Question & Answer

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

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.

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).

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?

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?

Arruza Co. is considering switching from the specific-goods LIFO approach to the dollar-value LIFO approach. Because the financial personnel at Arruza know very little about dollar-value LIFO, they ask you to answer the following questions. (a) What is a LIFO pool? (b) Is it possible to use a LIFO pool concept and not use dollar-value LIFO? Explain. (c) What is a LIFO liquidation? (d) How are price indexes used in the dollar-value LIFO method? (e) What are the advantages of dollar-value LIFO over specific-goods LIFO?

What is an adjustable-rate mortgage (ARM)? Discuss the potential advantages that such mortgages offer a savings institution. (LO4)

What are the noteworthy properties of titanium?

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

Blue Devil Savings and Loan Association has a large number of 10-year fixed-rate mortgages and obtains most of its funds from short-term deposits. It uses the yield curve to assess the market’s anticipation of future interest rates. It believes that expectations of future interest rates are the major force in affecting the yield curve. Assume that an upward-sloping yield curve with a steep slope exists. Based on this information, should Blue Devil consider using financial futures as a hedging technique? Explain. (LO2)

Explain the process of proprietary trading by securities firms. How was it affected by the Volcker Rule? (LO1, LO5)

How much flexibility do partnerships have in allocating partnership items to partners?

The accounting records of Shinault Inc. show the following data for 2014 (its first year of operations). 1. Life insurance expense on officers was $9,000. 2. Equipment was acquired in early January for $300,000. Straight-line depreciation over a 5-year life is used, with no salvage value. For tax purposes, Shinault used a 30% rate to calculate depreciation. 3. Interest revenue on State of New York bonds totaled $4,000. 4. Product warranties were estimated to be $50,000 in 2014. Actual repair and labor costs related to the warranties in 2014 were $10,000. The remainder is estimated to be paid evenly in 2015 and 2016. 5. Gross profit on an accrual basis was $100,000. For tax purposes, $75,000 was recorded on the installment- sales method. 6. Fines incurred for pollution violations were $4,200. 7. Pretax financial income was $750,000. The tax rate is 30%. Instructions (a) Prepare a schedule starting with pretax financial income in 2014 and ending with taxable income in 2014. (b) Prepare the journal entry for 2014 to record income taxes payable, income tax expense, and deferred  income taxes.

: If Henry is passed over for promotion, what feedback and advice should he be given about how to improve his management skills for possible future promotions?

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

Question: What is stare decisis and how does it relate to the Golsen rule?

Compare and contrast the aggregate and entity concepts for taxing partnerships and their partners.

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?

On January 1, 2024, Janna has a tax basis of $15,000 in her Mimikaki stock (Mimikaki has been an S corporation since inception). In 2024, Janna was allocated $20,000 of ordinary income from Mimikaki. What are the amount and character of gain she recognizes from end-of-the-year distributions in each of the following alternative scenarios, and what is her stock basis following each distribution?

What are the two ways in which a bank should diversify its loans? Why? Is international diversification of loans a viable strategy for dealing with credit risk? Defend your answer. (LO4)

An experimental power source for spot welding is designed to deliver current as a ramp function of time: I = 100,000 t, where I = amp and t = sec. At the end of the power-on time, the current is stopped abruptly. The sheet metal being spot welded is low carbon steel whose unit melting energy = 10 J/mm3. The resistance R = 85 micro-ohms. The desired weld nugget diameter = 4 mm and thickness = 2 mm (assume a disc-shaped nugget). It is assumed that 1/4 of the energy generated from the power source will be used to form the weld nugget. Determine the power-on time the current must be applied in order to perform this spot-welding operation.

Nerwin, Inc. is a furniture manufacturing company with 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate a pension plan as a part of its compensation plan. The plan will start on January 1, 2014. Each employee covered by the plan is entitled to a pension payment each year after retirement. As required by accounting  tandards, the controller of the company needs to report the pension obligation (liability). On the basis of a discussion with the supervisor of the Personnel Department and an actuary from an insurance company, the controller develops the following information related to the pension plan. Average length of time to retirement 15 years Expected life duration after retirement 10 years Total pension payment expected each year after retirement for all employees. Payment made at the end of the year. $700,000 per year The interest rate to be used is 8%. Instructions On the basis of the information above, determine the present value of the pension obligation (liability).

Anne purchased an annuity from an insurance company that promised to pay her $20,000 per year for the next 10 years. Anne paid $145,000 for the annuity, and in exchange she will receive $200,000 over the term of the annuity.

Mohave Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of $315,000. The estimated fair values of the assets are land $60,000, building $220,000, and equipment $80,000. At what amounts should each of the three assets be recorded?