Question & Answer

During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock. Jan. 10 Issued 80,000 shares for cash at $6 per share. Mar. 1 Issued 5,000 shares to attorneys in payment of a bill for $35,000 for services rendered in helping the company to incorporate. July 1 Issued 30,000 shares for cash at $8 per share. Sept. 1 Issued 60,000 shares for cash at $10 per share. Instructions (a) Prepare the journal entries for these transactions, assuming that the common stock has a par value of $5 per share. (b) Prepare the journal entries for these transactions, assuming that the common stock is no-par with a stated value of $3 per share.

Differentiate between “accounting for the employer” and “accounting for the pension fund.”

What are dark pools? How can they help investors accumulate shares without other investors knowing about the trades? Why are dark pools criticized by public stock exchanges? Explain the strategy used by public stock exchanges to compete with dark pools. (LO2)

Simon lost $5,000 gambling this year on a trip to Las Vegas. In addition, he paid $2,000 to his broker for managing his $200,000 portfolio, and $1,500 to his accountant for preparing his tax return. In addition, Simon incurred $2,500 in transportation costs commuting back and forth from his home to his employer’s office, which were not reimbursed. Calculate the amount of these expenses that Simon is able to deduct (assuming he itemizes his deductions).

If the sufferers had no property rights, show how it would still be in their interests to ‘bribe’ the firm to produce the socially efficient level of output.

Strickland Company owes $200,000 plus $18,000 of accrued interest to Moran State Bank. The debt is a 10-year, 10% note. During 2014, Strickland’s business deteriorated due to a faltering regional economy. On December 31, 2014, Moran State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of $390,000, accumulated depreciation of $221,000, and a fair value of $180,000. Instructions (a) Prepare journal entries for Strickland Company and Moran State Bank to record this debt settlement. (b) How should Strickland report the gain or loss on the disposition of machine and on restructuring of debt in its 2014 income statement? (c) Assume that, instead of transferring the machine, Strickland decides to grant 15,000 shares of its common stock ($10 par) which has a fair value of $180,000 in full settlement of the loan obligation. If Moran State Bank treats Strickland’s stock as a trading investment, prepare the entries to record the transaction for both parties.

Explain how the prices of bonds were affected by a change in the risk-free rate during the Covid-19 pandemic that began in 2020. Explain how bond prices were affected by a change in the credit risk premium during this period. (LO2)

Sherwin-Williams, based in Cleveland, Ohio, manufactures a wide variety of paint and other coatings, which are marketed through its specialty stores and in other retail outlets. The company also manufactures paint for automobiles. The Automotive Division has had financial difficulty. During a recent year, five branch locations of the Automotive Division were closed, and new management was put in place for the branches remaining. The following titles were shown on Sherwin-Williams’s balance sheet for that year. Accounts payable Machinery and equipment Accounts receivable, less allowance Other accruals Accrued taxes Other capital Buildings Other current assets Cash and cash equivalents Other long-term liabilities Common stock Postretirement obligations other than pensions Employee compensation payable Retained earnings Finished goods inventories Short-term investments Intangibles and other assets Taxes payable Land Work in process and raw materials inventories Long-term debt Instructions (a) Organize the accounts in the general order in which they would have been presented in a classified balance sheet. (b) When several of the branch locations of the Automotive Division were closed, what balance sheet accounts were most likely affected? Did the balance in those accounts decrease or increase?

Grayson (single) is in the 24 percent tax rate bracket and has the sold the following stocks in 2024:

Which of the following will have positive signs and which will have negative ones? (a) price elasticity of demand; (b) income elasticity of demand (normal good); (c) income elasticity of demand (inferior good); (d) cross elasticity of demand (with respect to changes in price of a substitute good); (e) cross elasticity of demand (with respect to changes in price of a complementary good); (f) price elasticity of supply.

Presented below is selected information for Alatorre Company. 1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2012. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2022. During 2014, Alatorre determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2014? 2. Alatorre bought a franchise from Alexander Co. on January 1, 2013, for $400,000. The carrying amount of the franchise on Alexander’s books on January 1, 2013, was $500,000. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bidding at the end of 2015, it is unlikely that the franchise will be retained beyond 2022. What amountshould be amortized for the year ended December 31, 2014? 3. On January 1, 2014, Alatorre incurred organization costs of $275,000. What amount of organization expense should be reported in 2014? 4. Alatorre purchased the license for distribution of a popular consumer product on January 1, 2014, for $150,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2014? Instructions Answer the questions asked about each of the factual situations.

Wood Incorporated factored $150,000 of accounts receivable with Engram Factors Inc. on a withoutrecourse basis. Engram assesses a 2% finance charge of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Wood Incorporated and Engram Factors to record the factoring of the accounts receivable to Engram.

] Brown Thumb Landscaping is a calendar-year, accrual-method taxpayer. In September, Brown Thumb negotiated a $14,000 contract for services it would provide to the city in November of the current year. The contract specifies that Brown Thumb will receive $4,000 in October as a down payment for these services, and it will receive the remaining $10,000 in January of next year.

Explain the amortization convention applicable to intangible assets.

In the absence of growth in the workforce what does the required investment per worker curve capture?

On the last day of its current tax year, Buy Rite LLC received $300,000 when it sold a machine it had purchased for $200,000 three years ago to use in its business. At the time of the sale, the basis in the equipment had been reduced to $100,000 due to tax depreciation taken. How much did the members’ self-employment earnings from Buy Rite increase when the equipment was sold? [Hint: See §1402(a)(3).]

