Question & Answer

Using the facts in problem 62, could Adam and Tom lower their payroll tax exposure if they operated their business as a partnership?  Why or why not?

The comparative balance sheets for Hinckley Corporation show the following information. December 31 2014 2013 Cash $ 33,500 $13,000 Accounts receivable 12,250 10,000 Inventory 12,000 9,000 Investments –0– 3,000 Buildings –0– 29,750 Equipment 45,000 20,000 Patents 5,000 6,250 $107,750 $91,000 Allowance for doubtful accounts $ 3,000 $ 4,500 Accumulated depreciation—equipment 2,000 4,500 Accumulated depreciation—building –0– 6,000 Accounts payable 5,000 3,000 Dividends payable –0– 5,000 Notes payable, short-term (nontrade) 3,000 4,000 Long-term notes payable 31,000 25,000 Common stock 43,000 33,000 Retained earnings 20,750 6,000 $107,750 $91,000 Additional data related to 2014 are as follows. 1. Equipment that had cost $11,000 and was 40% depreciated at time of disposal was sold for $2,500. 2. $10,000 of the long-term note payable was paid by issuing common stock. 3. Cash dividends paid were $5,000. 4. On January 1, 2014, the building was completely destroyed by a flood. Insurance proceeds on the building were $30,000 (net of $2,000 taxes). 5. Investments (available-for-sale) were sold at $1,700 above their cost. The company has made similar sales and investments in the past. 6. Cash was paid for the acquisition of equipment. 7. A long-term note for $16,000 was issued for the acquisition of equipment. 8. Interest of $2,000 and income taxes of $6,500 were paid in cash. Instructions Prepare a statement of cash flows using the indirect method. Flood damage is unusual and infrequent in that part of the country.

Given a large volume of metallic powders, all of which are perfectly spherical and having the same exact diameter, what is the maximum possible packing factor that the powders can take?

What is the dilemma between design and manufacturing in terms of mechanical properties?

O’Malley Corporation was incorporated and began business on January 1, 2014. It has been successful and now requires a bank loan for additional working capital to finance expansion. The bank has requested an audited income statement for the year 2014. The accountant for O’Malley Corporation provides you with the following income statement which O’Malley plans to submit to the bank.   Instructions Indicate the deficiencies in the income statement presented above. Assume that the corporation desires a single-step income statement.

Give some other examples of decisions where people often change their mind with the passage of time once the costs or benefits become immediate.

What are some of the principal abrasive materials used in grinding wheels?

For each of the following independent situations, indicate the amount the taxpayer must include in gross income and explain your answer: a.       Phil won $500 in the scratch-off state lottery.  There is no state income tax. b.       Ted won a compact car worth $17,000 in a TV game show.  Ted plans to sell the car next year. c.       Al Bore won the Nobel Peace Prize of $500,000 this year.  Rather than take the prize, Al designated that the entire award should go to Weatherhead Charity, a tax-exempt organization. d.       Jerry was awarded $2,500 from his employer, Acme Toons, when he was selected most handsome employee for Valentine’s Day this year. e.       Ellen won a $1,000 cash prize in a school essay contest.  The school is a tax-exempt entity, and Ellen plans to use the funds to pay her college education. f.       Gene won $400 in the office March Madness pool.

Distinguish between proportional, progressive and regressive taxation. Could a progressive tax have a constant marginal rate?

Assume the same information as E19-14, except that at the end of 2013, Jennifer Capriati Corp. had a valuation account related to its deferred tax asset of $45,000. Instructions (a) Record income tax expense, deferred income taxes, and income taxes payable for 2014, assuming that it is more likely than not that the deferred tax asset will be realized in full. (b) Record income tax expense, deferred income taxes, and income taxes payable for 2014, assuming that it is more likely than not that none of the deferred tax asset will be realized.

Explain agency theory and how it relates to reward systems.

