Question & Answer

How do the tax consequences of being an employee differ from those of being self-employed?

How would you go about deciding whether person A or person B gets more personal benefit from each of the following: (a) an electric fire; (b) a clothing allowance of £x; (c) free higher education; (c) child benefit? Do your answers help you in deciding how best to allocate benefits?

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.

Who pays the second level of tax on a C corporation’s income? What is the tax rate applicable to the second level of tax, and when is it levied?

With what kinds of products is tube rolling associated?

Why is it difficult to test the assumption that firms seek to maximise long-run profits?

Why is the earned income credit referred to as a negative income tax?

What is forging?

Using the facts in Problem 47, what minimum tax would need to be assessed on Shameika to make the tax progressive with respect to effective tax rates?

What are some of the resource changes that can be made to increase plant capacity in the short run?

What are the functions of a well-designed electronics package?

To what extent can the problems with privatisation be seen as arguments in favour of nationalisation?

Assume Ellina earns a 10 percent after-tax rate of return and that she owes a friend $1,200. Would she prefer to pay the friend $1,200 today or $1,750 in four years?

Padma needs a new truck to help her expand Padma’s Plumbing Palace. Business has been booming, and Padma would like to accelerate her tax deductions as much as possible (ignore §179 expense and bonus depreciation for this problem). On April 1, Padma purchased a new delivery van for $25,000. It is now September 26 and Padma, already in need of another vehicle, has found a deal on buying a truck for $22,000 (all fees included). The dealer tells her if she doesn’t buy the truck (Option 1), it will be gone tomorrow. There is an auction (Option 2) scheduled for October 5 where Padma believes she can get a similar truck for $21,500, but there is also a $500 auction fee. Padma makes no other asset acquisitions during the year.  a. Which option allows Padma to generate more depreciation deductions this year (the vehicles are not considered to be luxury autos)? b. Assume the original facts, except that the delivery van was placed in service one day earlier on March 31 rather than April 1. Which option generates more depreciation deduction?

Describe the dilemma of securities firms that served as underwriters for Facebook’s IPOs when attempting to satisfy Facebook and the institutional investors that invested in Facebook’s stock. Do you think that those securities firms satisfied Facebook or the investors in the IPO? Explain. (LO3)

How are product variety and production quantity related when comparing typical factories?

The following table discloses the interest rate sensitivity of two savings institutions (dollar amounts are in millions). Based on this information only, which institution’s stock price would likely be affected more by a given change in interest rates? Justify your opinion. (LO4)

Noven Pharmaceuticals, Inc., headquartered in Miami, Florida, describes itself in a recent annual report as follows.   Noven also reported in its annual report that its activities to date have consisted of product development efforts, some of which have been independent and some of which have been completed in conjunction with Rhone-Poulenc Rorer (RPR) and Ciba-Geigy. The revenues so far have consisted of money received from licensing fees, “milestone” payments (payments made under licensing agreements when certain stages of the development of a certain product have been completed), and interest on its investments. The company expects that it will have significant revenue in the upcoming fiscal year from the launch of its first product, a transdermal estrogen delivery system. The current assets portion of Noven’s balance sheet follows. Cash and cash equivalents $12,070,272 Securities held to maturity 23,445,070 Inventory of supplies 1,264,553 Prepaid and other current assets 825,159 Total current assets $37,605,054 Inventory of supplies is recorded at the lower-of-cost (first-in, first-out)-or-net realizable value and consists mainly of supplies for research and development. Instructions (a) What would you expect the physical flow of goods for a pharmaceutical manufacturer to be most like: FIFO, LIFO, or random (flow of goods does not follow a set pattern)? Explain. (b) What are some of the factors that Noven should consider as it selects an inventory measurement method? (c) Suppose that Noven had $49,000 in an inventory of transdermal estrogen delivery patches. These patches are from an initial production run and will be sold during the coming year. Why do you think that this amount is not shown in a separate inventory account? In which of the accounts shown is the inventory likely to be? At what point will the inventory be transferred to a separate inventory account?

Trey has two dependents, his two daughters, ages 14 and 18, at year-end.  Trey files a joint return with his spouse.  What amount of child tax credit (either as child or a qualifying dependent) will Trey be able to claim in 2024 for his daughters in each of the following alternative situations? a. His AGI is $100,000.

Suppose you asked your favorite AI query tool the following question: “How do Democrats and Republicans view a civilized society and a healthy economy?”  The AI tool provided the following response:   Is the AI response to the question accurate?  Explain.

What are the three committees that debate proposed tax legislation?  What documents do these committees generate, and how might they be used?

Under what circumstances can a college student qualify for the earned income credit?

How is the market price of land related to its productivity?

Soon after beginning the year-end audit work on March 10 at Engone Company, the auditor has the following conversation with the controller. Controller: The year ended March 31st should be our most profitable in history and, as a consequence, the board of directors has just awarded the officers generous bonuses. Auditor: I thought profits were down this year in the industry, according to your latest interim report. Controller: Well, they were down, but 10 days ago we closed a deal that will give us a substantial increase for the year. Auditor: Oh, what was it? Controller: Well, you remember a few years ago our former president bought stock in Henderson Enterprises because he had those grandiose ideas about becoming a conglomerate. For 6 years we have not been able to sell this stock, which cost us $3,000,000 and has not paid a nickel in dividends. Thursday we sold this stock to Bimini Inc. for $4,000,000. So, we will have a gain of $700,000 ($1,000,000 pretax) which will increase our net income for the year to $4,000,000, compared with last year’s $3,800,000. As far as I know, we’ll be the only company in the industry to register an increase in net income this year. That should help the market value of the stock! Auditor: Do you expect to receive the $4,000,000 in cash by March 31st, your fiscal year-end? Controller: No. Although Bimini Inc. is an excellent company, they are a little tight for cash because of their rapid growth. Consequently, they are going to give us a $4,000,000 zero-interestbearing note with payments of $400,000 per year for the next 10 years. The first payment is due on March 31 of next year. Auditor: Why is the note zero-interest-bearing? Controller: Because that’s what everybody agreed to. Since we don’t have any interest-bearing debt, the funds invested in the note do not cost us anything and besides, we were not getting any dividends on the Henderson Enterprises stock. Instructions Do you agree with the way the controller has accounted for the transaction? If not, how should the transaction be accounted for?

Suppose you asked your favorite AI query tool “For purposes of §721, what constitutes property?” and the AI tool responded as follows: