Question & Answer

Jill Accardo, M.D., maintains the accounting records of Accardo Clinic on a cash basis. During 2014, Dr. Accardo collected $142,600 from her patients and paid $55,470 in expenses. At January 1, 2014, and December 31, 2014, she had accounts receivable, unearned service revenue, accrued expenses, and prepaid expenses as follows. (All long-lived assets are rented.)   Instructions Prepare a schedule that converts Dr. Accardo’s “excess of cash collected over cash disbursed” for the year 2014 to net income on an accrual basis for the year 2014.

Chandra was the sole shareholder of Pet Emporium, which was originally formed as an S corporation.  When Pet Emporium terminated its S election on August 31, 2023, Chandra had a stock basis and an at-risk amount of $0.  Chandra also had a suspended loss from Pet Emporium of $9,000. What amount of the suspended loss is Chandra allowed to deduct, and what is her basis in her Pet Emporium stock at the end of the post-termination transition period under the following alternative scenarios (assume Pet Emporium files for an extension to file its tax returns)?   a. Chandra makes capital contributions of $7,000 on August 30, 2024, and $4,000 on September 14, 2024.

A tensile specimen is elongated to twice its original length. Determine the engineering strain and true strain for this test. If the metal had been strained in compression, determine the final compressed length of the specimen such that (a) the engineering strain is equal to the same value as in tension (it will be negative value because of compression), and (b) the true strain would be equal to the same value as in tension (again, it will be negative value because of compression). Note that the answer to part (a) is an impossible result. True strain is therefore a better measure of strain during plastic deformation

What issue precipitated the return of capital principle? Explain.

If an S corporation with accumulated E&P makes a distribution, from what accounts (and in what order) is the distribution deemed to be paid?

Shared bonus pools Becky Tan is the CFO at Frosters Systems, a diversified company with eight different business units (divisions). Becky has been asked by the CEO to develop a shared bonus pool system.   Required What key decisions will Becky have to make to set up the shared bonus system? (LO4)

Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential tax savings. However, management wishes to consider all of the effects on the company, including its reported performance, before making the final decision. The inventory account, currently valued on the FIFO basis, consists of 1,000,000 units at $8 per unit on January 1, 2014. There are 1,000,000 shares of common stock outstanding as of January 1, 2014, and the cash balance is $400,000. The company has made the following forecasts for the period 2014–2016. 2014 2015 2016 Unit sales (in millions of units) 1.1 1.0 1.3 Sales price per unit $10 $12 $12 Unit purchases (in millions of units) 1.0 1.1 1.2 Purchase price per unit $8 $9 $10 Annual depreciation (in thousands of dollars) $300 $300 $300 Cash dividends per share $0.15 $0.15 $0.15 Cash payments for additions to and replacement of plant and equipment (in thousands of dollars) $350 $350 $350 Income tax rate 40% 40% 40% Operating expenses (exclusive of depreciation) as a percent of sales 15% 15% 15% Common shares outstanding (in millions) 1 1 1 Instructions (a) Prepare a schedule that illustrates and compares the following data for Harrisburg Company under the FIFO and the LIFO inventory method for 2014–2016. Assume the company would begin LIFO at the beginning of 2014. (1) Year-end inventory balances. (3) Earnings per share. (2) Annual net income after taxes. (4) Cash balance. Assume all sales are collected in the year of sale and all purchases, operating expenses, and taxes are paid during the year incurred. (b) Using the data above, your answer to (a), and any additional issues you believe need to be considered, prepare a report that recommends whether or not Harrisburg Company should change to the LIFO inventory method. Support your conclusions with appropriate arguments.

Chuck, a single taxpayer, earns $75,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds.  Using the U.S. tax rate schedule (see Appendix C), how much federal tax will he owe?  What is his average tax rate?  What is his effective tax rate?  What is his current marginal tax rate?

This year, Major Healy paid $40,000 of interest on a mortgage on his home (he borrowed $800,000 to buy the residence in 2015; $900,000 original purchase price and value at purchase), $6,000 of interest on a $120,000 home-equity loan on his home (loan proceeds were used to buy antique cars), and $10,000 of interest on a mortgage on his vacation home (borrowed $200,000 to purchase the home in 2010). Major Healy’s AGI is $220,000. How much interest expense can Major Healy deduct as an itemized deduction?

Gershwin Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash payment of $120,000 on April 1, 2014. The franchise grants Gershwin the right to sell certain products and services for a period of 8 years. Prepare Gershwin’s April 1 journal entry and December 31 adjusting entry.

69. Hauswirth Corporation sold (or exchanged) a warehouse in year 0. Hauswirth bought the warehouse several years ago for $65,000, and it has claimed $23,000 of depreciation expense against the building.  a. Assuming that Hauswirth receives $50,000 in cash for the warehouse, compute the amount and character of Hauswirth’s recognized gain or loss on the sale. b. Assuming that Hauswirth exchanges the warehouse in a like-kind exchange for some land with a fair market value of $50,000, compute Hauswirth’s realized gain or loss, recognized gain or loss, deferred gain or loss, and basis in the new land. c. Assuming that Hauswirth receives $20,000 in cash in year 0 and a $50,000 note receivable that is payable in year 1, compute the amount and character of Hauswirth’s gain or loss in year 0 and in year 1.