Felipe, a single taxpayer, is a technology consultant who operates as a sole proprietorship.  Felipe’s net business income is $600,000 (net of the associated for AGI self-employment tax deduction), he pays wages of $100,000 to his employees, and he has $200,000 of qualified property (unadjusted basis).  Felipe’s taxable income before the deduction for qualified business income is $500,000. Assume he has no capital gains or qualified dividends. a. Calculate Felipe’s deduction for qualified business income.           b. How would your answer to (a) change if Felipe was an investment broker.

Compare and contrast the limits on the deduction of interest on home acquisition indebtedness versus home equity loans.  Are these limits consistent with horizontal equity?  Explain.

Janelle and Lori were divorced in 2016.  Pursuant to the divorce decree, Janelle receives $10,000 of alimony each month.  Use an available tax service to determine if the alimony Janelle receives is taxable. Would your answer change if Janelle and Lori still live together?

Resistance projection welding is used to simultaneously weld two thin, steel plates together at four locations. One of the pieces of steel plate is preformed with projections that have a diameter of 0.25 in and a height of 0.20 in. The duration of current flow during the weld is 0.30 sec and all four projections are welded simultaneously. The plate steel has a unit melting energy of 140 Btu/in3 and a resistance between plates of 90.0 micro-ohms. Experience has shown that 55% of the heat is dissipated by the metal and 45% melts the weld nugget. Assume the volume of the nuggets will be twice the volume of the projections because metal from both plates is melted. How much current is required for the process?

Diderot Drilling Company has leased property on which oil has been discovered. Wells on this property produced 18,000 barrels of oil during the past year that sold at an average sales price of $55 per barrel. Total oil resources of this property are estimated to be 250,000 barrels. The lease provided for an outright payment of $500,000 to the lessor (owner) before drilling could be commenced and an annual rental of $31,500. A premium of 5% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition, Diderot (lessee) is to clean up all the waste and debris from drilling and to bear the costs of reconditioning the land for farming when the wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up and reconditioning is $30,000. Instructions From the provisions of the lease agreement, you are to compute the cost per barrel for the past year, exclusive of operating costs, to Diderot Drilling Company.

Benjamin, a self-employed bookkeeper, takes a CPA review course ($3,000 cost) to help prepare for the CPA exam.    a. Use an available tax research service to determine if Benjamin may deduct the cost of the CPA exam course.   b. Write a memo communicating the results of your research.

Identify some of the properties for which aluminum is noted?

At the end of 2014, Aramis Company has accounts receivable of $800,000 and an allowance for doubtful accounts of $40,000. On January 16, 2015, Aramis Company determined that its receivable from Ramirez Company of $6,000 will not be collected, and management authorized its write-off. Instructions (a) Prepare the journal entry for Aramis Company to write off the Ramirez receivable. (b) What is the net realizable value of Aramis Company’s accounts receivable before the write-off of the Ramirez receivable? (c) What is the net realizable value of Aramis Company’s accounts receivable after the write-off of the Ramirez receivable?

Did the exchange rate difficulties experienced by countries under the ERM strengthen or weaken the arguments for progressing to a single European currency?

Horatio and Kelly were divorced at the end of last year.Neither Horatio nor Kelly remarried during the current year and Horatio moved out of state.Determine the filing status of Horatio and Kelly for the current year in the following independent situations: a.     Horatio and Kelly did not have any children and neither reported any dependents in the current year.   Horatio and Kelly will both file as single taxpayers.   b.    Horatio and Kelly had one child Amy, who turned 10 years of age in the current year.Amy lived with Kelly for all of the current year and Kelly provided all of her support.

1.    Why do you think the three skills are all needed to be an effective manager? Give examples of times when each one is used.

Why is it important for long-term debt securities to have an active secondary market? (LO2)

At the balance sheet date, Clarkson Company held title to goods in transit amounting to $214,000. This amount was omitted from the purchases figure for the year and also from the ending inventory. What is the effect of this omission on the net income for the year as calculated when the books are closed? What is the effect on the company’s financial position as shown in its balance sheet? Is materiality a factor in determining whether an adjustment for this item should be made?

Describe the installment-sales method of accounting.