Question & Answer

Are taxpayers allowed to deduct net capital losses (either net long-term capital loss in excess of net short-term capital gain or net short-term capital loss in excess of net long-term capital gain)? Explain.

Remember the question we asked at the beginning of the Chapter 4 (page 105): ‘Do you ever purchase things irrationally? If so, what are they and why is your behaviour irrational?’ Can you explain this behaviour better in the light of behavioural economics?

Troy operates an editorial service that often entertains prospective authors to encourage them to use Troy's service. This year Troy paid $3,000 for the cost of meals and $6,200 for the cost of entertaining authors. Describe the conditions under which Troy can deduct a portion of the cost of the meals as a business expense.

Paolo is a 50 percent partner in the Capri Partnership and has decided to terminate his partnership interest. Paolo is considering two options as potential exit strategies. The first is to sell his partnership interest to the two remaining 25 percent partners, Giuseppe and Isabella, for $105,000 cash and the assumption of Paolo’s share of Capri’s liabilities. Under this option, Giuseppe and Isabella would each pay $52,500 for half of Paolo’s interest. The second option is to have Capri liquidate Paolo’s partnership interest with a proportionate distribution of the partnership assets. Paolo’s basis in his partnership interest is $110,000, including Paolo’s share of Capri’s liabilities. Capri reports the following balance sheet as of the termination date: Assets Tax Basis FMV Cash $ 80,000 $ 80,000 Receivables 40,000 40,000 Inventory 50,000 80,000 Land 50,000 60,000    Totals $ 220,000 $ 260,000 Liabilities and capital Liabilities $ 50,000 Capital – Paolo 85,000  – Giuseppe 42,500  – Isabella 42,500       Totals $ 220,000 a. If Paolo sells his partnership interest to Giuseppe and Isabella for $105,000, what are the amount and character of Paolo’s recognized gain or loss? b. Giuseppe and Isabella each have a basis in Capri of $55,000 before any purchase of Paolo’s interest. What are Giuseppe’s and Isabella’s bases in their partnership interests following the purchase of Paolo’s interest? c. If Capri liquidates Paolo’s partnership interest with a proportionate distribution of the partnership assets ($25,000 deemed cash from debt relief, $15,000 of actual cash, and half of the remaining assets), what are the amount and character of Paolo’s recognized gain or loss? d. If Capri liquidates Paolo’s interest, what is Paolo’s basis in the distributed assets? e. Compare and contrast Paolo’s options for terminating his partnership interest. Assume that Paolo’s marginal tax rate is 35 percent and his capital gains rate is 15 percent.

Tim’s parents plan to provide him with $50,000 to support him while he establishes a new landscaping business. In exchange for the support, Tim will maintain the landscape at his father’s business. Under what conditions will the transfer of $50,000 be included in Tim’s gross income? Explain. Do you have a recommendation for Tim and his parents?

List two examples of non-linear cost functions and describe a method of developing a cost function for each one.

Why do we get less consumer surplus from goods where our demand is relatively elastic?

Describe the process of “borrowing at the Federal Reserve.” What rate is charged, and who sets it? Why do banks commonly borrow in the federal funds market rather than through the Federal Reserve? (LO2)

The following is a record of Pervis Ellison Company’s transactions for Boston Teapots for the month of May 2014. May 1 Balance 400 units @ $20 May 10 Sale 300 units @ $38 12 Purchase 600 units @ $25 20 Sale 540 units @ $38 28 Purchase 400 units @ $30 Instructions (a) Assuming that perpetual inventories are not maintained and that a physical count at the end of the month shows 560 units on hand, what is the cost of the ending inventory using (1) FIFO and (2) LIFO? (b) Assuming that perpetual records are maintained and they tie into the general ledger, calculate the ending inventory using (1) FIFO and (2) LIFO.

