Question & Answer

] Circuit Corporation (CC) is a calendar-year, accrual-method taxpayer. CC manufactures and sells electronic circuitry. On November 15 of this year, CC enters into a contract with Equip Corp (EC) that provides CC with exclusive use of EC’s specialized manufacturing equipment for the five-year period beginning on January 1 of next year. Pursuant to the contract, CC pays EC $100,000 on December 30 of this year. How much of this expenditure is CC allowed to deduct this year and next year?

Comparative balance sheet accounts of Sharpe Company are presented below. SHARPE COMPANY COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31 Debit Balances 2014 2013 Cash $ 70,000 $ 51,000 Accounts Receivable 155,000 130,000 Inventory 75,000 61,000 Investments (available-for-sale) 55,000 85,000 Equipment 70,000 48,000 Buildings 145,000 145,000 Land 40,000 25,000 Totals $610,000 $545,000 Credit Balances Allowance for Doubtful Accounts $ 10,000 $ 8,000 Accumulated Depreciation—Equipment 21,000 14,000 Accumulated Depreciation—Buildings 37,000 28,000 Accounts Payable 66,000 60,000 Income Taxes Payable 12,000 10,000 Long-Term Notes Payable 62,000 70,000 Common Stock 310,000 260,000 Retained Earnings 92,000 95,000 Totals $610,000 $545,000 Additional data: 1. Equipment that cost $10,000 and was 60% depreciated was sold in 2014. 2. Cash dividends were declared and paid during the year. 3. Common stock was issued in exchange for land. 4. Investments that cost $35,000 were sold during the year. 5. There were no write-offs of uncollectible accounts during the year. Sharpe’s 2014 income statement is as follows. Sales revenue $950,000 Less: Cost of goods sold 600,000 Gross profi t 350,000 Less: Operating expenses (includes depreciation expense and bad debt expense) 250,000 Income from operations 100,000 Other revenues and expenses Gain on sale of investments $15,000 Loss on sale of equipment (3,000) 12,000 Income before taxes 112,000 Income taxes 45,000 Net income $ 67,000 Instructions (a) Compute net cash provided by operating activities under the direct method. (b) Prepare a statement of cash flows using the indirect method.

Discuss the importance of ethical decision-making in a sustainability management accounting framework.

Suppose you asked your favorite AI query tool “How much tax depreciation could a taxpayer deduct on a computer acquired in January 2024 for $100,000?” and the AI tool provided the following response:

Use the information for Rick Kleckner Corporation from IFRS21-7. Assume that at December 31, 2014, Kleckner made an adjusting entry to accrue interest expense of $29,530 on the lease. Prepare Kleckner’s January 1, 2015, journal entry to record the second lease payment of $53,920.

Balanced scorecard; strengths and weaknesses Brewster House is a not-for-profit shelter for the homeless. Lately funding has decreased, but the demand for overnight shelter has increased. In cold weather, clients are turned away because the shelter is full. The director believes that the current capacity could be used more efficiently. No one has taken time to analyse the physical layout of the shelter and current use of space. Several rooms are used for storage that could probably be used for temporary housing. The stored boxes need to be sorted and moved. Volunteers currently assign beds and manage overnight housing, because the director is busy with fund-raising. Volunteers work just a few shifts each week, so no one has taken responsibility for coordinating improvements in the services offered. The director is considering whether to implement a balanced scorecard to focus the attention of all volunteers on areas that need improvement.   Brewster receives funds from several sources including a set annual budget from the council and direct donations from supporters. The director develops a budget each year based on expected funding, but she cannot precisely predict donations. The budget is used primarily to justify funding requests submitted to the council.   The director has asked a group of accounting students from the local university to evaluate operations and recommend whether the organisation should develop a balanced scorecard. She cannot give bonuses based on the measures, but she wonders whether developing and monitoring performance measures would encourage the volunteers to increase the use of capacity. She also wonders whether some information from the balanced scorecard could be used to show donors the effectiveness of operations.   Required (a)     Describe several potential costs and benefits of the balanced scorecard for this organisation. (b)     Describe one potential measure for each scorecard perspective appropriate for Brewster House. Explain how information for each measure will be collected. (c)     Prepare a memo to the director that recommends whether Brewster House should adopt a balanced scorecard. In writing the memo, consider what information the director needs from you to help her make a decision.

Mustafa, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mustafa is contributing $200,000 for a 40 percent ownership interest, Mickayla is contributing a building with a value of $200,000 and a tax basis of $150,000 for a 40 percent ownership interest, and Taylor is contributing legal services for a 20 percent ownership interest. What amount of gain or income is each owner required to recognize under each of the following alterative situations? [Hint: Look at §§351 and 721.] a. MMT is formed as a C corporation. b. MMT is formed as an S corporation. c. MMT is formed as an LLC (taxed as a partnership).

What is net interest? Identify the elements of net interest and explain how they are computed.

Aubrey Inc. issued $4,000,000 of 10%, 10-year convertible bonds on June 1, 2014, at 98 plus accrued interest. The bonds were dated April 1, 2014, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2015, $1,500,000 of these bonds were converted into 30,000 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. Instructions (a) Prepare the entry to record the interest expense at October 1, 2014. Assume that accrued interest payable was credited when the bonds were issued. (Round to nearest dollar.) (b) Prepare the entry(ies) to record the conversion on April 1, 2015. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to cash flow reporting.

