Question & Answer

What are the possible arguments in favour of fixing prices (a) below and (b) above the equilibrium? Are there any means of achieving the same social goals without fixing prices?

What should be the pattern of amortization for a limitedlife intangible?

All else being equal, would a taxpayer with passive losses prefer to have wage income or passive income?

Birch Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, James, who has operated it as an S corporation since its inception.  Last year, James made a direct loan to Birch Corp. in the amount of $5,000.  Birch Corp. has paid the interest on the loan but has not yet paid any principal.  (Assume the loan qualifies as debt for tax purposes.)  For the year, Birch experienced a $25,000 business loss.  What amount of the loss clears the tax-basis limitation, and what is James’s basis in his Birch Corp. stock and Birch Corp. debt in each of the following alternative scenarios?

Brooklyn has been contributing to a traditional IRA for seven years (all deductible contributions) and has a total of $30,000 in the account. In the current year, she is 39 years old and has decided that she wants to get a new car. She withdraws $20,000 from the IRA to help pay for the car. She is currently in the 24 percent marginal tax bracket. What amount of the withdrawal, after tax considerations, will Brooklyn have available to purchase the car?

Using the lead-tin phase diagram in Figure 6.3, determine the liquid and solid phase compositions for a nominal composition of 40% Sn and 60% Pb at 204°C (400°F).

Which types of investments are valued at amortized cost? Explain the rationale for this accounting.

What are some of the key environmental forces that have the way projects are managed? What has been the effect of these forces on the management of project?

What is reaction injection molding?

What evidence is necessary to demonstrate the ability to defer settlement of short-term debt?

Dakota Conrad owns a parcel of land he would like to sell. Describe the circumstances in which the sale of the land would generate §1231 gain or loss, ordinary gain or loss, or capital gain or loss. Also, describe the circumstances under which Dakota would not be allowed to deduct a loss on the sale.

What are the processes by which polymer foams are produced?

What implicit and explicit costs would a firm avoid if it decided not to expand production?

What are the product categories usually listed in the master production schedule?

Holder-Webb Company began operations on January 1, 2012, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2015. The following information is available for the years 2012–2014. Net Income Computed Using Average-Cost Method FIFO Method LIFO Method 2012 $15,000 $19,000 $12,000 2013 18,000 23,000 14,000 2014 20,000 25,000 17,000 Instructions (Ignore all tax effects.) (a) Prepare the journal entry necessary to record a change from the average-cost method to the FIFO method in 2015. (b) Determine net income to be reported for 2012, 2013, and 2014, after giving effect to the change in accounting principle. (c) Assume Holder-Webb Company used the LIFO method instead of the average-cost method during the years 2012–2014. In 2015, Holder-Webb changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.

Historically, taxpayers have implemented strategies to mitigate or eliminate the effects of double taxation. Why might taxpayers think twice before implementing such strategies today?  Explain.

Solve Problem 21.27 but with the following changes: cutting speed = 1.3 m/s, feed = 0.75 mm/rev, and depth = 4.0 mm. Note that although the power used in this operation is only about 10% greater than in the previous problem, the metal removal rate is about 40% greater.

What are the major advantages of notes to the financial statements? What types of items are usually reported in notes?

Elroy, who is single, has taken over the care of his mother Irene in her old age. Elroy pays the bills relating to Irene’s home.He also buys all her groceries and provides the rest of her support.Irene has no gross income.What is Elroy’s filing status?

Lowell Corporation has used the accrual basis of accounting for several years. A review of the records, however, indicates that some expenses and revenues have been handled on a cash basis because of errors made by an inexperienced bookkeeper. Income statements prepared by the bookkeeper reported $29,000 net income for 2013 and $37,000 net income for 2014. Further examination of the records reveals that the following items were handled improperly. 1. Rent was received from a tenant in December 2013. The amount, $1,000, was recorded as revenue at that time even though the rental pertained to 2014. 2. Salaries and wages payable on December 31 have been consistently omitted from the records of that date and have been entered as expenses when paid in the following year. The amounts of the accruals recorded in this manner were: December 31, 2012 $1,100 December 31, 2013 1,200 December 31, 2014 940 3. Invoices for supplies purchased have been charged to expense accounts when received. Inventories of supplies on hand at the end of each year have been ignored, and no entry has been made for them. December 31, 2012 $1,300 December 31, 2013 940 December 31, 2014 1,420 Instructions Prepare a schedule that will show the corrected net income for the years 2013 and 2014. All items listed should be labeled clearly. (Ignore income tax considerations.)

Solve the previous problem only the servomotor is connected to the leadscrew through a gear box whose reduction ratio = 12:1 (12 revolutions of the motor for each revolution of the leadscrew).

Jenkins has a one-third capital and profits interest in the Maverick General Partnership. On January 1, year 1, Maverick has $120,000 of general liabilities obligations and Jenkins has a $50,000 tax basis (including his share of Maverick’s liabilities) in his partnership interest. During the year, Maverick incurred a $30,000 nonrecourse liability that is not secured by real estate. Because Maverick is a rental real estate partnership, Jenkins is deemed to be a passive participant in Maverick. His share of the Maverick losses for year 1 is $75,000. Jenkins is not involved in any other passive activities, and this is the first year he has been allocated losses from Maverick. a. Determine how much of the Maverick loss Jenkins 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. If Jenkins sells his interest on January 1, year 2, what happens to his suspended losses from year 1? [Hint: See §706(c)(2)(A); Reg. §1.704-1(d)(1); Prop. Reg. §1.465-66(a); and Sennett v. Comm’r, 80 TC 825 (1983).]

The amount of income taxes due to the government for a period of time is rarely the amount reported on the income statement for that period as income tax expense. Instructions (a) Explain the objectives of accounting for income taxes in general-purpose financial statements. (b) Explain the basic principles that are applied in accounting for income taxes at the date of the financial statements to meet the objectives discussed in (a). (c) List the steps in the annual computation of deferred tax liabilities and assets.

Presented below is an excerpt from the financial statements of H. J. Heinz Company. Segment and Geographic Data The company is engaged principally in one line of business—processed food products—which represents over 90% of consolidated sales. Information about the business of the company by geographic area is presented in the table below. There were no material amounts of sales or transfers between geographic areas or between affi liates, and no material amounts of United States export sales. Foreign (in thousands of United Western U.S. dollars) Domestic Kingdom Canada Europe Other Total Worldwide Sales $2,381,054 $547,527 $216,726 $383,784 $209,354 $1,357,391 $3,738,445 Operating income 246,780 61,282 34,146 29,146 25,111 149,685 396,465 Identifi able assets 1,362,152 265,218 112,620 294,732 143,971 816,541 2,178,693 Capital expenditures 72,712 12,262 13,790 8,253 4,368 38,673 111,385 Depreciation expense 42,279 8,364 3,592 6,355 3,606 21,917 64,196 Instructions (a) Why does H. J. Heinz not prepare segment information on its products or services? (b) What are export sales, and when should they be disclosed? (c) Why are sales by geographical area important to disclose?

Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2013. The purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2014. Kulikowski reported net income of $730,000 for 2014. The fair value of Kulikowski’s stock was $27 per share at December 31, 2014. Instructions (a) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps cannot exercise significant influence over Kulikowski. The securities should be classified as availablefor- sale. (b) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps can exercise significant influence over Kulikowski. (c) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2014? What is the total net income reported in 2014 under each of these methods?