Question & Answer

On July 1 of year 1, Riverside Corp. (RC), a calendar-year taxpayer, acquired the assets of another business in a taxable acquisition. When the purchase price was allocated to the assets purchased, RC determined it had purchased $1,200,000 of goodwill for both book and tax purposes.  At the end of year 1, the auditors for RC determined that the goodwill had not been impaired during the year.  In year 2, however, the auditors concluded that $200,000 of the goodwill had been impaired, and they required RC to write down the goodwill by $200,000 for book purposes.

Pat Delaney Company leases an automobile with a fair value of $8,725 from John Simon Motors, Inc., on the following terms: 1. Noncancelable term of 50 months. 2. Rental of $200 per month (at end of each month). (The present value at 1% per month is $7,840.) 3. Estimated residual value after 50 months is $1,180. (The present value at 1% per month is $715.) Delaney Company guarantees the residual value of $1,180. 4. Estimated economic life of the automobile is 60 months. 5. Delaney Company’s incremental borrowing rate is 12% a year (1% a month). Simon’s implicit rate is unknown. Instructions (a) What is the nature of this lease to Delaney Company? (b) What is the present value of the minimum lease payments? (c) Record the lease on Delaney Company’s books at the date of inception. (d) Record the first month’s depreciation on Delaney Company’s books (assume straight-line). (e) Record the first month’s lease payment.

What are the different bases for stock valuation when assets other than cash are received for issued shares of stock?

On June 30, 2006, County Company issued 12% bonds with a par value of $800,000 due in 20 years. They were issued at 98 and were callable at 104 at any date after June 30, 2014. Because of lower interest rates and a significant change in the company’s credit rating, it was decided to call the entire issue on June 30, 2015, and to issue new bonds. New 10% bonds were sold in the amount of $1,000,000 at 102; they mature in 20 years. County Company uses straight-line amortization. Interest payment dates are December 31 and June 30. Instructions (a) Prepare journal entries to record the redemption of the old issue and the sale of the new issue on June 30, 2015. (b) Prepare the entry required on December 31, 2015, to record the payment of the first 6 months’ interest and the amortization of premium on the bonds.

Based on the video about micrometers, explain the primary factor that makes an English micrometer different from a metric micrometer.

Explain how investors’ preferences for commercial paper change during a recession. How would this reaction affect the difference between commercial paper rates and T-bill rates during recessionary periods? (LO1)

Draw a similar diagram to Figure 25.9 showing how an appreciation of the exchange rate would similarly be reduced by stabilising speculation.

Name the various ways in which a workpart can be held in a lathe

The actuary for the pension plan of Gustafson Inc. calculated the following net gains and losses. Incurred during the Year (Gain) or Loss 2014 $300,000 2015 480,000 2016 (210,000) 2017 (290,000) Other information about the company’s pension obligation and plan assets is as follows. Projected Benefi t Plan Assets As of January 1, Obligation (market-related asset value) 2014 $4,000,000 $2,400,000 2015 4,520,000 2,200,000 2016 5,000,000 2,600,000 2017 4,240,000 3,040,000 Gustafson Inc. has a stable labor force of 400 employees who are expected to receive benefits under the plan. The total service-years for all participating employees is 5,600. The beginning balance of accumulated OCI (G/L) is zero on January 1, 2014. The market-related value and the fair value of plan assets are the same for the 4-year period. Use the average remaining service life per employee as the basis for amortization. Instructions (Round to the nearest dollar.) Prepare a schedule which reflects the minimum amount of accumulated OCI (G/L) amortized as a component of net periodic pension expense for each of the years 2014, 2015, 2016, and 2017. Apply the “corridor” approach in determining the amount to be amortized each year.

Explain how legal business entities differ in terms of the liability protection they provide their owners.

