Question & Answer

Under what circumstances can a taxpayer deduct medical expenses paid for a member of his family?  Does it matter if the family member reports significant amounts of gross income and cannot be claimed as a dependent?

Mathys Inc. has recently hired a new independent auditor, Karen Ogleby, who says she wants “to get everything straightened out.” Consequently, she has proposed the following accounting changes in connection with Mathys Inc.’s 2014 financial statements. 1. At December 31, 2013, the client had a receivable of $820,000 from Hendricks Inc. on its balance sheet. Hendricks Inc. has gone bankrupt, and no recovery is expected. The client proposes to write off the receivable as a prior period item. 2. The client proposes the following changes in depreciation policies. (a) For office furniture and fixtures, it proposes to change from a 10-year useful life to an 8-year life. If this change had been made in prior years, retained earnings at December 31, 2013, would have been $250,000 less. The effect of the change on 2014 income alone is a reduction of $60,000. (b) For its new equipment in the leasing division, the client proposes to adopt the sum-of-theyears’- digits depreciation method. The client had never used SYD before. The first year the client operated a leasing division was 2014. If straight-line depreciation were used, 2014 income would be $110,000 greater. 3. In preparing its 2013 statements, one of the client’s bookkeepers overstated ending inventory by $235,000 because of a mathematical error. The client proposes to treat this item as a prior period adjustment. 4. In the past, the client has spread preproduction costs in its furniture division over 5 years. Because its latest furniture is of the “fad” type, it appears that the largest volume of sales will occur during the first 2 years after introduction. Consequently, the client proposes to amortize preproduction costs on a per-unit basis, which will result in expensing most of such costs during the first 2 years after the furniture’s introduction. If the new accounting method had been used prior to 2014, retained earnings at December 31, 2013, would have been $375,000 less. 5. For the nursery division, the client proposes to switch from FIFO to LIFO inventories because it believes that LIFO will provide a better matching of current costs with revenues. The effect of making this change on 2014 earnings will be an increase of $320,000. The client says that the effect of the change on December 31, 2013, retained earnings cannot be determined. 6. To achieve an appropriate recognition of revenues and expenses in its building construction division, the client proposes to switch from the completed-contract method of accounting to the percentage-of-completion method. Had the percentage-of-completion method been employed in all prior years, retained earnings at December 31, 2013, would have been $1,075,000 greater. Instructions (a) For each of the changes described above, decide whether: (1) The change involves an accounting principle, accounting estimate, or correction of an error. (2) Restatement of opening retained earnings is required. (b) What would be the proper adjustment to the December 31, 2013, retained earnings?

Schuss Corporation sold equipment to Potsdam Company for $20,000. The equipment is on Schuss’s books at a net amount of $13,000. Schuss collected $10,000 in 2014, $5,000 in 2015, and $5,000 in 2016. If Schuss uses the cost-recovery method, what amount of gross profit will be recognized in each year?

Hawkins Construction Co. has a $60 million contract to construct a highway overpass and cloverleaf. The total estimated cost for the project is $50 million. Costs incurred in the first year of the project are $8 million. Hawkins Construction Co. appropriately uses the percentageof- completion method. How much revenue and gross profit should Hawkins recognize in the first year of the project?

The U.S. Constitution is the highest tax authority but provides very little in the way of tax laws.  What are the next highest tax authorities beneath the U.S. Constitution?

A fillet weld is used to join 2 medium carbon steel plates each having a thickness of 5.0 mm. The plates are joined at a 90° angle using an inside fillet corner joint. The velocity of the welding head is 6 mm/sec. Assume the cross section of the weld bead approximates a right isosceles triangle with a leg length of 4.5 mm, the heat transfer factor is 0.80, and the melting factor is 0.58. Determine the rate of heat generation required at the welding source to accomplish the weld.

Assume the following S corporations, gross receipts, passive investment income, and corporate E&P. Will any of these corporations have its S election terminated due to excessive passive income? If so, in what year?  All became S corporations at the beginning of year 1.

1.      : Continue NIX’s zero-tolerance policy toward shoplifting. It’s the right thing to do—and it will pay off in the end in higher profitability because the chain’s reputation for being tough on crime will reduce overall losses from theft.

Mark Price Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May. Inventory, May 1 $ 160,000 Purchases (gross) 640,000 Freight-in 30,000 Sales revenue 1,000,000 Sales returns 70,000 Purchase discounts 12,000 Instructions (a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales. (b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost.

Outline the accounting procedures involved in applying the capital lease method by a lessee.

How does mechanical assembly differ from the other methods of assembly discussed in previous chapters (e.g., welding, brazing, etc.)?

Mike wanted to work for a CPA firm, but he also wanted to work on his parents’ farm in Montana.  Because the CPA firm wanted Mike to be happy, it offered to let him work for the firm as an independent contractor during the fall and winter and return to Montana to work for his parents during the spring and summer.  He was very excited to hear that the firm was also going to give him a 5 percent higher “salary” for the six months he would be working for the firm over what he would have made over the same six-month period if he worked full time as an employee (i.e., an increase from $30,000 to $31,500).  Should Mike be excited about his 5 percent raise?  Why or why not?  What counteroffer could Mike reasonably suggest?

A flux-cored arc-welding process is used to join two low alloy steel plates at a 90° angle using an outside fillet weld. The steel plates are ½ in thick. The weld bead consists of 55% metal from the electrode and the remaining 45% from the steel plates. The melting factor of the steel is 0.65 and the heat transfer factor is 0.90. The welding current is 75 amps and the voltage is 16 volts. The velocity of the welding head is 40 in/min. The diameter of the electrode is 0.10 in. There is a core of flux running through the center of the electrode that has a diameter of 0.05 in and contains flux (compounds that do not become part of the weld bead). (a) What is the cross-sectional area of the weld bead? (b) How fast must the electrode be fed into the workpiece?

Explain the meaning of a temporary difference as it relates to deferred tax computations, and give three examples.

Venezuela Co. is building a new hockey arena at a cost of $2,500,000. It received a downpayment of $500,000 from local businesses to support the project, and now needs to borrow $2,000,000 to complete the project. It therefore decides to issue $2,000,000 of 10.5%, 10-year bonds. These bonds were issued on January 1, 2013, and pay interest annually on each January 1. The bonds yield 10%. Venezuela paid $50,000 in bond issue costs related to the bond sale. Instructions (a) Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2013. (b) Prepare a bond amortization schedule up to and including January 1, 2017, using the effectiveinterest method. (c) Assume that on July 1, 2016, Venezuela Co. redeems half of the bonds at a cost of $1,065,000 plus accrued interest. Prepare the journal entry to record this redemption.

Douglas Corporation had 120,000 shares of stock outstanding on January 1, 2014. On May 1, 2014, Douglas issued 60,000 shares. On July 1, Douglas purchased 10,000 treasury shares, which were reissued on October 1. Compute Douglas’s weighted-average number of shares outstanding for 2014.

1.    : Which style of communicating do you think would be most beneficial to the long-term success of a U.S. company operating internationally—high-context or low-context communications? Why?

O’Neil, Inc. began work on a $7,000,000 contract in 2014 to construct an office building. O’Neil uses the percentage-of-completion method. At December 31, 2014, the balances in certain accounts were Construction in Process $2,450,000; Accounts Receivable $240,000; and Billings on Construction in Process $1,400,000. Indicate how these accounts would be reported in O’Neil’s December 31, 2014, balance sheet.

For what reasons should the percentage-of-completion method be used over the completed-contract method whenever possible?

Would could we say about the necessary subsidy if the MR curve crossed the horizontal axis to the left of point b?

Looking at the Maths) 1. If P was originally measured in £s, what would happen to the value of the d term if P were now measured in pence? (Looking at the Maths) 2. Draw the schedule (table) and graph for equation (2) for prices from £1 to £10. What is it in the equation that determines the slope of the supply ‘curve’? (Looking at the Maths) 3.  Explain why the P and j terms have a positive sign, whereas the a1 and a2 terms have a negative sign.