Lauren’s basis in Driftwood Partnership is $510,000. Driftwood distributes all the land to Lauren in complete liquidation of her partnership interest. The partnership reports the following balance sheet just before the distribution: Assets: Tax Basis FMV Cash $ 370,000 $ 370,000 Stock (investment) 910,000 370,000 Land 250,000 370,000    Totals $1, 530,000 $ 1,110,000 Liabilities and capital: Capital- Esteban $ 510,000 - Kylie 510,000 - Lauren 510,000   Totals $ 1,530,000 a. What are the amount and character of Lauren’s recognized gain or loss? b. If Driftwood does not have a §754 election in place, what is the amount of the special basis adjustment, if any?

Explain the difference between a static budget and a flexible budget.

In 2014, Leppard Inc. issued 1,000 shares of $10 par value common stock for land worth $40,000. (a) Prepare Leppard’s journal entry to record the transaction. (b) Indicate the effect the transaction has on cash. (c) Indicate how the transaction is reported on the statement of cash flows.

Is voluntary unemployment the same as frictional unemployment?

Kase, an individual, purchased some property in Potomac, Maryland, for $150,000 approximately 10 years ago. Kase is approached by a real estate agent representing a client who would like to exchange a parcel of land in North Carolina for Kase’s Maryland property. Kase agrees to the exchange. What is Kase’s realized gain or loss, recognized gain or loss, and basis in the North Carolina property in each of the following alternative scenarios?   a. The transaction qualifies as a like-kind exchange, and the fair market value of each property is $675,000. b. The transaction qualifies as a like-kind exchange, and the fair market value of

What is the freeze drying process used to make certain new ceramic powders?

Explain the difference between an ideal standard and a currently          attainable standard.

Anne purchased an annuity from an insurance company that promised to pay her $20,000 per year for the next 10 years. Anne paid $145,000 for the annuity, and in exchange she will receive $200,000 over the term of the annuity.

In its 2011 annual report, Campbell Soup Company reports beginning-of-the-year total assets of $6,276 million, end-of-the-year total assets of $6,862 million, total sales of $7,719 million, and net income of $805 million. (a) Compute Campbell’s asset turnover. (b) Compute Campbell’s profit margin on sales. (c) Compute Campbell’s return on assets using (1) asset turnover and profit margin and (2) net income.

Baker Corporation owned a building located in Kansas. Baker used the building for its business operations. Last year, a tornado hit the property and completely destroyed it. This year, Baker received an insurance settlement. Baker had originally purchased the building for $350,000 and had claimed a total of $100,000 of depreciation deductions against the property. What are Baker’s realized and recognized gain or (loss) on this transaction and what is its basis in the new building in the following alternative scenarios? a. Baker received $450,000 in insurance proceeds and spent $450,000 rebuilding the building during the current year. b. Baker received $450,000 in insurance proceeds and spent $500,000 rebuilding the building during the current year. c. Baker received $450,000 in insurance proceeds and spent $400,000 rebuilding the building during the current year. d. Baker received $450,000 in insurance proceeds and spent $450,000 rebuilding the building during the next three years.

In the past several years, Shakira had loaned money to Shakira Inc. (an S corporation) to help the corporation keep afloat in a downturn.  Her stock basis in the S corporation is now $0, and she has deducted $40,000 in losses, reducing her debt basis from $100,000 to $60,000.  Things appear to be turning around this year, and Shakira Inc. repaid Shakira $20,000 of the $100,000 outstanding loan.  What is Shakira’s income, if any, on the partial loan repayment?

Human occupations have been lost as a result of technological advancements throughout history. Do you believe that the advancements in fintech will have a comparable effect on employment, leading to the replacement of human jobs with intelligent robots and software? (LO1, LO4)

Lanco Corporation, an accrual-method corporation, reported taxable income of $1,460,000 this year. Included in the computation of taxable income were the following items: • MACRS depreciation of $200,000. Depreciation for earnings and profits purposes is $120,000. • A net capital loss carryover of $10,000 from last year. • A net operating loss carryover of $25,000 from last year. • $65,000 capital gain from the distribution of land to the company’s sole shareholder (see below).   Not included in the computation of taxable income were the following items: • Tax-exempt income of $5,000. • Life insurance proceeds of $250,000. • Excess current-year charitable contribution of $2,500 (to be carried over to next year). • Tax-deferred gain of $20,000 on a like-kind exchange. • Nondeductible life insurance premium of $3,500. • Nondeductible interest expense of $1,000 on a loan used to buy tax-exempt bonds.   Lanco accrued and paid federal income taxes this year of $306,600. Lanco’s accumulated E&P at the beginning of the year was $2,400,000.  During the year, Lanco made the following distributions to its sole shareholder, Luigi Nutt:  • June 30:  $50,000 • September 30:  Parcel of land with a fair market value of $75,000. Lanco’s tax basis in the land was $10,000.  Luigi assumed an existing mortgage on the property of $15,000.

What limitations exist for self-employed taxpayers in deducting home office expenses, and how does the taxpayer determine which expenses are deductible and which are not in situations when the overall amount of the home office deduction is limited?