Question & Answer

Why does a partner’s tax basis in a partnership interest need to be adjusted annually?

Robert has found a “favorable” authority directly on point for his tax question.  If the authority is a court case, which court would he prefer to have issued the opinion?  Which court would he least prefer to have issued the opinion?

Distinguish between roll bending and roll forming.

Arantxa Corporation has outstanding 20,000 shares of $5 par value common stock. On August 1, 2014, Arantxa reacquired 200 shares at $80 per share. On November 1, Arantxa reissued the 200 shares at $70 per share. Arantxa had no previous treasury stock transactions. Prepare Arantxa’s journal entries to record these transactions using the cost method.

How might the reimbursement of a portion of an employee expense influence the deductibility of the expense for the employee?

In 2024, Deon and NeNe are married filing jointly.  Deon and NeNe’s taxable income is $1,390,000 (all ordinary), and they itemize their deductions as follows: real property taxes of $10,000, charitable contributions of $30,000, and mortgage interest expense of $40,000 ($700,000 acquisition debt for home).  What is Deon and NeNe’s AMT? Complete Form 6251 for Deon and NeNe.

Explain the meaning and use of implied volatility. (LO4)

Mackenzie is considering conducting her business, Mac561, as either a single member LLC or an S corporation. Assume her marginal ordinary income tax rate is 37 percent, her marginal FICA rate on employee compensation is 1.45 percent, her marginal self-employment tax rate is 2.9 percent (her other self-employment income and/or salary exceeds the wage base limit for the 12.4 percent Social Security tax portion of the self-employment tax), and any employee compensation or self-employment income she receives is subject to the .9 percent additional Medicare tax. Also, assume Mac561 generated $200,000 of business income before considering the deduction for compensation Mac561 pays to Mackenzie and Mackenzie can claim the full qualified business income deduction on Mac561’s business income allocated to her. Determine Mackenzie’s after-tax cash flow from the entity’s business income and any compensation she receives from the business under the following assumptions:   a. Mackenzie conducted Mac561 as a single-member LLC.       Amount Description (1) Business income $200,000   (1)   Deduction for 50% of S.E. taxes (2,678) (6)   × 50% (3) QBI deduction (39,464) [(1) + (2)] × 20% (4) Net income taxable business income 157,858 (1) + (2) + (3) (5) Income tax paid by owner 58,407 (4) × .37 (6) Self-employment tax 5,356 (1) × .9235 × .029 (7) Additional Medicare tax 1,662 (1) × .9235 × .009 additional Medicare tax (8) Total tax $65,425 (5) + (6) + (7) After-tax cash flow $134,575 (1)   – (8)     b.      Mackenzie conducted Mac561 as an S corporation and she received a salary of $100,000. All business income allocated to her is also distributed to her.     Amount Description (1) Business income before comp. $200,000   (2) Salary (100,000)   (3) FICA deduction (1,450) (2) × .0145 employer’s portion (4) Business income allocation and distribution to owner 98,550 (1) + (2) + (3) (5) QBI deduction (19,710) (4) × 20% (6) Net taxable business income 78,840 (4) + (5) (7) Income tax on net business income (29,171) (6) × .37 (8) Salary received 100,000 (2) (9) Income tax on salary (37,000) (8) × .37 (10) Additional Medicare tax on salary (900) (8) × .009 (11) FICA tax paid (1,450) (2) × .0145 employee’s portion After-tax cash flow $130,029 (4) + (7) + (8) + (9) + (10) + (11)     c.       Mackenzie conducted Mac561 as an S corporation and she received a salary of $20,000. All business income allocated to her is also distributed to her.       Amount Description (1) Business income before comp. $200,000   (2) Salary (20,000)   (3) FICA deduction (290) (2) × .0145 employer’s portion (4) Business income allocation and distribution to owner 179,710 (1) + (2) + (3) (5) QBI deduction (35,942) (4) × 20% (6) Net taxable business income 143,768 (4) + (5) (7) Income tax on net business income (53,194) (6) × .37 (8) Salary received 20,000 (2) (9) Income tax on salary (7,400) (8) × .37 (10) Additional Medicare tax on salary (180) (8) × .009 (11) FICA tax paid (290) (2) × .0145 employee’s portion After-tax cash flow $138,646 (4) + (7) + (8) + (9) + (10) + (11)     d.  Which entity/compensation combination generated the most after-tax cash flow for Mackenzie? What are the primary contributing factors favoring this combination?

