Question & Answer

Define a “compensating balance.” How should a compensating balance be reported?

The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2014. On December 31, 2014, management projected its future net cash flows from this equipment to be $300,000 and its fair value to be $230,000. The company intends to use this equipment in the future. Instructions (a) Prepare the journal entry (if any) to record the impairment at December 31, 2014. (b) Where should the gain or loss (if any) on the write-down be reported in the income statement? (c) At December 31, 2015, the equipment’s fair value increased to $260,000. Prepare the journal entry (if any) to record this increase in fair value. (d) What accounting issues did management face in accounting for this impairment?

Explain the value chain and list ways that value chain analysis benefits organisations.

Emily and Toni are recently married college students. Can Emily qualify as her parents’ dependent? Explain.

Morgan Freeman is investing $16,380 at the end of each year in a fund that earns 10% interest. In how many years will the fund be at $100,000?

What is the basis for distinguishing between operating and nonoperating items?

Describe reinforced reaction injection molding (RRIM)

Alan Jackson invests $20,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, Alan withdraws the accumulated amount of money. Instructions (a) Compute the amount Alan would withdraw assuming the investment earns simple interest. (b) Compute the amount Alan would withdraw assuming the investment earns interest compounded annually. (c) Compute the amount Alan would withdraw assuming the investment earns interest compounded semiannually.

What are four major sources of funds for banks? Which alternatives does a bank have if it needs temporary funds? What is the most common reason that banks issue bonds? (LO2)

Ehlo Company is a multiproduct firm. Presented below is information concerning one of its products, the Hawkeye. Date Transaction Quantity Price/Cost 1/1 Beginning inventory 1,000 $12 2/4 Purchase 2,000 18 2/20 Sale 2,500 30 4/2 Purchase 3,000 23 11/4 Sale 2,200 33 Instructions Compute cost of goods sold, assuming Ehlo uses: (a) Periodic system, FIFO cost flow. (d) Perpetual system, LIFO cost flow. (b) Perpetual system, FIFO cost flow. (e) Periodic system, weighted-average cost flow. (c) Periodic system, LIFO cost flow. (f) Perpetual system, moving-average cost flow.

Describe the circumstances in which a taxpayer acquires a home and rents it out and is not allowed to deduct a portion of the interest expense on the loan the taxpayer used to acquire the home.

What is glazing, as applied to ceramics?

Jackson is 18 years old and has a dog-sitting business. Calculate the 2024 standard deduction Jackson will claim under the following independent circumstances. a. Jackson reported $2,000 of earnings from his dog sitting and $300 in interest income from his savings account. Jackson’s parents claim him as a dependent. b. Jackson reported $500 of earnings from his dog sitting and $2,000 in interest income from his savings account. Jackson’s parents claim him as a dependent. c. Jackson reported $8,000 of earnings from his dog sitting and $3,000 in interest income. Jackson’s parents do not claim him as a dependent.

Distinguish between generating and forming when machining workpart geometries.

What is the normal procedure for handling the collection of accounts receivable previously written off using the direct write-off method? The allowance method?

Indicate which of the following costs should be expensed when incurred. (a) $13,000 paid to rearrange and reinstall machinery. (b) $200,000 paid for addition to building. (c) $200 paid for tune-up and oil change on delivery truck. (d) $7,000 paid to replace a wooden floor with a concrete floor. (e) $2,000 paid for a major overhaul on a truck, which extends the useful life.

Kalin Corporation had 2014 net income of $1,000,000. During 2014, Kalin paid a dividend of $2 per share on 100,000 shares of preferred stock. During 2014, Kalin had outstanding 250,000 shares of common stock. Compute Kalin’s 2014 earnings per share.

The following article appeared in the Wall Street Journal. washington—The Securities and Exchange Commission staff issued guidelines for companies grappling with the problem of dividing up their business into industry segments for their annual reports. An industry segment is defined by the Financial Accounting Standards Board as a part of an enterprise engaged in providing a product or service or a group of related products or services primarily to unaffiliated customers for a profit. Although conceding that the process is a “subjective task” that “to a considerable extent, depends on the judgment of management,” the SEC staff said companies should consider . . . various factors . . . to determine whether products and services should be grouped together or reported as segments. Instructions (a) What does financial reporting for segments of a business enterprise involve? (b) Identify the reasons for requiring financial data to be reported by segments. (c) Identify the possible disadvantages of requiring financial data to be reported by segments. (d) Identify the accounting difficulties inherent in segment reporting.

Hermione must include the value of the nugget in her gross income.  The value of the nugget is realized income because gold is marketable in a nugget form and easily valued.  The authorities (Reg § 1.61-14(a).; Rev. Rul. 61, 1953-1 C.B. 17) refer to the finder of a “treasure trove” and hold that there is gross income (to the extent of the ascertainable value in U.S. currency) in the tax year in which the property is reduced to the taxpayer’s undisputed possession.

Cliff’s basis in his Aero Partnership interest is $11,000. Cliff receives a distribution of $22,000 cash from Aero in complete liquidation of his interest. Aero is an equal partnership with the following balance sheet: Assets: Tax Basis FMV Cash $ 22,000 $ 22,000 Investment 8,800 8,800 Land 2,200 35,200    Totals $ 33,000 $ 66,000 Liabilities and capital: Capital- Chris 11,000 - Cliff 11,000 - Cooper 11,000   Totals $ 33,000 a. What are the amount and character of Cliff’s recognized gain or loss? What is the effect on the partnership assets? b. If Aero has a §754 election in place, what is the amount of the special basis adjustment?

Explain why Congress allows self-employed taxpayers to deduct the employer portion of their self-employment tax.

If a corporation has been an S corporation since inception, describe how its operating distributions to its shareholders are taxed to the shareholders.

Amy Monroe wants to create a fund today that will enable her to withdraw $25,000 per year for 8 years, with the first withdrawal to take place 5 years from today. If the fund earns 8% interest, how much must Amy invest today?

Identify some of the sources for tax professional standards.  What are the potential ramifications of failing to comply with these standards?

Why can’t large, publicly traded corporations be treated as S corporations?