Question & Answer

What are the major uses of the gross profit method?

Under what circumstances would an expansionary fiscal policy have no effect at all on national income?

Solve Problem 20.15 except that the operation is performed using a wiping die with die opening dimension = 0.75 in.

In 1987, Herman Moore Company completed the construction of a building at a cost of $2,000,000 and first occupied it in January 1988. It was estimated that the building will have a useful life of 40 years and a salvage value of $60,000 at the end of that time. Early in 1998, an addition to the building was constructed at a cost of $500,000. At that time, it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years and a salvage value of $20,000. In 2016, it is determined that the probable life of the building and addition will extend to the end of 2047, or 20 years beyond the original estimate. Instructions (a) Using the straight-line method, compute the annual depreciation that would have been charged from 1988 through 1997. (b) Compute the annual depreciation that would have been charged from 1998 through 2015. (c) Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2016. (d) Compute the annual depreciation to be charged, beginning with 2016.

What role does debt basis play in determining the taxability of operating distributions to S corporation shareholders?

Give some examples of stochastic shocks.

While completing undergraduate schoolwork in information systems, Dallin Bourne and Michael Banks decided to start a technology support company called eSys Answers. During year 1, they bought the following assets and incurred the following start-up fees:

Graves Mining Company declared, on April 20, a dividend of $500,000 payable on June 1. Of this amount, $125,000 is a return of capital. Prepare the April 20 and June 1 entries for Graves.

Explain the conditions under which a speculator would like to invest in a foreign currency today even when the speculator has no use for that currency in the future. (LO2, LO3)

How should the disposal of a component of a business be disclosed in the income statement?

How does the current earnings and profits account differ from the accumulated earnings and profits accounts?

Garcia Corporation purchased a truck by issuing an $80,000, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this truck.

Andy McDowell Co. establishes a $100 million liability at the end of 2014 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2015. Also, at the end of 2014, the company has $50 million of temporary differences due to excess depreciation for tax purposes, $7 million of which will reverse in 2015. The enacted tax rate for all years is 40%, and the company pays taxes of $64 million on $160 million of taxable income in 2014. McDowell expects to have taxable income in 2015. Instructions (a) Determine the deferred taxes to be reported at the end of 2015. (b) Indicate how the deferred taxes computed in (a) are to be reported on the balance sheet. (c) Assuming that the only deferred tax account at the beginning of 2014 was a deferred tax liability of $10,000,000, draft the income tax expense portion of the income statement for 2014, beginning with the line “Income before income taxes.” (Hint: You must first compute (1) the amount of temporary difference underlying the beginning $10,000,000 deferred tax liability, then (2) the amount of temporary differences originating or reversing during the year, and then (3) the amount of pretax financial income.)

A compound die will be used to blank and punch a large washer out of 6061ST aluminum alloy sheet stock 3.50 mm thick. The outside diameter of the washer is 50.0 mm and the inside diameter is 15.0 mm. Determine (a) the punch and die sizes for the blanking operation, and (b) the punch and die sizes for the punching operation.

For what reasons are plant assets retired? Define inadequacy, supersession, and obsolescence.

While James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing careers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes for weddings, birthdays, and other celebrations.  James and Paul formed the business at the beginning of 2024, and each contributed $50,000 in exchange for a 50 percent ownership interest.  GTE also borrowed $200,000 from a local bank.  Both James and Paul had to personally guarantee the loan.  Both owners provide significant services for the business. The following information pertains to GTE’s 2024 activities.   • GTE uses the cash method of accounting (for both book and tax purposes) and reports income on a calendar-year basis.   • GTE received $450,000 of sales revenue and reported $210,000 of cost of goods sold (it did not have any ending inventory). • GTE paid $30,000 compensation to James, $30,000 compensation to Paul, and $40,000 of compensation to other employees (assume these amounts include applicable payroll taxes, if any). • GTE paid $15,000 of rent for a building and equipment, $20,000 for advertising, $14,000 in interest expense, $4,000 for utilities, and $2,000 for supplies. • GTE contributed $5,000 to charity. • GTE received a $1,000 qualified dividend from a great stock investment (it owned 2 percent of the corporation distributing the dividend), and it recognized $1,500 in short-term capital gain when it sold some of the stock. • On December 1, 2024, GTE distributed $20,000 to James and $20,000 to Paul. • GTE has qualified property of $300,000 (unadjusted basis).   Required: a. Assume James and Paul formed GTE as an S corporation.   • Complete GTE’s Form 1120-S page 1; Form 1120-S, Schedule K; and Paul’s Form 1120-S Schedule K-1 (note that you should use 2023 tax forms).  • Compute the tax basis of Paul’s stock in GTE at the end of 2024. • What amount of Paul’s income from GTE is subject to FICA or self-employment taxes? • What amount of income, including its character, will Paul recognize on the $20,000 distribution he receives on December 1? • What amount of tax does GTE pay on the $1,000 qualified dividend it received?

Provide examples of off-balance sheet activities. Why are regulators concerned about them? (LO2)

(FASB and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false. 1. GAAP is the term used to indicate the whole body of FASB authoritative literature. 2. Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements. 3. The primary governmental body that has influence over the FASB is the SEC. 4. The FASB has a government mandate and therefore does not have to follow due process in issuing a standard

The trial balance before adjustment of Reba McIntyre Inc. shows the following balances Dr. Cr. Accounts Receivable $90,000 Allowance for Doubtful Accounts 1,750 Sales Revenue (all on credit) $680,000 Instructions Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 1% of net sales.

Figure 15.5 shows a decline in actual output in recessions. Redraw the diagram, only this time show a mere slowing down of growth in phase 4.

Explain why mortgage defaults during the credit crisis in 2008 and 2009 adversely affected financial institutions that did not originate the mortgages. What role did these institutions play in financing the mortgages? (LO4)

When High Horizon LLC was formed, Maude contributed the following assets in exchange for a 25 percent capital and profits interest in the LLC: Maude: Basis Fair Market Value Cash $ 20,000 $ 20,000 Land* 100,000 360,000 Totals $ 120,000 $ 380,000

Extrusion is a fundamental shaping process. Describe it

Steve’s tentative minimum tax (TMT) for 2024 is $245,000. What is his AMT if a. His regular tax is $230,000?

Aram’s taxable income before considering capital gains and losses is $60,000. Determine Aram’s taxable income and how much of the income will be taxed at ordinary rates in each of the following alternative scenarios (assume Aram files as a single taxpayer).   a. Aram sold a capital asset that he owned for more than one year for a $5,000 gain, a capital asset that he owned for more than one year for a $500 loss, a capital asset that he owned for six months for a $1,200 gain, and a capital asset he owned for two months for a $900 loss.