There are 21 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 on the quiz is based on the total number of correct answers. 38.1 The three components of an automated system are which of the following: (a) actuators, (b) communication system, (c) control system, (d) feedback loop, (e) humans, (f) power, (g) program of instructions, and (h) sensors? 38.2 The three basic types of automated systems used in manufacturing are fixed automation, programmable automation, and flexible automation. Flexible automation is an extension of programmable automation in which there is virtually no lost production time for setup changes or reprogramming: (a) true or (b) false. 38.3 The input/output relationship of a sensor is called which one of the following: (a) analog, (b) converter, (c) sensitivity, or (d) transfer function? 38.4 A stepper motor is which one of the following types of devices: (a) actuator, (b) interface device, (c) pulse counter, or (d) sensor? 38.5 A contact input interface is a device that reads analog data into the computer from an external source: (a) true of (b) false? 38.6 A programmable logic controller (PLC) normally replaces which one of the following in control applications: (a) computer numerical control, (b) distributed process control, (c) humans, (d) industrial robots, or (e) relay control panel? 38.7 The standard coordinate system for numerical control machine tools is based on which one of the following: (a) Cartesian coordinates, (b) cylindrical coordinates, or (c) polar coordinates? 38.8 Identify which of the following applications are point-to-point and not continuous path operations (three correct answers): (a) arc welding, (b) drilling, (c) hole punching in sheet metal, (d) milling, (e) spot welding, and (f) turning? 38.9 The ability of a positioning system to return to a previously defined location is measured by which one of the following terms: (a) accuracy, (b) control resolution, or (c) repeatability? 38.10 The APT command GORGT is which of the following (two best answers): (a) continuous path command, (b) geometry statement involving a volume of revolution about a central axis, (c) name of the humanoid in the latest Star Wars movie, (d) point-to-point command, and (e) tool path command in which the tool must go right in the next move? 38.11 The arm-and-body of a robot manipulator generally performs which one of the following functions in an application: (a) holds the end effector, (b) orients the end effector within the work volume, or (c) positions the wrist within the work volume? 38.12 A SCARA robot is normally associated with which one of the following applications: (a) arc welding, (b) assembly, (c) inspection, (d) machine loading and unloading, or (e) resistance welding? 38.13 In robotics, spray-painting applications are classified as which of the following: (a) continuous path operation or (b) point-to-point operation? 38.14 Which of the following are characteristics of work situations that tend to promote the substitution of a robot in place of a human worker (three best answers): (a) frequent job changeovers, (b) hazardous work environment, (c) repetitive work cycle, (d) multiple work shifts, and (e) task requires mobility?

Linear, stepwise linear, and piecewise linear cost functions (a)          Total fixed costs are $10 000 per week and the variable cost per unit is $8. Write the algebraic expression for the cost function and graph it. What are the assumptions of the cost function? (b)          Total fixed costs are $25 000 per week up to 2000 units a week and then jump up to $35 000 per week. The variable cost per unit is $8. Write the algebraic expression for the cost function and graph it. (c)           The average cost to produce 10,000 units is $45 and the average cost to produce 12 000 units is $44. Estimate the average cost to produce 15 000 units. (d)          The total cost function for Hot Dog Days, a hot dog cart business in Centennial Park, is TC = $5000 + 45% ´ total revenues. Estimate the total cost for a month when total revenues are $10 000.

Reed Pentak, a finance major, has been following globalization and made the following observation concerning accounting convergence: “I do not see many obstacles concerning development of a single accounting standard for inventories.” Prepare a response to Reed to explain the main obstacle to achieving convergence in the area of inventory accounting.

What are the three basic steps in the glassworking sequence?

Fernandez Corp. invested its excess cash in available-for-sale securities during 2014. As of December 31, 2014, the portfolio of available-for-sale securities consisted of the following common stocks. Security Quantity Cost Fair Value Lindsay Jones, Inc. 1,000 shares $ 15,000 $ 21,000 Poley Corp. 2,000 shares 40,000 42,000 Arnold Aircraft 2,000 shares 72,000 60,000 Totals $127,000 $123,000 Instructions (a) What should be reported on Fernandez’s December 31, 2014, balance sheet relative to these securities? What should be reported on Fernandez’s 2014 income statement? On December 31, 2015, Fernandez’s portfolio of available-for-sale securities consisted of the following common stocks. Security Quantity Cost Fair Value Lindsay Jones, Inc. 1,000 shares $ 15,000 $20,000 Lindsay Jones, Inc. 2,000 shares 33,000 40,000 Duff Company 1,000 shares 16,000 12,000 Arnold Aircraft 2,000 shares 72,000 22,000 Totals $136,000 $94,000 During the year 2015, Fernandez Corp. sold 2,000 shares of Poley Corp. for $38,200 and purchased 2,000 more shares of Lindsay Jones, Inc. and 1,000 shares of Duff Company. (b) What should be reported on Fernandez’s December 31, 2015, balance sheet? What should be reported on Fernandez’s 2015 income statement? On December 31, 2016, Fernandez’s portfolio of available-for-sale securities consisted of the following common stocks. Security Quantity Cost Fair Value Arnold Aircraft 2,000 shares $72,000 $82,000 Duff Company 500 shares 8,000 6,000 Totals $80,000 $88,000 During the year 2016, Fernandez Corp. sold 3,000 shares of Lindsay Jones, Inc. for $39,900 and 500 shares of Duff Company at a loss of $2,700. (c) What should be reported on the face of Fernandez’s December 31, 2016, balance sheet? What should be reported on Fernandez’s 2016 income statement? (d) What would be reported in a statement of comprehensive income at (1) December 31, 2014, and (2) December 31, 2015?