Presented below is information related to Cramer, Inc. Instructions Comment on the appropriateness of the accounting procedures followed by Cramer, Inc. (a) Depreciation expense on the building for the year was $60,000. Because the building was increasing in value during the year, the controller decided to charge the depreciation expense to retained earnings instead of to net income. The following entry is recorded. Retained Earnings 60,000 Accumulated Depreciation—Buildings 60,000 (b) Materials were purchased on January 1, 2014, for $120,000 and this amount was entered in the Materials account. On December 31, 2014, the materials would have cost $141,000, so the following entry is made. Inventory 21,000 Gain on Inventories 21,000 (c) During the year, the company purchased equipment through the issuance of common stock. The stock had a par value of $135,000 and a fair value of $450,000. The fair value of the equipment was not easily determinable. The company recorded this transaction as follows. Equipment 135,000 Common Stock 135,000 (d) During the year, the company sold certain equipment for $285,000, recognizing a gain of $69,000. Because the controller believed that new equipment would be needed in the near future, she decided to defer the gain and amortize it over the life of any new equipment purchased. (e) An order for $61,500 has been received from a customer for products on hand. This order was shipped on January 9, 2015. The company made the following entry in 2014. Accounts Receivable 61,500 Sales Revenue 61,500

Specific identification is sometimes said to be the ideal method of assigning cost to inventory and to cost of goods sold. Briefly indicate the arguments for and against this method of inventory valuation.

Tanaka Company has land that cost $15,000,000. Its fair value on December 31, 2014, is $20,000,000. Tanaka chooses the revaluation model to report its land. Explain how the land and its related valuation should be reported.

The trial balance before adjustment of Reba McIntyre Inc. shows the following balances Dr. Cr. Accounts Receivable $90,000 Allowance for Doubtful Accounts 1,750 Sales Revenue (all on credit) $680,000 Instructions Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 1% of net sales.

1.      : Are Connie and her staff on the right track to avoid manager mishaps by defining a new set of leader rules and core values and imposing it by fiat, from the top down?

If a country imports a whole range of goods whose average income elasticity of demand is the same as for home-produced goods, will the mpm rise or fall as national income rises?

The stockholders’ equity section of Tkachuk Corporation appears below as of December 31, 2014. 8% preferred stock, $50 par value, authorized 100,000 shares, outstanding 90,000 shares $ 4,500,000 Common stock, $1.00 par, authorized and issued 10 million shares 10,000,000 Additional paid-in capital 20,500,000 Retained earnings $134,000,000 Net income 33,000,000 167,000,000 $202,000,000 Net income for 2014 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of $18,000,000 (before tax) as a result of a major casualty, which should be classified as an extraordinary item. Preferred stock dividends of $360,000 were declared and paid in 2014. Dividends of $1,000,000 were declared and paid to common stockholders in 2014. Instructions Compute earnings per share data as it should appear on the income statement of Tkachuk Corporation.

] Lionel is an unmarried law student at State University Law School, a qualified educational institution. This year Lionel borrowed $24,000 from County Bank and paid interest of $1,440. Lionel used the loan proceeds to pay his law school tuition. Calculate the amounts Lionel can deduct for interest on higher education loans under the following circumstances: a. Lionel’s AGI before deducting interest on higher education loans is $50,000. b. Lionel’s AGI before deducting interest on higher education loans is $89,000. c. Lionel’s AGI before deducting interest on higher education loans is $100,000.

Why is the earned income credit referred to as a negative income tax?

The net income per books of Linda Patrick Company was determined without knowledge of the errors indicated. Net Income Error in Ending Year per Books Inventory 2009 $50,000 Overstated $ 3,000 2010 52,000 Overstated 9,000 2011 54,000 Understated 11,000 2012 56,000 No error 2013 58,000 Understated 2,000 2014 60,000 Overstated 8,000 Instructions Prepare a worksheet to show the adjusted net income figure for each of the 6 years after taking into account the inventory errors.

Explain how the Covid-19 pandemic affected the credit risk premium and liquidity in the commercial paper market. (LO1)

What is forging?

Wasatch Corp. (WC) received a $200,000 dividend from Tager Corporation (TC).  WC owns 15 percent of the TC stock.  Compute WC’s deductible DRD in each of the following situations:

Izzy Inc. purchased a patent for $350,000 which has an estimated useful life of 10 years. Its pattern of use or consumption cannot be reliably determined. Prepare the entry to record the amortization of the patent in its first year of use.

Explain why securities firms from the United States have expanded into foreign markets. (LO1)