Question & Answer

Alfonso began the year with a tax basis in his partnership interest of $30,000. His share of partnership liabilities at the beginning and end of the year consists of $4,000 of recourse liabilities and $6,000 of nonrecourse liabilities. During the year, he was allocated $40,000 of partnership ordinary business loss. Alfonso does not materially participate in this partnership, and he has $1,000 of passive income from other sources. a. How much of Alfonso’s loss is limited by his tax basis? b. How much of Alfonso’s loss is limited by his at-risk amount? c. How much of Alfonso’s loss is limited by the passive activity loss rules?

Use the information from BE23-4 for Bloom Corporation. Prepare the cash flows from operating activities section of Bloom’s 2014 statement of cash flows using the indirect method.

Is it a valid criticism of perfect competition to argue that it is incompatible with economies of scale?

Button Company has the following two temporary differences between its income tax expense and income taxes payable. 2014 2015 2016 Pretax fi nancial income $840,000 $910,000 $945,000 Excess depreciation expense on tax return (30,000) (40,000) (10,000) Excess warranty expense in fi nancial income 20,000 10,000 8,000 Taxable income $830,000 $880,000 $943,000 The income tax rate for all years is 40%. Instructions (a) Assuming there were no temporary differences prior to 2014, prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014, 2015, and 2016. (b) Indicate how deferred taxes will be reported on the 2016 balance sheet. Button’s product warranty is for 12 months. (c) Prepare the income tax expense section of the income statement for 2016, beginning with the line “Pretax financial income.”

Twinbrook Corporation needed to upgrade to a larger manufacturing facility. Twinbrook first acquired a new manufacturing facility for $2,100,000 cash and then transferred the facility it was using (building and land) to White Flint Corporation for $2,000,000 three months later. Does the exchange qualify for like-kind exchange treatment? (Hint: Examine Revenue Procedures 2000-37 and 2004-51.)  If not, can you propose a change in the transaction that will allow it to qualify?

1.       : Can intuition and evidence-based decision making coexist as valid approaches within an organization? How might managers combine their intuition with a rational, data-driven, evidence-based approach?

Dejan owns stock in two S corporations, Blue and Green. He actively participates in the management of Blue but maintains ownership in Green only as a passive investor.  Dejan has no other business investments.  Both Blue and Green anticipate a loss this year, and Dejan’s basis in his stock of both corporations is $0. All else equal, if Dejan plans on making a capital contribution to at least one of the corporations this year, to which firm should he contribute in order to increase his chances of deducting the loss allocated to him from the entity?  Why?

1.       : Suppose that you are the leader of a team that has just been created to develop a new registration process at your college or university. How can you use an understanding of the stages of team development to improve your team’s effectiveness?

1.       : As algorithmic control becomes more common in organizations, how might it affect the roles of managers and employees? Can you think of ways algorithmic tools might be used to decentralize control? Explain.

Explain the mechanisms whereby the DAD and IS curves will shift by the same amount as the DAS and MP curves in the long run.

What is the difference between open and closed facts?  How is this distinction important in conducting taxresearch?

A heat source can transfer 3500 J/sec to a metal part surface. The heated area is circular, and the heat intensity decreases as the radius increases, as follows: 70% of the heat is concentrated in a circular area that is 3.75 mm in diameter. Is the resulting power density enough to melt metal?

What book-tax differences in year 1 and year 2 associated with its capital gains and losses would DEF Inc. report in the following alternative scenarios?  Identify each book-tax difference as favorable or unfavorable and as permanent or temporary.   a.  In year 1, DEF recognized a loss of $15,000 on land that it had held for investment.  In year 1, it also recognized a $30,000 gain on equipment it had purchased a few years ago. The equipment sold for $50,000 and had an adjusted basis of $20,000.  DEF had deducted $40,000 of tax depreciation on the equipment. In year 2, DEF recognized a capital loss of $2,000.

How would you attempt to value time that you yourself save (a) getting to work; (b) going on holiday; (c) going out in the evening?

Selane Eatery operates a catering service specializing in business luncheons for large corporations. Selane requires customers to place their orders 2 weeks in advance of the scheduled events. Selane bills its customers on the tenth day of the month following the date of service and requires that payment be made within 30 days of the billing date. Conceptually, when should Selane recognize revenue related to its catering service?