What is the general rule for how many authorities a research memo should discuss?   Answer:

Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the following. Inventory (beginning) $ 80,000 Sales revenue $415,000 Purchases 290,000 Sales returns 21,000 Purchase returns 28,000 Gross profi t % based on net selling price 35% Merchandise with a selling price of $30,000 remained undamaged after the fire, and damaged merchandise has a net realizable value of $8,150. The company does not carry fire insurance on its inventory. Instructions Prepare a formal labeled schedule computing the fire loss incurred. (Do not use the retail inventory method.)

What is the process of jiggering?

Briefly describe FASB/IASB convergence process and the principles that guide their convergence efforts.

What are the rewards of tax avoidance? What are the rewards of tax evasion?

Armando identifies a tax research question as being a question of fact.  What types of authorities should he attempt to locate in his research?

Describe the main provisions of the DIDMCA that relate to deregulation. (LO2)

If bond yields in Japan rise, how might U.S. bond yields be affected? Why? (LO3)

Explain why a stimulative monetary policy might not be effective during a weak economy in which there is a credit crunch. (LO2)

Describe the types of expenses that constitute miscellaneous itemized deductions and explain why these expenses rarely produce any tax benefits.

What is the form of the starting material in thermoforming?

When considering C corporations, the IRS checks to see whether salaries paid are too large.  In S corporations, however, it usually must verify that salaries are large enough. Account for this difference.

Describe the characteristics of multinational corporations and how they might employ the bottom-of-the-pyramid concept.

Relevant information; uncertainties; information for decision-making Janet Baker is deciding where to live during her second year of university. During her first year, she lived in the university residence college. Recently her friend Rachel asked her to share an off-campus flat for the upcoming school year. Janet likes the idea of living in a flat, but she is concerned about how much it will cost.   To help her decide what to do, Janet collected information about costs. She would pay $400 per month in rent. The minimum lease term on the apartment is six months. Janet estimates that her share of the utility bills will be $75 per month. She also estimates that groceries will cost $200 per month. Janet spent $350 on a new couch over the summer. If she lives in the university residence college, she will put the couch in storage at a cost of $35 per month. Janet expects to spend $7500 on university fees and $450 on books each semester. Room and board on campus would cost Janet $2,900 per semester (four months). This amount includes a food plan of 20 meals per week. This cost is non-refundable if the meals are not eaten.   Required (a)     Use only the cost information collected by Janet for the following tasks. (i)    List all of the costs for each option. Note: Some costs may be listed under both options. (ii)   Review your lists and cross out the costs that are irrelevant to Janet’s decision. Explain why these costs are irrelevant. (iii)  Calculate and compare the total relevant costs of each option. (iv)  Given the cost comparison, which living arrangement is the better choice for Janet? Explain. (b)     Identify uncertainties in the cost information collected by Janet. (i)    Determine whether each cost is likely to be (1) known for sure, (2) estimated with little uncertainty, or (3) estimated with moderate or high uncertainty. (ii)   For each cost that is known for sure, explain where Janet would obtain the information. (iii)  For each cost that must be estimated, explain why the cost cannot be known. (c)     List additional information that might be relevant to Janet’s decision (list as many items as you can). (i)    Costs not identified by Janet (ii)   Factors other than costs (d)     Explain why conducting a cost comparison is useful to Janet, even if factors other than costs are important to her decision. (e)     Consider your own preferences for this problem. Do you expect Janet’s preferences to be the same as yours? How can you control for your biases as you give Janet advice? (f)      Think about what Janet’s priorities might be for choosing a housing arrangement. How might different priorities lead to different choices? (g)     Describe how information that Janet gains over this next year might affect her future housing arrangements. Suppose Janet asks for your advice. (h)     Use the information you learned from the preceding analyses to write a memo to Janet with your recommendation and a discussion of its risks. Refer in your memo to the information that would be useful to Janet.

Balanced scorecard perspectives: internal business process, innovation             and growth The Galaxy Hotel Group owns and operates a number of mid-level boutique hotels mostly in regional Australia. Galaxy is structured around regions with a regional general manager usually given the responsibility of working closely with the managers of the hotels within their region. Commonly, a regional general manager is responsible for around 6 to 8 hotels. Within Australia, Galaxy has six regional general managers who report to the CEO, Angelo Vellma. Galaxy’s strategy has focused on meeting the needs of business and holiday travellers seeking 3 to 3.5 star accommodation for relatively short stays that are affordable but comfortable. One thing Galaxy enforces is its objective of having the same high-level service at each hotel. The CFO of Galaxy, Caitlin Zhang, has raised the idea of introducing a balanced scorecard. At this stage it has only been discussed at board level, but most of the board members are in favour of its implementation. As Zhang points out, ‘it will focus the attention of employees on our key priorities as well as provide the opportunity to reinforce our strategy throughout the company’. Zhang’s first draft balanced scorecard developed for use at the individual hotel level is provided below. To date, Zhang has constructed the first draft alone, without consulting others.       Another board member, Patrick Ryan, wonders about using the balanced scorecard a little differently. ‘Perhaps we could use the scorecard to facilitate discussion with our regional managers and individual hotel managers. Not all are the same and they obviously face different challenges. The scorecard could be used by senior management to meet with regional managers and discuss the performance of hotels in the region, and perhaps re-work part of the scorecard and set different priorities as the regions work to meet local challenges.’ Required (a)          Angelo Vellma is a little concerned about the draft scorecard. He had recently attended a seminar on balanced scorecards and is worried about the lack of measures relating to what he thinks are important issues at the individual hotel level. He is particularly concerned at the lack of an internal business process perspective and a learning and growth perspective in the scorecard. Identify two measures relevant at the individual hotel level at Galaxy for the internal business process perspective and the learning and growth perspective. Provide a brief justification for each measure. (b)          Comment on the implementation process of the balanced scorecard at Galaxy to date.