Question & Answer

What is a coordinate measuring machine?

1.       : How might organizations strike a balance between respecting and meeting the needs of a diverse workforce and shaping a well-focused high-performance corporate culture based on shared values?

Chelsea Finance Company receives floating inflow payments from its provision of floating-rate loans. Its outflow payments are fixed because of its recent issuance of long-term bonds. Chelsea is concerned that interest rates will decline in the future. Yet, it does not want to hedge its interest rate risk because it believes interest rates may increase. Recommend a solution to Chelsea’s dilemma. (LO1, LO2)

Tomiko is a 50 percent owner (partner) in the Tanaka partnership. During the year, the partnership reported $1,000 of interest income and $2,000 of dividends. How much of this income must Tomiko include in their gross income?

Where should the following items be shown on the balance sheet, if shown at all? (a) Allowance for doubtful accounts. (b) Merchandise held on consignment. (c) Advances received on sales contract. (d) Cash surrender value of life insurance. (e) Land. (f) Merchandise out on consignment. (g) Franchises. (h) Accumulated depreciation of equipment. (i) Materials in transit—purchased f.o.b. destination.

Describe the main source of funds for credit unions. Why might the average cost of funds to CUs be relatively stable even when market interest rates are volatile? (LO7)

Several judicial doctrines limit basic tax planning strategies. What are they? Which planning strategies do they limit?

Erin’s basis in her Kiybron Partnership interest is $3,300. Erin receives a distribution of $2,200 cash from Kiybron in complete liquidation of her interest. Kiybron is an equal partnership with the following balance sheet: Assets: Tax Basis FMV Cash $ 2,200 $ 2,200 Stock (investment) 1,100 2,200 Land 6,600 2,200    Totals $ 9,900 $ 6,600 Liabilities and capital: Capital- Erin 3,300 - Carl 3,300 - Grace 3,300   Totals $ 9,900 a. What are the amount and character of Erin’s recognized gain or loss? What is the effect on the partnership assets? b. If Kiybron has a §754 election in place, what is the amount of the special basis adjustment?

1.    : How has Ken Byers shaped the sales culture at Hull Engineering? Do you consider this culture to be at a preconventional, conventional, or postconventional level of ethical development? Why?

Explain the difference between the DIF system and the National Research Program. How do they relate to each other?

Identify and briefly describe the three basic components of a numerical control system.

1.      : Don’t make the donation, but investigate whether any other ways are available to help Northeast High raise the funds that would allow them to purchase the much-needed educational software.

Karen Austin Inc. has issued three types of debt on January 1, 2014, the start of the company’s fiscal year. (a) $10 million, 10-year, 15% unsecured bonds, interest payable quarterly. Bonds were priced to yield 12%.  (b) $25 million par of 10-year, zero-coupon bonds at a price to yield 12% per year. (c) $20 million, 10-year, 10% mortgage bonds, interest payable annually to yield 12%. Instructions Prepare a schedule that identifies the following items for each bond: (1) maturity value, (2) number of interest periods over life of bond, (3) stated rate per each interest period, (4) effective-interest rate per each interest period, (5) payment amount per period, and (6) present value of bonds at date of issue.

1.    : Consider the factors that influence environmental uncertainty— that is, the rate of change in factors and the number of factors in the environment—as presented in Exhibit 3.4. Classify three of the following organizations as operating in either (a) a low-uncertainty environment or (b) a high-uncertainty environment: Hyundai, Facebook, a local Subway franchise, FedEx, a cattle ranch in Oklahoma, and McDonald’s. Explain your reasoning.

The following data relate to the Machinery account of Eshkol, Inc. at December 31, 2014. Machinery A B C D Original cost $46,000 $51,000 $80,000 $80,000 Year purchased 2009 2010 2011 2013 Useful life 10 years 15,000 hours 15 years 10 years Salvage value $ 3,100 $ 3,000 $ 5,000 $ 5,000 Depreciation Sum-of-the- Double-decliningmethod years’-digits Activity Straight-line balance Accum. depr. through 2014* $31,200 $35,200 $15,000 $16,000 *In the year an asset is purchased, Eshkol, Inc. does not record any depreciation expense on the asset. In the year an asset is retired or traded in, Eshkol, Inc. takes a full year’s depreciation on the asset. The following transactions occurred during 2015. (a) On May 5, Machine A was sold for $13,000 cash. The company’s bookkeeper recorded this retirement in the following manner in the cash receipts journal. Cash 13,000 Machinery (Machine A) 13,000 (b) On December 31, it was determined that Machine B had been used 2,100 hours during 2015. (c) On December 31, before computing depreciation expense on Machine C, the management of Eshkol, Inc. decided the useful life remaining from January 1, 2015, was 10 years. (d) On December 31, it was discovered that a machine purchased in 2014 had been expensed completely in that year. This machine cost $28,000 and has a useful life of 10 years and no salvage value. Management has decided to use the double-declining-balance method for this machine, which can be referred to as “Machine E.” Instructions Prepare the necessary correcting entries for the year 2015. Record the appropriate depreciation expense on the above-mentioned machines.