Connie recently provided legal services to the Winterhaven LLC and received a 5 percent interest in the LLC as compensation. Winterhaven currently has $50,000 of accounts payable and no other liabilities. The current fair market value of Winterhaven’s capital is $200,000. a. If Connie receives a 5 percent capital interest only, how much income must she report, and what is her tax basis in the LLC interest? b. If Connie receives a 5 percent profits interest only, how much income must she report, and what is her tax basis in the LLC interest? c. If Connie receives a 5 percent capital and profits interest, how much income must she report, and what is her tax basis in the LLC interest?

There are 10 correct answers in the following multiple choice questions (some questions have multiple answers that are correct). To attain a perfect score on the quiz, all correct answers must be given. Each correct answer is worth 1 point. Each omitted answer or wrong answer reduces the score by 1 point, and each additional answer beyond the correct number of answers reduces the score by 1 point. Percentage score on the quiz is based on the total number of correct answers. 14.1 The most important rubber product is which one of the following: (a) footwear, (b) conveyor belts, (c) pneumatic tires, or (d) tennis balls? 14.2 The chemical name of the ingredient recovered from the latex of the rubber tree is which one of the following: (a) polybutadiene, (b) polyisobutylene, (c) polyisoprene, or (d) polystyrene? 14.3 Of the following rubber additives, which one would rank as the single most important: (a) antioxidants, (b) carbon black, (c) clays and other hydrous aluminum silicates, (d) plasticizers and softening oils, or (e) reclaimed rubber? 14.4 Which one of the following molding processes is the most important in the production of products made of conventional rubber: (a) compression molding, (b) injection molding, (c) thermoforming, or (d) transfer molding? 14.5 Which of the following ingredients do not contribute to the vulcanizing process (two correct answers): (a) calcium carbonate, (b) carbon black, (c) stearic acid, (d) sulfur, and (e) zinc oxide? 14.6 How many minutes are required to cure (vulcanize) a modern passenger car tire: (a) 5, (b) 15, (c) 25, or (d) 45? 14.7 When is the tread pattern imprinted onto the circumference of the tire: (a) during preforming, (b) while building the carcass, (c) during molding, or (d) during curing? 14.8 Which of the following are not normally used in the processing of thermoplastic elastomers (two correct answers): (a) blow molding, (b) compression molding, (c) extrusion, (d) injection molding, or (e) vulcanization?

Kelly Clarkson Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2014. The terms of acquisition for each truck are described below. 1. Truck #1 has a list price of $15,000 and is acquired for a cash payment of $13,900. 2. Truck #2 has a list price of $16,000 and is acquired for a down payment of $2,000 cash and a zerointerest- bearing note with a face amount of $14,000. The note is due April 1, 2015. Clarkson would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incremental borrowing rate of 8%. 3. Truck #3 has a list price of $16,000. It is acquired in exchange for a computer system that Clarkson carries in inventory. The computer system cost $12,000 and is normally sold by Clarkson for $15,200. Clarkson uses a perpetual inventory system. 4. Truck #4 has a list price of $14,000. It is acquired in exchange for 1,000 shares of common stock in Clarkson Corporation. The stock has a par value per share of $10 and a market price of $13 per share. Instructions Prepare the appropriate journal entries for the above transactions for Clarkson Corporation.

Using the appropriate interest table, provide the solution to each of the following four questions by computing the unknowns. (a) What is the amount of the payments that Ned Winslow must make at the end of each of 8 years to accumulate a fund of $90,000 by the end of the eighth year, if the fund earns 8% interest, compounded annually? (b) Robert Hitchcock is 40 years old today and he wishes to accumulate $500,000 by his sixty-fifth birthday so he can retire to his summer place on Lake Hopatcong. He wishes to accumulate this amount by making equal deposits on his fortieth through his sixty-fourth birthdays. What annual deposit must Robert make if the fund will earn 12% interest compounded annually? (c) Diane Ross has $20,000 to invest today at 9% to pay a debt of $47,347. How many years will it take her to accumulate enough to liquidate the debt? (d) Cindy Houston has a $27,600 debt that she wishes to repay 4 years from today; she has $19,553 that she intends to invest for the 4 years. What rate of interest will she need to earn annually in order to accumulate enough to pay the debt?