What are the general rules for how gains or losses on retirement of plant assets should be reported in income?

What implication does the financial instability hypothesis have for the balance sheets of different sectors of the economy?

Differentiate broadly between financial accounting andmanagerial accounting

Hank started a new business, Hank’s Donut World (HW for short) in June of last year. He has requested your advice on the following specific tax matters associated with HW’s first year of operations. Hank has estimated HW’s income for the first year as follows:  Revenue: Donut sales$ 252,000 Catering revenues   71,550$ 323,550  Expenditures: Donut supplies$ 124,240 Catering expense27,910 Salaries to shop employees52,500 Rent expense40,050 Accident insurance premiums8,400 Other business expenditures   6,850- 259,950 Net Income $  63,600 HW operates as a sole proprietorship, and Hank reports on a calendar year. Hank uses the cash method of accounting and plans to do the same with HW (HW has no inventory of donuts because unsold donuts are not salable). HW does not purchase donut supplies on credit, nor do they generally make sales on credit. Hank has provided the following details for specific first-year transactions. • A small minority of HW clients complained about the catering service. To mitigate these complaints, Hank’s policy is to refund dissatisfied clients 50 percent of the catering fee. By the end of the first year, only two HW clients had complained but had not yet been paid refunds. The expected refunds amount to $1,700, and Hank reduced the reported catering fees for the first year to reflect the expected refund.  • In the first year, HW received a $6,750 payment from a client for catering a monthly breakfast for 30 consecutive months beginning in December. Because the payment didn’t relate to last year, Hank excluded the entire amount when he calculated catering revenues.  • In July, HW paid $1,500 to ADMAN Co. for an advertising campaign to distribute fliers advertising HW catering service. Unfortunately, this campaign violated a city code restricting advertising by fliers, and the city fined HW $250 for the violation. HW paid the fine, and Hank included the fine and the cost of the campaign in “other business” expenditures.  • In July, HW also paid $8,400 for a 24-month insurance policy that covers HW for accidents and casualties beginning on August 1 of the first year. Hank deducted the entire $8,400 as accident insurance premiums. • On May of the first year, Hank signed a contract to lease the HW donut shop for 10 months. In conjunction with the contract, Hank paid $2,000 as a damage deposit and $8,050 for rent ($805 per month). Hank explained that the damage deposit was refundable at the end of the lease. At this time, Hank also paid $30,000 to lease kitchen equipment for 24 months ($1,250 per month). Both leases began on June 1 of the first year. In his estimate, Hank deducted these amounts ($40,050 in total) as rent expense. • Hank signed a contract hiring WEGO Catering to help cater breakfasts. At year-end, WEGO asked Hank to hold the last catering payment for the year, $9,250, until after January 1 (apparently because WEGO didn’t want to report the income on its tax return). The last check was delivered to WEGO in January after the end of the first year. However, because the payment related to the first year of operations, Hank included the $9,250 in last year’s catering expense. • Hank believes that the key to the success of HW has been hiring Jimbo Jones to supervise the donut production and manage the shop. Because Jimbo is such an important employee, HW purchased a “key-employee” term-life insurance policy on his life. HW paid a $5,100 premium for this policy, and it will pay HW a $40,000 death benefit if Jimbo passes away any time during the next 12 months. The term of the policy began on September 1 of last year, and this payment was included in “other business” expenditures. • In the first year, HW catered a large breakfast event to celebrate the city’s anniversary. The city agreed to pay $7,100 for the event, but Hank forgot to notify the city of the outstanding bill until January of this year. When he mailed the bill in January, Hank decided to discount the charge to $5,500. On the bill, Hank thanked the mayor and the city council for their patronage and asked them to “send a little more business our way.” This bill is not reflected in Hank’s estimate of HW’s income for the first year of operations. Required: a) Hank files his personal tax return on a calendar year, but he has not yet filed last year’s personal tax return, nor has he filed a tax return reporting HW’s results for the first year of operations. Explain when Hank should file the tax return for HW and calculate the amount of taxable income generated using the cash method by HW last year.  b) Determine the taxable income that HW will generate if Hank chooses to account for the business under the accrual method.  c) Describe how your solution might change if Hank incorporated HW before he commenced business last year.

Why and how did the Fed intervene in the commercial paper market during the 2008 credit crisis? (LO3)

One way to classify forging operations is by the degree to which the work is constrained in the die. By this classification, name the three basic types.

Travis is a professional landscaper. He provides his clients with a one-year (12-month) warranty for retaining walls he installs. In June of this year, Travis installed a wall for an important client, Sheila. In early November, Sheila informed Travis that the retaining wall had failed. To repair the wall, Travis paid $700 cash for additional stone that he delivered to Sheila’s location on November 20 of this year. Travis also offered to pay a mason $800 to repair the wall. Due to some bad weather and the mason’s work backlog, the mason agreed to begin the work by the end of January of the next year. Even though Travis expected the mason to finish the project by end of February, Travis informed the mason that he would only pay the mason the $800 when he completed the job.  a) Assuming Travis is an accrual-method taxpayer, how much can he deduct this year from these activities? b) Assuming Travis is a cash-method taxpayer, how much can he deduct this year from these activities?

1.       : Why do you think empowerment increases motivation? Do you see any ways in which a manager’s empowerment efforts might contribute to demotivation among employees? Discuss.

What are some common examples of taxable and tax-free fringe benefits?