Question & Answer

Identify the two types of control charts for variables.

Distinguish between a current liability, such as accounts payable, and a provision.

This year Randy paid $28,000 of interest (Randy borrowed $450,000 to buy his residence, and it is currently worth $500,000). Randy also paid $2,500 of interest on his car loan and $4,200 of margin interest to his stockbroker (investment interest expense). How much of this interest expense can Randy deduct as an itemized deduction under the following circumstances?

Describe the characteristics of subprime mortgages. Why were mortgage companies aggressively offering subprime mortgages before the credit crisis? (LO5)

Many critics argue that greed in the mortgage markets caused the credit crisis. Yet many market advocates suggest that greed is good, as the thirst for profits by firms that participate in mortgage markets allows for economic growth. Write a short essay on how regulations can allow for greed while also ensuring proper transparency in the mortgage markets so that another credit crisis does not occur.

Berg Company adopted a stock-option plan on November 30, 2013, that provided that 70,000 shares of $5 par value stock be designated as available for the granting of options to officers of the corporation at a price of $9 a share. The market price was $12 a share on November 30, 2014. On January 2, 2014, options to purchase 28,000 shares were granted to president Tom Winter—15,000 for services to be rendered in 2014 and 13,000 for services to be rendered in 2015. Also on that date, options to purchase 14,000 shares were granted to vice president Michelle Bennett—7,000 for services to be rendered in 2014 and 7,000 for services to be rendered in 2015. The market price of the stock was $14 a share on January 2, 2014. The options were exercisable for a period of one year following the year in which the services were rendered. The fair value of the options on the grant date was $4 per option. In 2015, neither the president nor the vice president exercised their options because the market price of the stock was below the exercise price. The market price of the stock was $8 a share on December 31, 2015, when the options for 2014 services lapsed. On December 31, 2016, both president Winter and vice president Bennett exercised their options for 13,000 and 7,000 shares, respectively, when the market price was $16 a share. Instructions Prepare the necessary journal entries in 2013 when the stock-option plan was adopted, in 2014 when options were granted, in 2015 when options lapsed, and in 2016 when options were exercised.

How does separating current assets from property, plant, and equipment in the balance sheet help analysts?

1.       : A report published by Hay Group found that some managers have personalities suited to horizontal relationships, such as project management, and achieve results with little formal authority. Other managers are more suited to operating roles with much formal authority in a vertical structure. In what type of structure—functional, matrix, team, or virtual network—do you believe your personality would best fit? Which structure would be the most challenging for you? Give your reasons.

Define tensile strength of a material.

Duff is really interested in decreasing their tax liability and tends to be somewhat tax aggressive. A friend of a friend told Duff that cash transactions are more difficult for the IRS to identify and, thus, tax. Duff is contemplating using this “strategy” of not reporting cash collected in their business to minimize the tax liability. Is this tax planning? What are the risks with this strategy?

Earnhart Corporation has outstanding 3,000,000 shares of common stock of a par value of $10 each. The balance in its Retained Earnings account at January 1, 2014, was $24,000,000, and it then had Paid-in Capital in Excess of Par—Common Stock of $5,000,000. During 2014, the company’s net income was $4,700,000. A cash dividend of $0.60 a share was declared on May 5, 2014, and was paid June 30, 2014, and a 6% stock dividend was declared on November 30, 2014, and distributed to stockholders of record at the close of business on December 31, 2014. You have been asked to advise on the proper accounting treatment of the stock dividend. The existing stock of the company is quoted on a national stock exchange. The market price of the stock has been as follows. October 31, 2014 $31 November 30, 2014 $34 December 31, 2014 $38 Instructions (a) Prepare the journal entry to record the declaration and payment of the cash dividend. (b) Prepare the journal entry to record the declaration and distribution of the stock dividend. (c) Prepare the stockholders’ equity section (including schedules of retained earnings and additionalpaid-in capital) of the balance sheet of Earnhart Corporation for the year 2014 on the basis of the foregoing information. Draft a note to the financial statements setting forth the basis of the accounting for the stock dividend, and add separately appropriate comments or explanations regarding the basis chosen.

What is a §197 intangible? How do taxpayers recover the costs of these intangibles? How do taxpayers recover the cost of a §197 intangible that expires (such as a covenant not to compete)?

Explain how losses on impaired intangible assets should be reported in income.

Golf Corp. (GC), a calendar-year, accrual-method corporation, held its directors’ meeting on December 15 of year 1. During the meeting, the board of directors authorized GC to pay a $75,000 charitable contribution to the World Golf Foundation, a qualifying charity.

Troy operates an editorial service that often entertains prospective authors to encourage them to use Troy's service. This year Troy paid $3,000 for the cost of meals and $6,200 for the cost of entertaining authors. Describe the conditions under which Troy can deduct a portion of the cost of the meals as a business expense.

Charlie Parker, president of Spinners Company, has recently noted that depreciation increases cash provided by operations and therefore depreciation is a good source of funds. Do you agree? Discuss.

Describe assets that are listed property. Why do you think Congress requires them to be “listed”?

Four products are to be manufactured in Department A, and it is desired to determine how to allocate resources in that department to meet the required demand for these products for a certain week. For product 1, demand = 750/wk, setup time = 6 hr, and operation time = 4.0 min. For product 2, demand = 900/wk, setup time = 5 hr, and operation time = 3.0 min. For product 3, demand = 400/wk, setup time = 7 hr, and operation time = 2.0 min. For product 4, demand = 400/wk, setup time = 6 hr, and operation time = 3.0 min. The plant normally operates one shift (7.0 hours per shift), five days per week and there are currently 3 work centers in the department. Propose a way of scheduling the machines to meet the weekly demand.

What is the “expectations gap”? What is the professiondoing to try to close this gap?

Refer to the data in BE6-7. Assuming quarterly compounding of amounts invested at 12%, how much of John Fillmore’s inheritance must be invested to have enough at retirement to buy the boat?

: Summarize the personal dilemmas and common dysfunctions that may arise when working in teams.

Hoki Poki, a cash-method general partnership, recorded the following items for its current tax year: Rental real estate income $2,000 Sales revenue $70,000 §1245 recapture income $8,000 Interest income $2,000 Cost of goods sold ($38,000) Depreciation – MACRS ($9,000) Supplies expense ($1,000) Employee wages ($14,000) Investment interest expense ($1,000) Partner’s medical insurance premiums paid by Hoki Poki ($3,000) As part of preparing Hoki Poki’s current-year return, identify the items that should be included in computing its ordinary business income (loss) and those that should be separately stated. [Hint: See Schedule K-1 and related preparer’s instructions at www.irs.gov.]

What is the purpose of a statement of cash flows? How does it differ from a balance sheet and an income statement?

Vertovec Inc., a large local consulting firm in Utah, hired several new consultants from out of state last year to help service their expanding list of clients. To aid in relocating the consultants, Vertovec Inc. purchased the consultants’ homes in their prior location if the consultants were unable to sell their homes within 30 days of listing them for sale. Vertovec Inc. bought the homes from the consultants for 5 percent less than the list price and then continued to list the homes for sale. Each home Vertovec Inc. purchased was sold at a loss. By the end of last year, Vertovec had suffered a loss totaling $250,000 from the homes. How should Vertovec treat the loss for tax purposes?  Write a memo to Vertovec Inc. explaining your findings and any planning suggestions that you may have if Vertovec Inc. continues to offer this type of relocation benefit to newly hired consultants.

What determines if a taxpayer is required to file a tax return?  If a taxpayer is not required to file a tax return, does this mean that the taxpayer should not file a tax return?