Question & Answer

Explain how gains or losses on impaired assets should be reported in income.

Jasper and CrewellaDahvill were married in year 0.They filed joint tax returns in years 1 and 2.In year 3, their relationship was strained and Jasper insisted on filing a separate tax return.In year 4, the couple divorced.Both Jasper and Crewella filed single tax returns in year 4.In year 5, the IRS audited the couple’s joint year 2 tax return and each spouse’s separate year 3 tax returns.The IRS determined that the year 2 joint return and Crewella’s separate year 3 tax return understated Crewella’s self-employment income, causing the joint return year 2 tax liability to be understated by $4,000 and Crewella’s year 3 separate return tax liability to be understated by $6,000.The IRS also assessed penalties and interest on both of these tax returns.Try as it might, the IRS has not been able to locate Crewella, but they have been able to find Jasper. a.What amount of tax can the IRS require Jasper to pay for the Dahvill’s year 2 joint return?Explain.

Name some of the important applications of FRPs.

Use the information from BE23-4 for Bloom Corporation. Prepare the cash flows from operating activities section of Bloom’s 2014 statement of cash flows using the indirect method.

Would the stock market be more efficient if insider dealing were made legal?

How does the viscosity of a polymer melt differ from most fluids that are Newtonian.

Jurassic Company owns equipment that cost $900,000 and has accumulated depreciation of $380,000. The expected future net cash flows from the use of the asset are expected to be $500,000. The fair value of the equipment is $400,000. Prepare the journal entry, if any, to record the impairment loss.

Discuss the appropriate treatment in the financial statements of each of the following. (a) An amount of $113,000 realized in excess of the cash surrender value of an insurance policy on the life of one of the founders of the company who died during the year. (b) A profit-sharing bonus to employees computed as a percentage of net income. (c) Additional depreciation on factory machinery because of an error in computing depreciation for the previous year. (d) Rent received from subletting a portion of the office space. (e) A patent infringement suit, brought 2 years ago against the company by another company, was settled this year by a cash payment of $725,000. (f) A reduction in the Allowance for Doubtful Accounts balance because the account appears to be considerably in excess of the probable loss from uncollectible receivables.

Solve Problem 33.1 except that the layer thickness = 0.40 mm.

What is the difference between horizontal and vertical equity?  How do tax preferences affect people’s view of horizontal equity?

Design the nominal sizes of a GO/NO-GO plug gage to inspect a 30.00 ± 0.18 mm diameter hole. There is a wear allowance applied only to the GO side of the gage. The wear allowance is 3% of the entire tolerance band for the inspected feature. Determine (a) the nominal size of the GO gage including the wear allowance and (b) the nominal size of the NO-GO gage

Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship.  In late December he performed $20,000 of legal services for a client.  Manny typically requires his clients to pay his bills immediately upon receipt.  Assume Manny’s marginal tax rate is 40 percent this year and next year, and that he can earn an after-tax rate of return of 12 percent on his investments.  Should Manny send his client the bill in December or January?

In rolling of steel, what are the differences between a bloom, a slab, and a billet?

} Devon owns 1,000 shares of stock worth $10,000. This year he received 200 additional shares of this stock from a stock dividend. His 1,200 shares are now worth $12,500. Must Devon include the dividend paid in stock in income?

What is meant by the term aspect ratio for a metallic particle?

The gage length of a tensile test specimen = 150 mm. It is subjected to a tensile test in which the grips holding the end of the test specimen are moved with a relative velocity = 0.1 m/s. Construct a plot of the strain rate as a function of length as the specimen is pulled to a length = 200 mm.

Marlon and Latoya recently started building a house.  They had to pay $300 to the county government for a building permit.  Is the $300 payment a tax?  Why or why not?

Petoskey Stone Quarry Inc. (PSQ), a calendar-year, accrual-method C corporation, provides landscaping supplies to local builders in northern Michigan. PSQ has always been a family-owned business and has a single class of voting common stock outstanding.  The 500 outstanding shares are owned as follows:  Number of shares Nick Adams 150 Amy Adams (Sandler’s sister) 150 Abigail Adams (Nick’s daughter) 50 Charlie Adams (Nick’s son) 50 Sandler Adams (Nick’s father) 100    Total shares 500   Nick Adams serves as president of PSQ, and his father Sandler serves as chair of the board. Amy is the company’s CFO, and Abigail and Charlie work as employees of the company.  Sandler would like to retire and sell his shares back to the company. The fair market value of the shares is $500,000. Sandler’s tax basis in his PSQ shares is $10,000.  The redemption is tentatively scheduled to take place on December 31 of this year.  At the beginning of the year, PSQ had accumulated earnings and profits of $2,500,000.  The company projects current E&P of $200,000.  The company intends to pay a pro rata cash distribution of $300 per share to its shareholders on December 1 of this year.

LNS Corporation reports book income of $2,000,000. Included in the $2,000,000 is $15,000 of tax-exempt interest income. LNS reports $1,345,000 in ordinary and necessary business expenses.  What is LNS Corporation’s taxable income for the year?

As a cost accountant for San Francisco Cannery, you have been approached by Phil Perriman, canning room supervisor, about the 2014 costs charged to his department. In particular, he is concerned about the line item “depreciation.” Perriman is very proud of the excellent condition of his canning room equipment. He has always been vigilant about keeping all equipment serviced and well oiled. He is sure that the huge charge to depreciation is a mistake; it does not at all reflect the cost of minimal wear and tear that the machines have experienced over the last year. He believes that the charge should be considerably lower. The machines being depreciated are six automatic canning machines. All were put into use on January 1, 2014. Each cost $625,000, having a salvage value of $55,000 and a useful life of 12 years. San Francisco depreciates this and similar assets using double-declining-balance depreciation. Perriman has also pointed out that if you used straight-line depreciation, the charge to his department would not be so great. Instructions Write a memo to Phil Perriman to clear up his misunderstanding of the term “depreciation.” Also, calculate year-1 depreciation on all machines using both methods. Explain the theoretical justification for doubledeclining- balance and why, in the long run, the aggregate charge to depreciation will be the same under both methods.

An internal cylindrical grinding operation is used to finish an internal bore from an initial diameter of 250.00 mm to a final diameter of 252.5 mm. The bore is 125 mm long. A grinding wheel with an initial diameter of 150.00 mm and a width of 20.00 mm is used. After the operation, the diameter of the grinding wheel has been reduced to 149.75 mm. Determine the grinding ratio in this operation.

What are closing entries and why are they necessary?

Explain the use of a balloon-payment mortgage. Why might a financial institution prefer to offer this type of mortgage? (LO2)

Lowell Company’s December 31, 2014, trial balance includes the following accounts: Inventory $120,000; Buildings $207,000; Accumulated Depreciation—Equipment $19,000; Equipment $190,000; Land (held for investment) $46,000; Accumulated Depreciation—Buildings $45,000; Land $71,000; Timberland $70,000. Prepare the property, plant, and equipment section of the balance sheet.

Under what conditions would speculators sell a call option? What is the risk to speculators who sell put options? (LO3)