Question & Answer

How would it be possible to show three different lines on the same diagram?

What is a product financing arrangement? How should product financing arrangements be reported in the financial statements?

Describe the computation of the limit placed on the business interest deduction. Is the disallowed business interest ever deductible?

Describe the three parties engaged in every business transaction and how understanding taxes may aid in structuring transactions.

George bought the following amounts of Stock A over the years:

In which of the following industries is collusion likely to occur: bricks, beer, margarine, cement, crisps, washing powder, blank DVDs, carpets?

Andy Roddick is the new owner of Ace Computer Services. At the end of August 2014, his first month of ownership, Roddick is trying to prepare monthly financial statements. Below is some information related to unrecorded expenses that the business incurred during August. 1. At August 31, Roddick owed his employees $1,900 in wages that will be paid on September 1. 2. At the end of the month, he had not yet received the month’s utility bill. Based on past experience, he estimated the bill would be approximately $600. 3. On August 1, Roddick borrowed $30,000 from a local bank on a 15-year mortgage. The annual interest rate is 8%. 4. A telephone bill in the amount of $117 covering August charges is unpaid at August 31. Instructions Prepare the adjusting journal entries as of August 31, 2014, suggested by the information above.

Using the facts from the previous problem, how would your answer change if Latoya understated her income by 40 percent? How would your answer change if Latoya intentionally failed to report as taxable income any cash payments she received from her clients?

Describe the dividend discount valuation model. What are some limitations when using this model? (LO1)

Assume the same facts as in the previous problem but that Betty and Barney are not getting along and have separated due to marital discord (although they are not legally separated). In fact, they cannot even stand to talk to each other anymore and communicate only through their accountant. Betty wants to argue that she should not be treated as owning any of Barney’s stock in Bedrock because of their hostility towards each other. Can family hostility be used as an argument to void the family attribution rules?  Consult Rev. Rul. 80-26; Robin Haft Trust v. Comm’r, 510 F.2d 43 (1st Cir. 1975);

Once they’ve computed their taxable income, how do taxpayers determine their regular tax liability?  What additional steps must taxpayers take to compute their tax liability when they have preferentially taxed income?

Fatima pays $120,000 cash for Brittany’s one-third interest in the Westlake Partnership. Just prior to the sale, Brittany’s basis in Westlake is $96,000. Westlake reports the following balance sheet: Assets: Tax Basis FMV Cash $ 96,000 $ 96,000 Land 192,000 264,000    Totals $ 288,000 $ 360,000 Liabilities and capital: Capital- Amy 96,000 - Brittany 96,000 - Ben 96,000   Totals $ 288,000 a. What are the amount and character of Brittany’s recognized gain or loss on the sale? b. What is Fatima’s basis in her partnership interest? What is Fatima’s inside basis? c. If Westlake were to sell the land for $264,000 shortly after the sale of Brittany’s partnership interest, how much gain or loss would the partnership recognize? d. How much gain or loss would Fatima recognize if the land were sold for 264,000? e. Suppose Westlake has a §754 election in place. What is Fatima’s special basis adjustment? How much gain or loss would Fatima recognize on a subsequent sale of the land in this situation?

Explain how the probability distribution of a financial institution’s returns is affected when it uses interest rate futures to hedge. What does this imply about its risk? (LO2)

Assess the economic situation today. Is the current presidential administration more concerned with reducing unemployment or inflation? Does the Fed have a similar opinion? If not, is the administration publicly criticizing the Fed? Is the Fed publicly criticizing the administration? Explain. (LO2; LO3)

The Bank of Japan desires to decrease the value of the Japanese yen against the U.S. dollar. How could it use direct intervention to achieve this goal? (LO2)

} Dennis is currently considering investing in municipal bonds that earn 6 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 8 percent.  If Dennis’ tax rate is 20 percent, which bond should he choose?  Which bond should he choose if his tax rate is 30 percent?  At what tax rate would he be indifferent between the bonds?  What strategy is this decision based upon?

1.       : Why is self-awareness important for being a good manager? Can you think of some specific negative consequences that might result from a manager with low self-awareness?

Conlin Corporation had the following tax information. Year Taxable Income Tax Rate Taxes Paid 2012 $300,000 35% $105,000 2013 $325,000 30% $ 97,500 2014 $400,000 30% $120,000 In 2015, Conlin suffered a net operating loss of $480,000, which it elected to carry back. The 2015 enacted tax rate is 29%. Prepare Conlin’s entry to record the effect of the loss carryback.

] Lionel is an unmarried law student at State University Law School, a qualified educational institution. This year Lionel borrowed $24,000 from County Bank and paid interest of $1,440. Lionel used the loan proceeds to pay his law school tuition. Calculate the amounts Lionel can deduct for interest on higher education loans under the following circumstances: a. Lionel’s AGI before deducting interest on higher education loans is $50,000. b. Lionel’s AGI before deducting interest on higher education loans is $89,000. c. Lionel’s AGI before deducting interest on higher education loans is $100,000.

Compute SWK Inc.’s tax liability for each of the following scenarios:

Pam has a $27,000 basis (including her share of debt) in her 50 percent partnership interest in the Meddoc Partnership before receiving any distributions. This year Meddoc makes a current distribution to Pam of a parcel of land with a $40,000 fair market value and a $32,000 basis to the partnership. The land is encumbered with a $15,000 mortgage (the partnership’s only liability). a. What are the amount and character of Pam’s recognized gain or loss? b. What is Pam’s basis in the land? c. What is Pam’s remaining basis in her partnership interest?

Rolando purchases a golf cart from his employer, E-Z-Go Golf Carts, for a sizable discount. Explain the rules for determining if Rolando’s purchase results in taxable income for him.

1.       : Would you expect the structure of a company such as eBay, which operates almost entirely online, to differ from the structure of a bricks-and-mortar company, such as General Motors, which uses the Internet for some things, such as customer service and business-to-business transactions? Why or why not?

Presented below are four independent situations. (a) On December 31, 2014, Zarle Inc. sold computer equipment to Daniell Co. and immediately leased it back for 10 years. The sales price of the equipment was $520,000, its carrying amount is $400,000, and its estimated remaining economic life is 12 years. Determine the amount of deferred revenue to be reported from the sale of the computer equipment on December 31, 2014. (b) On December 31, 2014, Wasicsko Co. sold a machine to Cross Co. and simultaneously leased it back for one year. The sale price of the machine was $480,000, the carrying amount is $420,000, and it had an estimated remaining useful life of 14 years. The present value of the rental payments for the one  year is $35,000. At December 31, 2014, how much should Wasicsko report as deferred revenue from the sale of the machine? (c) On January 1, 2014, McKane Corp. sold an airplane with an estimated useful life of 10 years. At the same time, McKane leased back the plane for 10 years. The sales price of the airplane was $500,000, the carrying amount $379,000, and the annual rental $73,975.22. McKane Corp. intends to depreciate the leased asset using the sum-of-the-years’-digits depreciation method. Discuss how the gain on the sale should be reported at the end of 2014 in the financial statements. (d) On January 1, 2014, Sondgeroth Co. sold equipment with an estimated useful life of 5 years. At the same time, Sondgeroth leased back the equipment for 2 years under a lease classified as an operating lease. The sales price (fair value) of the equipment was $212,700, the carrying amount is $300,000, the monthly rental under the lease is $6,000, and the present value of the rental payments is $115,753. For the year ended December 31, 2014, determine which items would be reported on its income statement for the sale-leaseback transaction.

Describe a defined-benefit pension plan. Describe a defined-contribution plan and explain how it differs from a defined-benefit plan. (LO1)