Question & Answer

Discuss the importance of selecting an appropriate cost driver for cost allocation.

In forming Parts Inc. as a corporation, Candice transferred inventory to Parts Inc. in exchange for 30 percent of the corporation's stock (60 shares valued at $130,000). The inventory's fair market value was $147,000 and its tax basis to Candice was $75,000. The inventory was subject to a $17,000 liability that Parts Inc. assumed on the transfer. Candice borrowed the $17,000 from the bank (using the inventory as collateral) shortly before transferring the inventory to Parts Inc., and she used the loan proceeds to pay for a family vacation to Europe.  a. Assuming the transfer qualifies under §351 and that the liability has a tax-avoidance purpose, what gain or loss will Candice recognize on the transfer?  b. Assuming the transfer qualifies under §351  and that the liability has a tax-avoidance purpose, what is Candice's basis in the stock she received in the exchange? c. Suppose the liability does not have a tax-avoidance purpose. What gain will Candice recognize on the transfer?  d. Assuming the liability does not have a tax-avoidance purpose,  what is Candice's basis in the stock she received in the exchange?

In a chemical blanking operation, stock thickness of the aluminum sheet is 0.015 in. The pattern to be cut out of the sheet is a hole pattern, consisting of a matrix of 0.100 in diameter holes. If photochemical machining is used to cut these holes, and contact printing is used to make the resist (maskant) pattern, determine the diameter of the holes that should be used in the pattern.

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marks-and- Spencer-Annual-report-and-financial-statements-2012.pdf. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) What descriptions are used by M&S in its statement of financial position to classify its property, plant, and equipment? (b) What method or methods of depreciation does M&S use to depreciate its property, plant, and equipment? (c) Over what estimated useful lives does M&S depreciate its property, plant, and equipment? (d) What amounts for depreciation and amortization expense did M&S charge to its income statement in 2012 and 2011? (e) What were the capital expenditures for property, plant, and equipment made by M&S in 2012 and 2011?

Why would a new partner who pays more for a partnership interest than the selling partner’s outside basis want the partnership to elect a special basis adjustment?

Matt Holmes recently joined Klax Company as a staff accountant in the controller’s office. Klax Company provides warehousing services for companies in several midwestern cities. The location in Dubuque, Iowa, has not been performing well due to increased competition and the loss of several customers that have recently gone out of business. Matt’s department manager suspects that the plant and equipment may be impaired and wonders whether those assets should be written down. Given the company’s prior success, this issue has never arisen in the past, and Matt has been asked to conduct some research on this issue. Instructions If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses. (a) What is the authoritative guidance for asset impairments? Briefly discuss the scope of the standard (i.e., explain the types of transactions to which the standard applies). (b) Give several examples of events that would cause an asset to be tested for impairment. Does it appear that Klax should perform an impairment test? Explain. (c) What is the best evidence of fair value? Describe alternate methods of estimating fair value.

A drawing operation is performed on 3.0 mm stock. The part is a cylindrical cup with height = 50 mm and inside diameter = 70 mm. Assume the corner radius on the punch is zero. (a) Find the required starting blank size Db. (b) Is the drawing operation feasible?

Describe the type of event that qualifies as a casualty for tax purposes.

Does a taxpayer apply the §1231 look-back rule in a year when the taxpayer recognizes a net §1231 loss?  Explain.

Differentiate between operating activities, investing activities, and financing activities.

This year, Sooner Corporation reports a deficit in current E&P of ($300,000).  Its accumulated E&P at the beginning of the year was $200,000. Sooner distributed $400,000 to its sole shareholder, Boomer, on June 30 of this year. Boomer’s tax basis in his Sooner stock before the distribution is $75,000.

Define resistivity as a material property.

When a corporation has NOL carryovers arising in different years, can it choose which NOL carryover to deduct first in a given year? Explain.

Identify some of the limitations and disadvantages of surface-mount technology?

What are the main goals of the Federal Open Market Committee? How does it attempt to achieve these goals? (LO1)

Explain why many savings institutions experience financial problems at the same time. (LO3)

How might a company obtain a price index in order to apply dollar-value LIFO?

Describe the types of expenses that constitute miscellaneous itemized deductions and explain why these expenses rarely produce any tax benefits.

Using the facts from the previous problem, how would your answer change if instead, Duff adopted the cash method of accounting to allow him to better control the timing of his cash receipts and disbursements?

Shared bonus pool Sarah Tesar is the lead partner of a medium-sized accounting firm. The eight partners share in an annual bonus pool. The characteristics of the bonus pool system include: • The bonus pool size each year is calculated as 40 per cent of annual profit. • The bonus pool is allocated on the basis of bonus units awarded according to the partners’ performance against target fees generated from new clients. This is meant to reinforce the firm’s strategy of growth through new client acquisition. If the fees target is met, one bonus unit is awarded; if the fees target is exceeded by 10 per cent, two bonus units are awarded; if the fees target is exceeded by 20 per cent, four bonus units are awarded; and if the fees target is exceeded by more than 20 per cent, six bonus units are awarded.   This year the annual profit was $2.2 million and the partner performance according to their fees from new client target was as follows: three partners achieved 10 per cent above target; three other partners achieved 20 per cent above target; and two partners exceeded the target by more than 20 per cent.   Required (a) Calculate: (i) the value of the bonus pool to be shared (ii) the value of one bonus unit (iii) the value of the bonus each manager would receive for the year.   One of the partners, Russell Morris, has sought a meeting with Sarah to discuss the shared bonus pool system. He wrote in an email to Sarah ‘I spend a lot of my time providing our in-house training programs . . . I can’t be out chasing new clients at the same time! Why do we only have one measure for the bonus system?’   (b) How important is the selection of the bonus allocation formula and the measure(s) to be used? (c) In the light of Russell’s email, would you advise Sarah to make any changes to the current system? Explain. (LO4)

The following are three independent, unrelated sets of facts relating to accounting changes. Situation 1: Sanford Company is in the process of having its first audit. The company has used the cash basis of accounting for revenue recognition. Sanford president, B. J. Jimenez, is willing to change to the accrual method of revenue recognition. Situation 2: Hopkins Co. decides in January 2015 to change from FIFO to weighted-average pricing for its inventories. Situation 3: Marshall Co. determined that the depreciable lives of its fixed assets are too long at present to fairly match the cost of the fixed assets with the revenue produced. The company decided at the beginning of the current year to reduce the depreciable lives of all of its existing fixed assets by 5 years. Instructions For each of the situations described, provide the information indicated below. (a) Type of accounting change. (b) Manner of reporting the change under current generally accepted accounting principles, including a discussion where applicable of how amounts are computed. (c) Effect of the change on the balance sheet and income statement.

Determine the direction of bond prices over the last year and explain the reason for it. (LO1, LO2)

What is a smart contract? Explain how smart contracts are used on the blockchain. (LO3)

Go through each of the determinants we have identified so far and show how the respective elasticity of demand makes the problem of traffic congestion a difficult one to tackle.

What is the difference between earned and unearned income?