributes income from the rich to the poor? In each case sketch what would happen to the consumption function.

Brecker Company leases an automobile with a fair value of $10,906 from Emporia Motors, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $250 per month (at end of each month). (The present value at 1% per month is $9,800.) 3. Estimated residual value after 50 months is $1,180. (The present value at 1% per month is $715.) Brecker Company guarantees the residual value of $1,180. 4. Estimated economic life of the automobile is 60 months. 5. Brecker Company’s incremental borrowing rate is 12% a year (1% a month). It is impracticable to determine Emporia’s implicit rate. Instructions (a) What is the nature of this lease to Brecker Company? (b) What is the present value of the minimum lease payments? (c) Record the lease on Brecker Company’s books at the date of inception. (d) Record the first month’s depreciation on Brecker Company’s books (assume straight-line). (e) Record the first month’s lease payment.

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

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 Rule 203 of the Code of Professional Conduct?

Is the LIFO recapture tax a C corporation tax or an S corporation tax?  Explain.

What are the reasons that a company gives trade discounts? Why are trade discounts not recorded in the accounts like cash discounts?