Question & Answer

Think of three examples of monopolies (local or national) and consider how contestable their markets are.

Meyer reported the following pretax financial income (loss) for the years 2012–2016. 2012 $240,000 2013 350,000 2014 120,000 2015 (570,000) 2016 180,000 Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate was 34% for 2012 and 2013, and 40% for 2014–2016. Assume the carryback provision is used first for net operating losses. Instructions (a) Prepare the journal entries for the years 2014–2016 to record income tax expense, income taxes payable (refundable), and the tax effects of the loss carryback and loss carryforward, assuming that based on the weight of available evidence, it is more likely than not that one-fifth of the benefits of the loss carryforward will not be realized. (b) Prepare the income tax section of the 2015 income statement beginning with the line “Income (loss) before income taxes.”

MACRS depreciation requires the use of a recovery period, method, and convention to depreciate tangible personal property assets. Briefly explain why each is important to the calculation.

Should large securities firms be allowed to be independent and insulated from bank regulation, or should they be required to register as bank holding companies, and subject to bank regulations? Write a short essay that supports your opinion.

A batch of annealed steel has just been received from the vendor. It is supposed to have a tensile strength in the range 60,000 - 70,000 lb/in2 . A Brinell hardness test in the receiving department yields a value of HB = 118. (a) Does the steel meet the specification on tensile strength? (b) Estimate the yield strength of the material.

What function is served by tempering?

Trevor is a single individual who is a cash-method, calendar-year taxpayer. For each of the next two years (2024 and 2025), Trevor expects to report salary of $80,000, contribute $8,000 to charity, and pay $2,800 in state income taxes. a. Estimate Trevor’s taxable income for 2024 and 2025 using the 2024 amounts for the standard deduction for both years. b. Now assume that Trevor combines his anticipated charitable contributions for the next two years and makes the combined contribution in December of 2024. Estimate Trevor’s taxable income for each of the next two years using the 2024 amounts for the standard deduction. Reconcile the total taxable income to your solution to part (a). c. Trevor plans to purchase a residence next year, and he estimates that additional property taxes and residential interest will cost $2,000 and $12,000, respectively, each year. Estimate Trevor’s taxable income for each of the next two years (2024 and 2025) using the 2024 amounts for the standard deduction and also assuming Trevor makes the charitable contribution of $8,000 and state tax payments of $2,800 in each year. d. Assume the facts in part (c) but that Trevor makes the charitable contribution for 2025 in December of 2024. Estimate Trevor’s taxable income for 2024 and 2025 using the 2024 amounts for the standard deduction. Reconcile the total taxable income to your solution to part (c). e. Explain the conditions in which the bunching strategy in part (d) will generate tax savings for Trevor.

Latrell recently used his Delta Skymiles to purchase a free round-trip ticket to Milan, Italy (value $1,200).  The frequent flyer miles used to purchase the ticket were generated from Latrell’s business travel as a CPA.  Latrell’s employer paid for his business trips, and he was not taxed on the travel reimbursement.     a.  Use an available tax research service to determine how much income, if any, Latrell will have to recognize as a result of purchasing an airline ticket with Skymiles earned from business travel.   b.  Write a memo communicating the results of your research.

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for leases.

Yong recently paid his accountant $10,000 for elaborate tax planning strategies that exploit the timing strategy. Assuming this is an election year and there could be a power shift in the White House and Congress, what is a potential risk associated with Yong’s strategies?

Many London councils now have residents’ street parking permits, with charges that vary according to the carbon emissions of the registered vehicle. Explain the thinking behind this policy.

Jim purchased 100 shares of stock this year and elected to participate in a dividend reinvestment program. This program automatically uses dividends to purchase additional shares of stock. This year Jim’s shares paid $350 of dividends, and these funds were used to purchase additional shares of stock. These additional shares are worth $375 at year-end. What amount of dividends, if any, should Jim declare as income this year? Explain.

1.       : Psychologists have identified three pathways to happiness: pleasure, engagement, and meaning. Do you think it is the manager’s responsibility to help people find these elements in their work? Discuss.

Will Smith will receive $80,000 on December 31, 2019 (5 years from now), from a trust fund established by his father. Assuming the appropriate interest rate for discounting is 12% (compounded semiannually), what is the present value of this amount today?

