Question & Answer

Mustafa, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mustafa is contributing $200,000 for a 40 percent ownership interest, Mickayla is contributing a building with a value of $200,000 and a tax basis of $150,000 for a 40 percent ownership interest, and Taylor is contributing legal services for a 20 percent ownership interest. What amount of gain or income is each owner required to recognize under each of the following alterative situations? [Hint: Look at §§351 and 721.] a. MMT is formed as a C corporation. b. MMT is formed as an S corporation. c. MMT is formed as an LLC (taxed as a partnership).

1.       : If an experienced executive assistant discovered that she made the same amount of money as a newly hired janitor, how do you think she would react? What inputs and outcomes might she evaluate to make this comparison?

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

On a diagram similar to Figure 7.4, show the long-run equilibrium for both firm and industry under perfect competition. Now assume that the demand for the product falls. Show the short-run and long-run effects.

A corporation commissioned an accounting firm to recalculate the way it accounted for leasing transactions.  With the new calculations, the corporation was able to file amended tax returns for the past few years that increased the corporation’s net operating loss carryover from $3,000,000 to $5,000,000. Was the corporation wise to pay the accountants for their work that led to the increase in the NOL carryover? What factors should be considered in making this determination?

Moran owns a building he bought during year 0 for $150,000. He sold the building in year 6. During the time he held the building, he depreciated it by $32,000. What are the amount and character of the gain or loss Moran will recognize on the sale in each of the following alternative situations?    a. Moran received $145,000.  b. Moran received $170,000. c. Moran received $110,000.

What is a “Summary of Significant Accounting Policies”?

Part A: This year, Gumowski Company has each of the following items in its income statement. 1. Gross profits on installment sales. 2. Revenues on long-term construction contracts. 3. Estimated costs of product warranty contracts. 4. Premiums on officers’ life insurance policies with Gumowski as beneficiary. Instructions (a) Under what conditions would deferred income taxes need to be reported in the financial statements? (b) Specify when deferred income taxes would need to be recognized for each of the items above, and indicate the rationale for such recognition. Part B: Gumowski Company’s president has heard that deferred income taxes can be classified in different ways in the balance sheet. Instructions Identify the conditions under which deferred income taxes would be classified as a noncurrent item in the balance sheet. What justification exists for such classification?

Use the information presented in BE5-8 for Adams Company to prepare the long-term liabilities section of the balance sheet.

Explain why the cost of commuting from home to work is not deductible as a business expense.

1.      : Go ahead and use the documents to the company’s benefit, but make clear to your boss that you don’t want him passing confidential information to you in the future. If he threatens to fire you, threaten to leak the news to the press.

Restin Co. uses the gross method to record sales made on credit. On June 1, 2014, it made sales of $50,000 with terms 3/15, n/45. On June 12, 2014, Restin received full payment for the June 1 sale. Prepare the required journal entries for Restin Co.

Describe the process of “borrowing at the Federal Reserve.” What rate is charged, and who sets it? Why do banks commonly borrow in the federal funds market rather than through the Federal Reserve? (LO2)

Why do you think it is difficult for investors to assess the financial condition of a financial institution that has purchased a large amount of mortgage-backed securities? (LO5)

Jorge and Anita, married taxpayers, earn $150,000 in taxable income and $40,000 in interest from an investment in City of Heflin bonds.  Using the U.S. tax rate schedule for married filing jointly, 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?

Explain how bank regulation can be more effective when there is consolidation of banks and securities firms. (LO2)

Identify some of the non-machine tool applications of numerical control.

In 2024, SML Corp. reported taxable income of $100,000 before any NOL deductions. SML has a $170,000 NOL carryover that originated in 2017 and a $90,000 NOL carryover that originated in 2023. What is SML’s 2024 taxable income after the NOL deduction? What NOLs can SML carryover to 2025?

What is a clean room and explain the classification system by which clean rooms are rated?