Lehman Brothers continued to report positive earnings throughout the spring of 2008, even though mortgage valuations were clearly declining. Nevertheless, some institutional investors were concerned that Lehman Brothers might have been overstating its earnings in 2007 and early 2008. Explain why more complete and accurate disclosure by banks and other financial institutions may help to resolve financial problems. Could managers’ compensation incentives discourage banks from fully disclosing their financial condition? Why or why not? (LO5)

Amelie, a retired physician, is 66 years old. Determine her standard deduction in 2024 under the following scenarios. a. Amelie is married to Roget, age 52, and they file married filing jointly. b. Amelie is not married. c. Amelie is not married and her 10-year-old granddaughter, Emma, lives with her. Amelie supports Emma and claims her as a dependent.

What are the two basic types of forging equipment?

What are some of the reasons why plastic shaping processes are important?

At the end of the year, Falabella Co. has pretax financial income of $550,000. Included in the $550,000 is $70,000 interest income on municipal bonds, $25,000 fine for dumping hazardous waste, and depreciation of $60,000. Depreciation for tax purposes is $45,000. Compute income taxes payable, assuming the tax rate is 30% for all periods.

Southeast Airlines Inc. awards members of its Flightline program a second ticket at half price, valid for 2 years anywhere on its flight system, when a full-price ticket is purchased. How would you account for the full-fare and half-fare tickets?

Calvin reviewed his canceled checks and receipts this year (2024) for charitable contributions, which included an antique painting and IBM stock. He has owned the IBM stock and the painting since 2005. Calculate Calvin’s charitable contribution deduction and carryover (if any) under the following circumstances. Donee Item Cost FMV Hobbs Medical Center IBM stock $ 5,000 $ 22,000 State Museum antique painting 5,000 3,000 A needy family food and clothes 400 250 United Way Cash 8,000 8,000 a.              Calvin’s AGI is $100,000. b.             Calvin’s AGI is $100,000, but the State Museum told Calvin that it plans to sell the painting. c.              Calvin’s AGI is $50,000. d.             Calvin’s AGI is $100,000 and Hobbs is a nonoperating private foundation. e.              Calvin’s AGI is $100,000, but the painting is worth $10,000.

Hughie, Dewey, and Louie are equal shareholders in HDL, an S corporation. HDL’s S election terminates under each of the following alternative scenarios. When is the earliest it can again operate as an S corporation?

If the bonds in Question 8 are classified as available-forsale and they have a fair value at December 31, 2014, of $3,604,000, prepare the journal entry (if any) at December 31, 2014, to record this transaction.

Walkin Inc. is considering the write-down of its long-term plant because of a lack of profitability. Explain to the management of Walkin how to determine whether a write-down is permitted.

The foreman in the injection molding department says that a polyethylene part produced in one of the operations has greater shrinkage than the calculations indicate it should have. The important dimension of the part is specified as 112.5 ±0.25 mm. However, the actual molded part measures 112.02 mm. (a) As a first step, the corresponding mold cavity dimension should be checked. Compute the correct value of the mold dimension, given that the shrinkage value for polyethylene is 0.025 (from Table 13.1). (b) What adjustments in process parameters could be made to reduce the amount of shrinkage?

Using the facts in problem 44, what interest rate does Surething Inc. need to offer to make Hugh indifferent between investing in the two bonds?

Why is the profit-maximising price under monopoly greater than marginal cost? In what way can this be seen as inefficient?

The financial statements of P&G are presented in Appendix 5B. The company’s complete annual report, including the notes to the financial statements, can be accessed at the book’s companion website, www. wiley.com/college/kieso. Instructions Refer to P&G’s financial statements and the accompanying notes to answer the following questions. (a) What investments does P&G report in 2011, and how are these investments accounted for in its financial statements? (b) How are P&G’s investments valued? How does P&G determine fair value? (c) How does P&G use derivative financial instruments?

On January 1, 2014, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. 2. Equal rental payments are due on January 1 of each year, beginning in 2014. 3. The fair value of the equipment on January 1, 2014, is $150,000, and its cost is $120,000. 4. The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,000. Flynn depreciates all of its equipment on a straight-line basis. 5. Bensen set the annual rental to ensure an 11% rate of return. Flynn’s incremental borrowing rate is 12%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor. Instructions (Both the lessor and the lessee’s accounting period ends on December 31.) (a) Discuss the nature of this lease to Bensen and Flynn. (b) Calculate the amount of the annual rental payment. (c) Prepare all the necessary journal entries for Flynn for 2014. (d) Prepare all the necessary journal entries for Bensen for

What is the technical difference between a screw and a bolt?

Jurassic Company owns machinery that cost $900,000 and has accumulated depreciation of $380,000.The present value of expected future net cash flows from the use of the asset are expected to be $500,000. The fair value less cost of disposal of the equipment is $400,000. Prepare the journal entry, if any, to record the impairment loss.