Describe inside information as applied to the trading of stocks. Why is it illegal to trade based on inside information? Describe the evidence that suggests some investors use inside information. (LO4)

According to the video on sheet-metal bending, what are the principal terms used to describe bending on a press brake?

1.      Which component of the AMPS model addresses the question of the best way for management accountants to communicate their analyses with decision-makers? a.       Ask the question b.      Master the data c.       Perform the analysis d.      Share the story 2.      (LO 1.5) Which of the following is considered discretionary information for a company’s accountants to provide? a.       The break-even level of a new product b.      The annual report submitted to shareholders detailing financial performance c.       The federal tax return d.      Sales information as part of the sales tax return 3.      (LO 1.1) Which of the following value chain activities is considered to be a primary activity? a.       Procurement b.      Inbound logistics c.       Human resources management d.      Information technology 4.      (LO 1.2) What requires context to create information? a.       Knowledge b.      Data c.       Facts d.      Data stores 5.      (LO 1.4) The analysis of variances (e.g., actual performance is different from budgeted performance) is most often associated with which type of analytics? a.       Descriptive analytics b.      Diagnostic analytics c.       Predictive analytics d.      Prescriptive analytics 6.      (LO 1.4) Summary statistics are most often associated with which type of analytics? a.       Descriptive analytics b.      Diagnostic analytics c.       Predictive analytics d.      Prescriptive analytics 7.      (LO 1.4) Time series analysis is most often associated with which type of analytics? a.       Descriptive analytics b.      Diagnostic analytics c.       Predictive analytics d.      Prescriptive analytics 8.       (LO 1.6) Which of the following is not one of the four overarching ethical principles mentioned in the 2017 IMA Statement of Ethical Professional Practice? a.       Competence b.      Honesty c.       Confidentiality d.      Credibility 9.      (LO 1.3) Which questions aim to more clearly understand why net income is decreasing when revenues are increasing? a.       What happened? What is happening? b.      Why did it happen? What are the root causes of past results? c.       Will it happen in the future? What is the probability something will happen? Is it forecastable? d.      What should we do based on what we expect will happen? How do we optimize our performance based on potential constraints? 10.  (LO 1.3) What type of visualization is used to track overtime labor on a continuous, real-time basis? a.       Dashboard with static display b.      Dashboard with dynamic display c.       Conditional formatting d.      Bar chart for the past 10 months 11.  (LO 1.3) Which management accounting question will require predictive analytics? a.       Why did labor expenses increase over the past year as compared to prior years? b.      Should the company rent or lease its headquarters office building? c.       Can we forecast future sales for this company? d.      Why did our cost structure (fixed and variable costs) change over the past year? 12.  (LO 1.3) Which management accounting question will require prescriptive analytics? a.       Why did the company perform worse this year than last year? b.      Should the company manufacture its product, or should it outsource the production of its products to an outside contractor? c.       Can we forecast future sales, earnings, and cash flows for this company? d.      What was the total revenue last quarter? 13.   (LO 1.2) A ________ is a person who analyzes accounting-related data to help an organization make effective business decisions. a.       management accountant b.      financial accountant c.       data scientist d.      computer programmer 14.  (LO 1.2) A ________ is a person employed to acquire, maintain, curate, access, manipulate, and statistically test data to address business questions. a.       management accountant b.      financial accountant c.       data scientist d.      computer programmer 15.  (LO 1.2) If a manager is a decision-maker, and a data scientist is a developer, then what best describes a management accountant? a.       An interpreter b.      An expert at investments c.       An intermediary d.      A broker 16.  (LO 1.5) Which of the following is mandatory information that a company’s accountants is required to maintain? a.       The cost drivers used to allocate overhead b.      The calculation of the difference between actual and budgeted performance c.       The product price that should be charged to maximize profits d.      The amount of dividends paid to shareholders 17.  (LO 1.5) Which entity sponsors the certification of management accountants as a CMA? a.       Institute of Management Accountants b.      Institute of Certified Public Accountants c.       American Institute of Management Accountants d.      Association of Certified Management Accountants 18.   (LO 1.5) Which of the following applies to management accounting? a.       There are required audits of management accounting information. b.      Management accounting works to minimize the cost of compliance with regulatory entities. c.       A source of management accounting data comes from a cost accounting system. d.      Common output is the income statement. 19.  (LO 1.3) Performing a regression falls into which of the following components of the AMPS model? a.       Ask the question b.      Master the data c.       Perform the analysis d.      Share the story 20.  (LO 1.3) Which data visualization is used to evaluate trends of values over time? a.       Bar Chart b.      Pie Chart c.       Scatterplot   d.      Line Graph

