Question & Answer

Farell is a member of Sierra Vista LLC. Although Sierra Vista is involved in a number of different business ventures, it is not currently involved in real estate either as an investor or as a developer. On January 1, year 1, Farell has a $100,000 tax basis in his LLC interest that includes his $90,000 share of Sierra Vista’s general liabilities. By the end of the year, Farell’s share of Sierra Vista’s general liabilities have increased to $100,000. Because of the time he spends in other endeavors, Farell does not materially participate in Sierra Vista. His share of the Sierra Vista losses for year 1 is $120,000. As a partner in the Riverwoods Partnership, he also has year 1, Schedule K-1 passive income of $5,000. Farell is single and has no other sources of business income or loss. a. Determine how much of the Sierra Vista loss Farell will currently be able to deduct on his tax return for year 1, and list the losses suspended due to tax basis, at-risk, and passive activity loss limitations. b. Assuming Farell’s Riverwoods K-1 indicates passive income of $30,000, determine how much of the Sierra Vista loss he will ultimately be able to deduct on his tax return for year 1, and list the losses suspended due to tax basis, at-risk, and passive activity loss limitations. c. Assuming Farell is deemed to be an active participant in Sierra Vista, determine how much of the Sierra Vista loss he will ultimately be able to deduct on his tax return for year 1, and list the losses suspended due to tax basis, at-risk, and passive activity loss limitations. d. Assuming Farell is deemed to be an active participant in Sierra Vista, and he also has a $300,000 loss from a sole proprietorship, determine how much total trade or business loss Farell will deduct on his return in year 1.

Define “cost” as applied to the valuation of inventories.

Rider Company negotiates a forward swap, to begin two years from now, in which it will swap fixed payments for floating-rate payments. What will be the effect on Rider if interest rates rise substantially over the next two years? That is, would Rider be better off by using this forward swap than if it had simply waited two years before negotiating the swap? Explain. (LO2)

Prater Inc. enters into an exchange in which it gives up its warehouse on 10 acres of land and receives a tract of land. A summary of the exchange is as follows:   Transferred           FMV Original       Basis Accumulated Depreciation Warehouse $300,000 $225,000 $45,000 Land50,00050,000 Mortgage on warehouse30,000 Cash20,00020,000   Assets Received          FMV Land $340,000 What are Prater’s realized and recognized gain on the exchange and its basis in the assets it received in the exchange?

This year Jorge received a refund of property taxes that he deducted on his tax return last year. Jorge is not sure whether he should include the refund in his gross income. What would you tell him?

Why would it be difficult for a central bank to predict the precise effect on money supply of open-market operations?

Amanda would like to organize BAL as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 8 percent annual before-tax return on a $500,000 investment. Amanda’s marginal income tax rate is 37 percent, and her tax rate on qualified dividends and net capital gains is 20%. Assume that BAL will distribute half of its after-tax earnings every year as a dividend if it is formed as a C corporation. Assume the income is not eligible for the QBI deduction. Further, when computing your answers, include the self-employment tax (use a 2.9% marginal rate for self-employment income because Amanda has salary in excess of the wage base limit) but not the additional Medicare tax or the net investment income tax.    a. How much cash after taxes would Amanda receive from her investment in the first year if BAL is organized as an LLC? What if BAL is organized as a C corporation?  b. What is the overall tax rate on BAL’s income in the first year if BAL is organized as an LLC or it is organized as a C corporation? c. At a high level, explain the primary factors contributing to differences between entities in cash flow and overall tax rate on business income.

A product whose total work content time = 50 minutes is to be assembled on a manual production line. The required production rate is 30 units per hour. From previous experience with similar products, it is estimated that the manning level will be close to 1.5. Assume that the uptime proportion and line balancing efficiency are both = 1.0. If 9 seconds will be lost from the cycle time for repositioning, determine (a) the cycle time and (b) the numbers of workers and stations that will be needed on the line.

Julie paid a day care center to watch her two-year-old son this year while she worked as a computer programmer for a local start-up company.  What amount of child and dependent care credit can Julie claim in 2024 in each of the following alternative scenarios? a.  Julie paid $2,000 to the day care center and her AGI is $50,000 (all salary).

Give some other examples of monopolistic competition. (Try looking at www.yell.com if you are stuck.)

What is filament winding?

In a Brinell hardness test, a 1500-kg load is pressed into a specimen using a 10-mm-diameter hardened steel ball. The resulting indentation has a diameter = 3.2 mm. (a) Determine the Brinell hardness number for the metal. (b) If the specimen is steel, estim

What are the reasons why the bulk deformation processes are important commercially and technologically?