In countries experiencing high inflation, the annual interest rate may exceed 50 percent; in other countries such as the United States and many European countries, the annual interest rates are typically less than 10 percent. Do you think such a large difference in interest rates is due primarily to country-specific differences in the risk-free rates or in the credit risk premiums? Explain. (LO3)

1.      : Would you rate Casper’s competitive strategy as pursuing differentiation, cost leadership, focus, or a combination of these? Explain. Do you think Casper will grow successfully and turn a profit? Why?

1.              : Say nothing about the false numbers. Of course, the company will miss the projections and have to come up with a good explanation, but, after all, isn’t that par for the course among fledgling high-tech companies? Chances are the whole thing will blow over without a problem.

Use the information presented for Ottawa Corporation in BE10-14, but assume the machinery is sold for $5,200 instead of $10,500. Prepare journal entries to (a) update depreciation for 2015 and (b) record the sale.

1.    : Harley-Davidson, which once boasted that it made “big toys for big boys,” is trying to lure more women to the brand to make up for declining sales in a slow economy. How do you think this move will complement or confound the company’s differentiation strategy, which has long been based on a macho image?

Teton Corporation issued $600,000 of 7% bonds on November 1, 2014, for $644,636. The bonds were dated November 1, 2014, and mature in 10 years, with interest payable each May 1 and November 1. Teton uses the effective-interest method with an effective rate of 6%. Prepare Teton’s December 31, 2014, adjusting entry.

Explain why demand might increase for relevant and useful information in the future. What professional skills will help you meet that need?

1.    In a study asking what people wanted from leaders versus followers, people ranked maturity number 8 for followers but number 15 for leaders. What might account for people wanting a higher maturity level from followers?

Teller Corporation’s post-closing trial balance at December 31, 2014, was as follows. IFRS Insights 879 TELLER CORPORATION POST-CLOSING TRIAL BALANCE DECEMBER 31, 2014 Dr. Cr. Accounts payable $ 310,000 Accounts receivable $ 480,000 Accumulated depreciation—building and equipment 185,000 Allowance for doubtful accounts 30,000 Bonds payable 700,000 Building and equipment 1,450,000 Cash 190,000 Dividends payable on preference shares—cash 4,000 Inventories 560,000 Land 400,000 Prepaid expenses 40,000 Retained earnings 201,000 Share capital—ordinary ($1 par value) 200,000 Share capital—preference ($50 par value) 500,000 Share premium—ordinary 1,000,000 Share premium—treasury 160,000 Treasury shares—ordinary at cost 170,000 Totals $3,290,000 $3,290,000 At December 31, 2014, Teller had the following number of ordinary and preference shares. Ordinary Preference Authorized 600,000 60,000 Issued 200,000 10,000 Outstanding 190,000 10,000 The dividends on preference shares are $4 cumulative. In addition, the preference shares have a preference in liquidation of $50 per share. Instructions Prepare the equity section of Teller’s statement of financial position at December 31, 2014.

The financial statements of P&G are presented in Appendix 5B. The company’s complete annual report, including the notes to the financial statments, can be accessed at the book’s companion website, www.wiley.com/college/kieso. Instructions Refer to P&G’s financial statements and the related information in the annual report to answer the following questions. (a) What alternative formats could P&G have adopted for its balance sheet? Which format did it adopt? (b) Identify the various techniques of disclosure P&G might have used to disclose additional pertinent financial information. Which technique does it use in its financials? (c) In what classifications are P&G’s investments reported? What valuation basis does P&G use to report its investments? How much working capital did P&G have on June 30, 2011? On June 30, 2010? (d) What were P&G’s cash flows from its operating, investing, and financing activities for 2011? What were its trends in net cash provided by operating activities over the period 2009 to 2011? Explain why the change in accounts payable and in accrued and other liabilities is added to net income to arrive at net cash provided by operating activities. (e) Compute P&G’s (1) current cash debt coverage, (2) cash debt coverage, and (3) free cash flow for 2011. What do these ratios indicate about P&G’s financial condition?