Identify the five components that comprise pension expense. Briefly explain the nature of each component.

Two years ago, Kimberly became a 30 percent partner in the KST Partnership with a contribution of investment land with a $10,000 basis and $16,000 fair market value. On January 2 of this year, Kimberly has a $15,000 basis in her partnership interest, and none of her pre-contribution gain has been recognized. On January 2 Kimberly receives an operating distribution of a tract of land (not the contributed land) with a $12,000 basis and an $18,000 fair market value. a. What are the amount and character of Kimberly’s recognized gain or loss on the distribution? b. What is Kimberly’s remaining basis in KST after the distribution? c. What is KST’s basis in the land Kimberly contributed after Kimberly receives this distribution?

1.       : Big data analytics programs (which analyze massive data sets to make decisions) use gigantic computing power to quantify trends that would be beyond the grasp of human observers. As the use of this quantitative analysis increases, do you think it may decrease the “humanity of production” in organizations? Why?

What will be the effect of an expansionary fiscal policy on interest rates and national income if there is a perfectly elastic supply of international finance?

Some of the transactions of Torres Company during August are listed below. Torres uses the periodic inventory method. August 10 Purchased merchandise on account, $12,000, terms 2/10, n/30. 13 Returned part of the purchase of August 10, $1,200, and received credit on account. 15 Purchased merchandise on account, $16,000, terms 1/10, n/60. 25 Purchased merchandise on account, $20,000, terms 2/10, n/30. 28 Paid invoice of August 15 in full. Instructions (a) Assuming that purchases are recorded at gross amounts and that discounts are to be recorded when taken: (1) Prepare general journal entries to record the transactions. (2) Describe how the various items would be shown in the financial statements. (b) Assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses: (1) Prepare general journal entries to enter the transactions. (2) Prepare the adjusting entry necessary on August 31 if financial statements are to be prepared at that time. (3) Describe how the various items would be shown in the financial statements. (c) Which of the two methods do you prefer and why?

1.       : Describe the elements of the communication model in Exhibit 17.2. Give an example of each part of the model as it exists in the classroom during communication between teacher and students.

What are the product categories usually listed in the master production schedule?

Kleckner Company started operations in 2010. Although it has grown steadily, the company reported accumulated operating losses of $450,000 in its first four years in business. In the most recent year (2014), Kleckner appears to have turned the corner and reported modest taxable income of $30,000. In addition to a deferred tax asset related to its net operating loss, Kleckner has recorded a deferred tax asset related to product warranties and a deferred tax liability related to accelerated depreciation. Given its past operating results, Kleckner has established a full valuation allowance for its deferred tax assets. However, given its improved performance, Kleckner management wonders whether the company can now reduce or eliminate the valuation allowance. They would like you to conduct some research on the accounting for its valuation allowance. Instructions If your school has a subscription to the FASB Codification, go to http://aaahq.org/ascLogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses. (a) Briefly explain to Kleckner management the importance of future taxable income as it relates to the valuation allowance for deferred tax assets. (b) What are the sources of income that may be relied upon to remove the need for a valuation allowance? (c) What are tax-planning strategies? From the information provided, does it appear that Kleckner could employ a tax-planning strategy to support reducing its valuation allowance?