Incentives and risk management Part A In the early 1980s, Bernard Hancock built a small brewery on his 150-acre property in the Macedon Ranges. The brewery, named Mountain Mist Brewery, was designed with ales in mind and Bernard introduced a number of cutting edge and innovative technologies to make the well-known, popular pale ale Misty Hop and others such as Hazy Heidi, Mountain Maid and Sunny Sherpa. The brewery’s highest selling pale ale (Misty Hop) is widely recognised as a high quality boutique beer and is sold, along with the brewery’s other ales, to clubs and restaurants around Australia. All Mountain Mist Brewery ales are distributed in kegs (large containers) and 12-bottle cartons through its Victorian and national wholesalers. The brewery has continued to expand capacity on its site to meet growing consumer demands.   Bernard’s vision for Mountain Mist Brewery is to: ·           grow profitably with incremental investment into selected markets to become one of the top six breweries in Australia ·           continuously improve perceived consumer quality by improving taste, freshness, package integrity and package appearance ·           enhance distributor service with better lead times, accurate order fills and lower product damage ·           continuously lower company costs per litre of beer so Mountain Mist can maintain resources for long-term productivity and success ·           continuously improve business performance through engaging and developing employees.                            Given recent sound performance, Bernard is pleased he had made the decision to expand Mountain Mist’s production interstate. This decision was made in line with Bernard’s key objective to be one of the top six national competitors. Mountain Mist currently holds seventh position. With its nearest competitor, Little Creatures, expanding into the eastern market from its Western Australian base, Bernard wants to ensure Mountain Mist will not only maintain market share but grow in size to take Little Creatures’ sixth position. Bernard wants to improve Mountain Mist’s brand presence in the western region, as well as reduce the transportation costs of moving beer across Australia. A local presence in Western Australia would also help reduce reliance on national retail distribution channels. A production site has been selected. A production manager from the Macedon Ranges site has been given the role of overseeing the operational set-up and staying on to manage the new operation. Others, such as microbiologists from the Mountain Mist laboratory, have also been offered the opportunity to move interstate. Thus, Bernard is moving some expertise from the Macedon Ranges and employing more staff at both sites to meet the new staffing requirements. As well as wanting a smooth manufacturing set-up, Bernard argues that it is vital for the Mountain Mist beer to be 100 per cent comparable between manufacturing sites. For Bernard, there are many issues still to contend with in relation to sourcing raw materials.   Bernard also needs to employ a manager to oversee the sales side of the Western Australia venture. He has offered the role of Western Australia Sales Manager to Matt Jerome. Matt is in his late 20s and had been working for Mountain Mist for about four years in the administration area as an accounts clerk. He has recently spent time on the administrative side of the new Western Australian operations. Bernard is pleased with Matt’s work and knows he is keen to move from administration and account keeping into managing sales at the new facility. While he has not had any previous sales experience, Bernard is keen to offer Matt this personal development opportunity.   Matt’s salary comprised a base salary and an incentive based on sales performance. While Mountain Mist had the corporate balanced scorecard (described earlier), they did not link scorecard results to their sales managers’ incentive plans. Bernard was concerned that the balanced scorecard measures would not drive the innovation and risk he required of his sales team. For example, Bernard wanted his sales team to continue to have the flexibility to make last minute changes if their customers required. He thought if they were influenced by rigid balanced scorecard performance measures, they might, in fact, be demotivated. He was also worried that they would work to the measure rather than profit maximisation through meeting customers’ unique, changeable and often immediate needs. Thus, Matt was able to earn a bonus based on the sales generated in the Western Australian region. Matt was also given the autonomy to hire his own sales and administration staff to help manage this new sales division. In addition, Bernard left Matt responsible for overseeing both sales and bookkeeping roles. After all, Matt had excelled at his administrative role in the past.   Bernard has contemplated varying remuneration options for Matt. Although Matt will have assets under his control, Bernard decides to reward Matt based on the following incentive structure: ·           base salary — $120 000 per annum ·           individual bonus — based on the Western Australian division’s EBIT (capped at $50 000 per annum) ·           corporate bonus — based on Mountain Mist’s corporate performance (2 per ·           cent share of ‘above budget’ corporate profit pool) ·           other — 50 per cent of private health insurance cost, relocation expenses for Matt’s family.   Matt has moved his family from the Macedon Ranges to Western Australia and begun to promote Mountain Mist Brewery. The aim is to have manufacturing operations and sales in place for summer 2010–11.   Required (a) Discuss the benefits and limitations of Matt’s incentive scheme proposed by Bernard. (b) It is mentioned in the case that Matt has assets under his control. What performance measurement alternatives could Bernard have used? How might they improve (or otherwise) on the scheme proposed by Bernard? (LO2, 3, 4 and 6)

Wasatch Corp. (WC) received a $200,000 dividend from Tager Corporation (TC).  WC owns 15 percent of the TC stock.  Compute WC’s deductible DRD in each of the following situations:

Presented below is summarized information for Johnston Co., which sells merchandise on the installment basis. 2014 2015 2016 Sales (on installment plan) $250,000 $260,000 $280,000 Cost of sales 155,000 163,800 182,000 Gross profi t $ 95,000 $ 96,200 $ 98,000 Collections from customers on: 2014 installment sales $ 75,000 $100,000 $ 50,000 2015 installment sales 100,000 120,000 2016 installment sales 100,000 Instructions (a) Compute the realized gross profit for each of the years 2014, 2015, and 2016. (b) Prepare all entries required in 2016, applying the installment-sales method of accounting. (Ignore interest charges.)

Explain why Congress sometimes mandates that businesses use specific accounting methods while other times Congress is content to require businesses to use the same accounting methods for tax purposes that they use for financial accounting purposes.

Is it necessary that a trial balance be taken periodically? What purpose does it serve?

Last year, TBA Corporation, a calendar-year taxpayer, reported a tax liability of $100,000. TBA confidently anticipates a current-year tax liability of $240,000. Compute the minimum estimated tax payments TBA should make for the first, second, third, and fourth quarters respectively (ignore the annualized income method), assuming the following: