Question & Answer

Conceptually, when taxpayers receive annuity payments, how do they determine the amount of the payment they must include in gross income?

1. If monopoly power existed in an industry, would production be above or below the socially efficient level (assuming no externalities)? Which would be greater, MSB or P? 2. Assuming perfect competition and no externalities, social efficiency will also be achieved in factor markets. Demonstrate that this will be where:                     MSBf = MRPf = Pf = MDUf = MSCf (where MRP is the marginal product of a factor, MDU is the marginal disutility of supplying it and f is any factor – see section 10.1).

“The federal income tax scores very high on the economy criterion because the current IRS budget is relatively low compared to the costs of a typical collection agency.”  Explain why this statement may be considered wrong.

What is a partnership’s ordinary business income (loss), and how is it calculated?

Under what circumstances would business income from an accounting practice qualify for the deduction for qualified business income?

For what reasons might a corporation purchase its own stock?

List two purposes of dressing a grinding wheel.

Why would a company wish to reduce its bond indebtedness before its bonds reach maturity? Indicate how this can be done and the correct accounting treatment for such a transaction.

What is a cermet?

Name and briefly describe the four types of chips that occur in metal cutting

Provide examples of assets that do not qualify for interest capitalization.

Why would a new partner who pays more for a partnership interest than the selling partner’s outside basis want the partnership to elect a special basis adjustment?

On December 21, 2013, Bucky Katt Company provided you with the following information regarding its trading securities. December 31, 2013 Investments (Trading) Cost Fair Value Unrealized Gain (Loss) Clemson Corp. stock $20,000 $19,000 $(1,000) Colorado Co. stock 10,000 9,000 (1,000) Buffaloes Co. stock 20,000 20,600 600 Total of portfolio $50,000 $48,600 (1,400) Previous fair value adjustment balance –0– Fair value adjustment—Cr. $(1,400) During 2014, Colorado Company stock was sold for $9,400. The fair value of the stock on December 31, 2014, was Clemson Corp. stock—$19,100; Buffaloes Co. stock—$20,500. Instructions (a) Prepare the adjusting journal entry needed on December 31, 2013. (b) Prepare the journal entry to record the sale of the Colorado Company stock during 2014. (c) Prepare the adjusting journal entry needed on December 31, 2014.

What dangers are there in maturity transformation for (a) financial institutions; (b) society generally?

How does the expense warranty approach differ from the sales warranty approach?

What purpose do property and casualty insurance companies serve? Explain how the characteristics of PC insurance and life insurance differ. (LO4)

Wainwright Corporation had the following activities in 2014. 1. Sale of land $180,000. 4. Purchase of equipment $415,000. 2. Purchase of inventory $845,000. 5. Issuance of common stock $320,000. 3. Purchase of treasury stock $72,000. 6. Purchase of available-for-sale securities $59,000. Compute the amount Wainwright should report as net cash provided (used) by investing activities in its 2014 statement of cash flows.

A sheet metal steel part with surface area = 15.0 in2 is to be chrome plated. What average plating thickness will result if 15 amps are applied for 10 minutes in a chromic acid-sulfate bath?

Explain group plan life insurance. (LO3)

Hart, an individual, bought an asset for $500,000 and has claimed $100,000 of depreciation deductions against the asset. Hart has a marginal tax rate of 32 percent. Answer the questions presented in the following alternative scenarios (assume Hart had no property transactions other than those described in the problem): a. What are the amount and character of Hart’s recognized gain or loss if the asset is tangible personal property sold for $450,000?  What effect does the sale have on Hart’s tax liability for the year?  b. What are the amount and character of Hart’s recognized gain or loss if the asset is tangible personal property sold for $550,000?  What effect does the sale have on Hart’s tax liability for the year?  c. What are the amount and character of Hart’s recognized gain or loss if the asset is tangible personal property sold for $350,000?  What effect does the sale have on Hart’s tax liability for the year?  d. What are the amount and character of Hart’s recognized gain or loss if the asset is a nonresidential building sold for $450,000?  What effect does the sale have on Hart’s tax liability for the year?  e. Now assume that Hart is a C corporation. What are the amount and character of its recognized gain or loss if the asset is a nonresidential building sold for $450,000?  What effect does the sale have on Hart’s tax liability for the year (assume a 21 percent tax rate)?  f. Assuming that the asset is real property, which entity type should be used to minimize the taxes paid on real estate gains?

Explain why the rescue of Fannie Mae and Freddie Mac during the credit crisis improved the ability of mortgage companies to originate mortgages. (LO5)

Your aunt recently received the annual report for a company in which she has invested. The report notes that the statements have been prepared in accordance with “generally accepted accounting principles.” She has also heard that certain terms have special meanings in accounting relative to everyday use. Shewould like you to explain the meaning of terms she has come across related to accounting. Instructions Go to http://www.fasb.org and access the FASB Concepts Statements and respond to the following items. (Provide paragraph citations.) When you have accessed the documents, you can use the search tool in your Internet browser. (a) How is “materiality” defined in the conceptual framework? (b) The concepts statements provide several examples in which specific quantitative materiality guidelines are provided to firms. Identity at least two of these examples. Do you think the materiality guidelines should be quantified? Why or why not? (c) The concepts statements discuss the concept of “articulation” between financial statement elements. Briefly summarize the meaning of this term and how it relates to an entity’s financial statements.

In rolling of steel, what are the differences between a bloom, a slab, and a billet?

On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company. Instructions (a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases. (1) Sales and receivables are entered at gross selling price. (2) Sales and receivables are entered at net of cash discounts. (b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.

A 12-station transfer line was designed to operate with an ideal production rate = 50 parts/hour. However, the line does not achieve this rate, since the line efficiency = 0.60. It costs $75/hour to operate the line, exclusive of materials. The line operates 4000 hours per year. A computer monitoring system has been proposed that will cost $25,000 (installed) and will reduce downtime on the line by 25%. If the value added per unit produced = $4.00, will the computer system pay for itself within one year of operation? Use expected increase in revenues resulting from the computer system as the criterion. Ignore material costs in your calculations.