Faith Battle operates a health food store, and she has been the only employee. Her business is growing, and she is considering hiring some additional staff to help her in the store. Explain to her the various payroll deductions that she will have to account for, including their potential impact on her financial statements, if she hires additional staff.

Approximately what percentage of tax returns does the IRS audit?  What are the implications of this number for the IRS’s strategy in selecting returns for audit?

Katie recently won a ceramic dalmatian valued at $800 on a television game show.  She questions whether this prize is taxable because it was a “gift” she won on the show.     a.  Use an available tax research service to answer Katie’s question.   b.  Write a letter to Katie communicating the results of your research.

If increased investment (using current technology) does not lead to increased long-run economic growth, does it bring any benefits?

The TimpRiders LP has operated a motorcycle dealership for a number of years. Amir is the limited partner, Francesca is the general partner, and they share capital and profits equally. Francesca works full time managing the partnership. Both the partnership and the partners report on a calendar-year basis. At the start of the current year, Amir and Francesca had bases of $10,000 and $3,000 respectively, and the partnership did not have any liabilities. During the current year, the partnership reported the following results from operations: Net sales $650,000 Cost of goods sold $500,000 Operating expenses $160,000 Short-term capital loss $2,000 Tax-exempt interest $2,000 §1231 gain $6,000 On the last day of the year, the partnership distributed $3,000 each to Amir and Francesca. a. What outside basis do Amir and Francesca have in their partnership interests at the end of the year? b. How much of their losses are currently not deductible by Amir and Francesca because of the tax-basis limitation? c. To what extent does the passive activity loss limitation apply in restricting their deductible losses for the year? d. Using the information provided, prepare TimpRiders’ page 1 and Schedule K to be included with its Form 1065 for the current year. Also, prepare a Schedule K-1 for Amir and Francesca.

Since fixed-rate mortgages and bonds have similar payment flows, how is a financial institution with a large portfolio of fixed-rate mortgages affected by rising interest rates? Explain. LO(8-1)

Danny’s Lawn Equipment sells high-quality lawn mowers and offers a 3-year warranty on all new lawn mowers sold. In 2014, Danny sold $300,000 of new specialty mowers for golf greens for which Danny’s service department does not have the equipment to do the service. Danny has entered into an agreement with Mower Mavens to provide all warranty service on the special mowers sold in 2014. Danny wishes to measure the fair value of the agreement to determine the warranty liability for sales made in 2014. The controller for Danny’s Lawn Equipment estimates the following expected warranty cash outflows associated with the mowers sold in 2014. Cash Flow Probability Year Estimate Assessment 2015 $2,500 20% 4,000 60% 5,000 20% 2016 $3,000 30% 5,000 50% 6,000 20% 2017 $4,000 30% 6,000 40% 7,000 30% Instructions Using expected cash flow and present value techniques, determine the value of the warranty liability for the 2014 sales. Use an annual discount rate of 5%. Assume all cash flows occur at the end of the year.

Presented below are comments made in the financial press. Instructions Prepare responses to the requirements in each item. (a) Rep. John Dingell, at one time the ranking Democrat on the House Commerce Committee, threw his support behind the FASB’s controversial derivatives accounting standard and encouraged the FASB to adopt the rule promptly. Indicate why a member of Congress might feel obligated to comment on this proposed FASB standard. (b) In a strongly worded letter to Senator Lauch Faircloth (R-NC) and House Banking Committee Chairman Jim Leach (R-IA), the American Institute of Certified Public Accountants (AICPA) cautioned against government intervention in the accounting standard-setting process, warning that it had the potential of jeopardizing U.S. capital markets. Explain how government intervention could possibly affect capital markets adversely.

Sasha is a self-employed taxpayer. They recently spent $1,000 for airfare to travel to Italy. What amount of the airfare is deductible in each of the following alternative scenarios?

1. If a bank buys a £500 000 Treasury bill at the start of its 91-day life for £480 000, at roughly what price could it sell it to another financial institution after 45 days Why is it not possible to predict that precise price when the bill is first purchased? 2. Suppose there were a sudden surge in demand for cash from the general public. Would the existence of inter-bank market loans help to meet the demand in any way?

If you were the owner of a clothes shop, how would you set about deciding what prices to charge for each garment at the end-of-season sale?