Question & Answer

] Montana Max sells a 2,500-acre ranch for $1,000,000 in cash, a note receivable of $1,000,000, and debt relief of $2,400,000. He also pays selling commissions of $60,000. In addition, Max agrees to build a new barn on the property (cost $250,000) and spend $100,000 upgrading the fence on the property before the sale. What is Max’s amount realized on the sale?

Jonah has the choice of paying Rita $10,000 today or $40,000 in ten years. Assume Jonah can earn a 12 percent after-tax rate of return. Which should he choose?

What is friction stir welding (FSW), and how is it different from friction welding?

Under what circumstances would the IRS issue an acquiescence? A nonacquiescence? An action on decision?

Scot and Vidia, married taxpayers, earn $240,000 in taxable income and $5,000 in interest from an investment in City of Tampa bonds.  Using the U.S. tax rate schedule for married filing jointly (see Example 1-3), how much federal tax will they owe?  What is their average tax rate?  What is their effective tax rate?  What is their current marginal tax rate?

George and Weezy received $30,200 of Social Security benefits this year ($12,000 for George; $18,200 for Weezy).  They also received $5,000 of interest from jointly owned City of Ranburne Bonds and dividend income. What amount of the Social Security benefits must George and Weezy include in their gross income under the following independent situations? a.       George and Weezy file married joint and receive $8,000 of dividend income from stocks owned by George. b.       George and Weezy file married separate and receive $8,000 of dividend income from stocks owned by George. c.       George and Weezy file married joint and receive $30,000 of dividend income from stocks owned by George. d.     George and Weezy file married joint and receive $15,000 of dividend income from stocks owned by George

At the time that a management group of RJR Nabisco initially considered engaging in a leveraged buyout, RJR’s stock price was less than $70 per share. Ultimately, RJR was acquired by the firm Kohlberg, Kravis Roberts (KKR) for about $108 per share. Does the large discrepancy between the stock price before an acquisition was considered and after the acquisition mean that RJR’s price was initially undervalued? If so, does this imply that the market was inefficient? (LO3, LO6)

What are some of the cybersecurity issues facing fintech companies? (LO5)

Describe the book-tax differences that arise from incentive stock options.

Green Day Corporation has outstanding 400,000 shares of $10 par value common stock. The corporation declares a 5% stock dividend when the fair value of the stock is $65 per share. Prepare the journal entries for Green Day Corporation for both the date of declaration and the date of distribution.

1.      : Recommend a meeting with the sales representatives entitled to a bonus and tell them that the company’s deteriorating financial situation triggers one of the contingency clauses in their contract so the company won’t be issuing their bonus checks. Tacoma will just have to deal with the negative impact on sales rep motivation.

According to rational choice theory, the money you’ve already spent – known as ‘sunk costs’ (see page 161) – should be excluded from decision making. However, there is considerable evidence that it does affect consumer behaviour. Using loss aversion, can you explain why this might be the case.

How rivalrous in consumption are each of the following: (a) a can of drink; (b) public transport; (c) a radio broadcast; (d) the sight of flowers in a public park?

1.    : Albert Einstein once said, “The world is a dangerous place, not because of those who do evil, but because of those who look on and do nothing.” Do you agree? Discuss.

Indicate whether the following items are capitalized or expensed in the current year. (a) Purchase cost of a patent from a competitor. (c) Organizational costs. (b) Research and development costs. (d) Costs incurred internally to create goodwill.

Distinguish earned income from unearned income, and provide an example of each.

Using an available tax service or the Internet, identify three basic tax planning ideas or tax tips suggested for year-end tax planning. Which basic tax strategy from this chapter does each planning idea employ?

Revenues, gains, and investments by owners are all increases in net assets. What are the distinctions among them?

Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market price of $20 per share, and the preferred stock has a market price of $90 per share. Prepare the journal entry to record the issuance.

Repositioning time on a synchronous transfer line is known by a different name; what is that name?

Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out 40% of net income in dividends each year. Instructions Use the information in the following T-account for the investment in Sub to answer the following questions. Investment in Sub Co. 1,000,000 110,000 44,000 (a) How much was Parent Co.’s share of Sub Co.’s net income for the year? (b) How much was Parent Co.’s share of Sub Co.’s dividends for the year? (c) What was Sub Co.’s total net income for the year? (d) What was Sub Co.’s total dividends for the year?

The part dimension for a certain injection molded part made of polycarbonate is specified as 3.75 in. Compute the corresponding dimension to which the mold cavity should be machined, using the value of shrinkage given in Table 13.1.

1.    : The technique of stakeholder mapping lets managers classify which stakeholders they will consider more important and will invest more time to satisfy. Is it appropriate for management to define some stakeholders as more important than others? Explain.

As audit partner for Grupo and Rijo, you are in charge of reviewing the classification of unusual items that have occurred during the current year. The following material items have come to your attention. 1. A merchandising company incorrectly overstated its ending inventory 2 years ago. Inventory for all other periods is correctly computed. 2. An automobile dealer sells for $137,000 an extremely rare 1930 S type Invicta which it purchased for $21,000 10 years ago. The Invicta is the only such display item the dealer owns. 3. A drilling company during the current year extended the estimated useful life of certain drilling equipment from 9 to 15 years. As a result, depreciation for the current year was materially lowered. 4. A retail outlet changed its computation for bad debt expense from 1% to ½ of 1% of sales because of changes in its customer clientele. 5. A mining concern sells a foreign subsidiary engaged in uranium mining, although it (the seller) continues to engage in uranium mining in other countries. 6. A steel company changes from the average-cost method to the FIFO method for inventory costing purposes. 7. A construction company, at great expense, prepared a major proposal for a government loan. The loan is not approved. 8. A water pump manufacturer has had large losses resulting from a strike by its employees early in the year. 9. Depreciation for a prior period was incorrectly understated by $950,000. The error was discovered in the current year. 10. A large sheep rancher suffered a major loss because the state required that all sheep in the state be killed to halt the spread of a rare disease. Such a situation has not occurred in the state for 20 years. 11. A food distributor that sells wholesale to supermarket chains and to fast-food restaurants (two distinguishable classes of customers) decides to discontinue the division that sells to one of the two classes of customers. Instructions From the foregoing information, indicate in what section of the income statement or retained earnings statement these items should be classified. Provide a brief rationale for your position.

On January 1, 2014, Evans Company entered into a noncancelable lease for a machine to be used in its manufacturing operations. The lease transfers ownership of the machine to Evans by the end of the lease term. The term of the lease is 8 years. The minimum lease payment made by Evans on January 1, 2014, was one of eight equal annual payments. At the inception of the lease, the criteria established for classification as a capital lease by the lessee were met. Instructions (a) What is the theoretical basis for the accounting standard that requires certain long-term leases to be capitalized by the lessee? Do not discuss the specific criteria for classifying a specific lease as a capital lease. (b) How should Evans account for this lease at its inception and determine the amount to be recorded? (c) What expenses related to this lease will Evans incur during the first year of the lease, and how will they be determined? (d) How should Evans report the lease transaction on its December 31, 2014, balance sheet?