Presented below are a number of balance sheet accounts of Deep Blue Something, Inc. (a) Investment in Preferred Stock. (h) Interest Payable. (b) Treasury Stock. (i) Deficit. (c) Common Stock. (j) Equity Investments (trading). (d) Dividends Payable. (k) Income Taxes Payable. (e) Accumulated Depreciation—Equipment. (l) Unearned Subscriptions Revenue. (f) Construction in Process. (m) Work in Process. (g) Petty Cash. (n) Salaries and Wages Payable. Instructions For each of the accounts above, indicate the proper balance sheet classification. In the case of borderline items, indicate the additional information that would be required to determine the proper classification.

On December 31, 2014, the American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $3,000,000 note receivable by the following modifications: 1. Reducing the principal obligation from $3,000,000 to $2,400,000. 2. Extending the maturity date from December 31, 2014, to January 1, 2018. 3. Reducing the interest rate from 12% to 10%. Barkley pays interest at the end of each year. On January 1, 2018, Barkley Company pays $2,400,000 in cash to Firstar Bank. Instructions (a) Will the gain recorded by Barkley be equal to the loss recorded by American Bank under the debt restructuring? (b) Can Barkley Company record a gain under the term modification mentioned above? Explain. (c) Assuming that the interest rate Barkley should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Barkley Company after the debt restructuring. (d) Prepare the interest payment entry for Barkley Company on December 31, 2016. (e) What entry should Barkley make on January 1, 2018?

In an article that appeared in the Wall Street Journal, the phrases “phantom (paper) profits” and “high LIFO profits” through involuntary liquidation were used. Explain these phrases.

Pine Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, Alejandro, who has always operated it as a C corporation.  However, at the beginning of this year, Alejandro made a qualifying S election for Pine Corp., effective January 1.  Pine Corp. reported $70,000 of C corporation earnings and profits on the effective date of the S election.  This year (its first S corporation year), Pine Corp. reported business income of $50,000.  Alejandro’s basis in his Pine Corp. stock at the beginning of the year was $15,000.  What are the amount and character of income or gain Alejandro must recognize on the following alternative distributions, and what is his basis in his Pine Corp. stock at the end of the year?

In 2014, Elbert Corporation had net cash provided by operating activities of $531,000; net cash used by investing activities of $963,000; and net cash provided by financing activities of $585,000. At January 1, 2014, the cash balance was $333,000. Compute December 31, 2014, cash

Shannon, Inc., changed from the LIFO cost flow assumption to the FIFO cost flow assumption in 2014. The increase in the prior year’s income before taxes is $1,200,000. The tax rate is 40%. Prepare Shannon’s 2014 journal entry to record the change in accounting principle.

The accounting records of Shinault Inc. show the following data for 2014 (its first year of operations). 1. Life insurance expense on officers was $9,000. 2. Equipment was acquired in early January for $300,000. Straight-line depreciation over a 5-year life is used, with no salvage value. For tax purposes, Shinault used a 30% rate to calculate depreciation. 3. Interest revenue on State of New York bonds totaled $4,000. 4. Product warranties were estimated to be $50,000 in 2014. Actual repair and labor costs related to the warranties in 2014 were $10,000. The remainder is estimated to be paid evenly in 2015 and 2016. 5. Gross profit on an accrual basis was $100,000. For tax purposes, $75,000 was recorded on the installment- sales method. 6. Fines incurred for pollution violations were $4,200. 7. Pretax financial income was $750,000. The tax rate is 30%. Instructions (a) Prepare a schedule starting with pretax financial income in 2014 and ending with taxable income in 2014. (b) Prepare the journal entry for 2014 to record income taxes payable, income tax expense, and deferred  income taxes.

Jake is a professional dog trainer who purchases and trains dogs for use by law enforcement agencies. Last year Jake purchased 500 bags of dog food from a large pet food company at an average cost of $30 per bag. This year, however, Jake purchased 500 bags of dog food from a local pet food company at an average cost of $45 per bag. Under what circumstances would the IRS likely challenge the cost of Jake’s dog food as unreasonable?

What are the common methods for assessing surface roughness?

A vertical true centrifugal casting process is used to make tube sections with length = 10.0 in and outside diameter = 6.0 in. The inside diameter of the tube = 5.5 in at the top and 5.0 in at the bottom. At what speed must the tube be rotated during the operation in order to achieve these specifications?

LAA Inc. made a charitable donation of $100,000 to the Trevor Project (a qualifying charity) For the year, LAA reported taxable income of $550,000, which included a $100,000 charitable contribution deduction (before limitation) and a $50,000 dividends-received deduction. What is LAA Inc.’s charitable contribution deduction for the year?

Englehart Co. provides the following information about its postretirement benefit plan for the year 2014. Service cost $ 90,000 Prior service cost amortization 3,000 Contribution to the plan 56,000 Actual and expected return on plan assets 62,000 Benefi ts paid 40,000 Plan assets at January 1, 2014 710,000 Accumulated postretirement benefi t obligation at January 1, 2014 760,000 Accumulated OCI (PSC) at January 1, 2014 100,000 Dr. Discount rate 9% Instructions Compute the postretirement benefit expense for 2014.