Whittier Construction Co. had followed the practice of expensing all materials assigned to a construction job without recognizing any salvage inventory. On December 31, 2014, it was determined that salvage inventory should be valued at $52,000. Of this amount, $29,000 arose during the current year. How does this information affect the financial statements to be prepared at the end of 2014?

Suki and Steve own 50 percent capital and profits interests in Lorinda LLC. Lorinda operates the local minor league baseball team and owns the stadium where the team plays. Although the liability incurred to build the stadium was paid off several years ago, Lorinda owes its general creditors $300,000 (at the beginning of the year) that is not secured by firm property or guaranteed by any of the members. At the beginning of 2024, Suki and Steve had a tax basis of $170,000 in their LLC interests, including their share of liabilities owed to the general creditors. Shortly before the end of the year, they each received a $10,000 cash distribution, even though Lorinda’s ordinary business loss for the year was $400,000. Because of the time commitment to operate a baseball team, both Suki and Steve spent more than 1,500 hours during the year operating Lorinda. Both Suki and Steve are single, and neither of them has any business income or losses from other sources. a. Determine how much of the Lorinda loss Suki and Steve will each be able to deduct on their current tax returns, and list their losses suspended by the tax basis, at-risk, and passive activity loss limitations. b. Assume that sometime before receiving the $10,000 cash distribution, Steve is advised by his tax advisor that his marginal tax rate will be abnormally high during the current year because of an unexpected windfall. To help Steve utilize more of the losses allocated from Lorinda in the current year, his advisor recommends refusing the cash distribution and personally guaranteeing $100,000 of Lorinda’s liabilities, without the right to be reimbursed by Suki. If Steve follows his advisor’s recommendations, how much additional Lorinda loss can he deduct on his current tax return? How does Steve’s decision affect the amount of loss Suki can deduct on her current return and the amount and type of her suspended losses?

This year, Amber purchased a business that processes and packages landscape mulch. Approximately 20 percent of management time, space, and expenses are spent on this manufacturing process.  CostsInventory Material:Mulch and packaging$  500,000? Administrative supplies25,000? Salaries:Factory labor1,200,000? Sales & advertising350,000? Administration520,000? Property taxes:Factory460,000? Offices270,000? Depreciation:Factory800,000? Offices150,000? a) At the end of the year, Amber’s accountant indicated that the business had processed 10 million bags of mulch, but only 1 million bags remained in the ending inventory. What is Amber’s tax basis in her ending inventory if the UNICAP rules are used to allocate indirect costs to inventory? (Assume direct costs are allocated to inventory according to the level of ending inventory. In contrast, indirect costs are first allocated by time spent and then according to level of ending inventory.) b) Under what conditions could Amber’s business avoid having to apply UNICAP rules to allocate indirect costs to inventory for tax purposes?

What are some of the additives that are combined with rubber during compounding?

In researching a tax question, you find only one authority (a trial-level court opinion) that is directly on point.  Which court would you least prefer to have heard this case, and why?

1.       : A survey of teachers found that two of the most important rewards were the belief that their work was important and a feeling of accomplishment. According to Maslow’s hierarchy of needs theory, what needs do these rewards meet?

On August 15, 2013, Outkast Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $360. The notional value of the call option is 400 shares, and the option price is $40. The option expires on January 31, 2014. The following data are available with respect to the call option. Market Price of Counting Time Value of Call Date Crows Shares Option September 30, 2013 $48 per share $180 December 31, 2013 $46 per share 65 January 15, 2014 $47 per share 30 Instructions Prepare the journal entries for Outkast for the following dates. (a) Investment in call option on Counting Crows shares on August 15, 2013. (b) September 30, 2013—Outkast prepares financial statements. (c) December 31, 2013—Outkast prepares financial statements. (d) January 15, 2014—Outkast settles the call option on the Counting Crows shares.

Juan and Bonita are married and have two dependent children living at home.This year, Juan is killed in an avalanche while skiing. a.What is Bonita’s filing status this year?

Using an available tax service or the Internet, identify three basic tax planning ideas or tax tips suggested for year-end tax planning.  Which basic tax strategy from this chapter does each planning idea employ?

Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Fields patent number 758-6002-1A is as follows. Date Activity Cost 2005–2006 Research conducted to develop precipitator $384,000 Jan. 2007 Design and construction of a prototype 87,600 March 2007 Testing of models 42,000 Jan. 2008 Fees paid engineers and lawyers to prepare patent application; patent granted June 30, 2008 59,500 Nov. 2009 Engineering activity necessary to advance the design of the precipitator to the manufacturing stage 81,500 Dec. 2010 Legal fees paid to successfully defend precipitator patent 42,000 April 2011 Research aimed at modifying the design of the patented precipitator 43,000 July 2015 Legal fees paid in unsuccessful patent infringement suit against a competitor 34,000 Fields assumed a useful life of 17 years when it received the initial precipitator patent. On January 1, 2013, it revised its useful life estimate downward to 5 remaining years. Amortization is computed for a full year if the cost is incurred prior to July 1, and no amortization for the year if the cost is incurred after June 30. The company’s year ends December 31. Instructions Compute the carrying value of patent No. 758-6002-1A on each of the following dates: (a) December 31, 2008. (b) December 31, 2012. (c) December 31, 2015.