Question & Answer

Kalin Corporation had 2014 net income of $1,000,000. During 2014, Kalin paid a dividend of $2 per share on 100,000 shares of preferred stock. During 2014, Kalin had outstanding 250,000 shares of common stock. Compute Kalin’s 2014 earnings per share.

Cliff’s basis in his Aero Partnership interest is $11,000. Cliff receives a distribution of $22,000 cash from Aero in complete liquidation of his interest. Aero is an equal partnership with the following balance sheet: Assets: Tax Basis FMV Cash $ 22,000 $ 22,000 Investment 8,800 8,800 Land 2,200 35,200    Totals $ 33,000 $ 66,000 Liabilities and capital: Capital- Chris 11,000 - Cliff 11,000 - Cooper 11,000   Totals $ 33,000 a. What are the amount and character of Cliff’s recognized gain or loss? What is the effect on the partnership assets? b. If Aero has a §754 election in place, what is the amount of the special basis adjustment?

Hermione must include the value of the nugget in her gross income.  The value of the nugget is realized income because gold is marketable in a nugget form and easily valued.  The authorities (Reg § 1.61-14(a).; Rev. Rul. 61, 1953-1 C.B. 17) refer to the finder of a “treasure trove” and hold that there is gross income (to the extent of the ascertainable value in U.S. currency) in the tax year in which the property is reduced to the taxpayer’s undisputed possession.

The following article appeared in the Wall Street Journal. washington—The Securities and Exchange Commission staff issued guidelines for companies grappling with the problem of dividing up their business into industry segments for their annual reports. An industry segment is defined by the Financial Accounting Standards Board as a part of an enterprise engaged in providing a product or service or a group of related products or services primarily to unaffiliated customers for a profit. Although conceding that the process is a “subjective task” that “to a considerable extent, depends on the judgment of management,” the SEC staff said companies should consider . . . various factors . . . to determine whether products and services should be grouped together or reported as segments. Instructions (a) What does financial reporting for segments of a business enterprise involve? (b) Identify the reasons for requiring financial data to be reported by segments. (c) Identify the possible disadvantages of requiring financial data to be reported by segments. (d) Identify the accounting difficulties inherent in segment reporting.

Explain why Congress allows self-employed taxpayers to deduct the employer portion of their self-employment tax.

If a corporation has been an S corporation since inception, describe how its operating distributions to its shareholders are taxed to the shareholders.

Amy Monroe wants to create a fund today that will enable her to withdraw $25,000 per year for 8 years, with the first withdrawal to take place 5 years from today. If the fund earns 8% interest, how much must Amy invest today?

Assume that IBM leased equipment that was carried at a cost of $150,000 to Sharon Swander Company. The term of the lease is 6 years beginning January 1, 2014, with equal rental payments of $30,044 at the beginning of each year. All executory costs are paid by Swander directly to third parties. The fair value of the equipment at the inception of the lease is $150,000. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain-purchase option, and no transfer of title. Collectibility is reasonably assured with no additional cost to be incurred by IBM. Prepare IBM’s January 1, 2014, journal entries at the inception of the lease.

Why can’t large, publicly traded corporations be treated as S corporations?

Identify some of the sources for tax professional standards.  What are the potential ramifications of failing to comply with these standards?

Mickelson Inc. owns land that it purchased on January 1, 2000, for $450,000. At December 31, 2014, its current value is $770,000 as determined by appraisal. At what amount should Mickelson report this asset on its December 31, 2014, balance sheet? Explain.

The surface finish specification in a turning job is 0.8 µm. The work material is cast iron. Cutting speed = 75 m/min, feed = 0.3 mm/rev, and depth of cut = 4.0 mm. The nose radius of the cutting tool must be selected. Determine the minimum nose radius that will obtain the specified finish in this operation.

How would you evaluate (a) the external effects of building a reservoir in an area of outstanding natural beauty; (b) the external effects of acid rain pollution from a power station?

Do the IASB and FASB conceptual frameworks differ in terms of the role of financial reporting? Explain.

It is desired to compare the cycle times required to grind a particular workpiece using traditional surface grinding and using creep feed grinding. The workpiece is 200 mm long, 30 mm wide, and 75 mm thick. To make a fair comparison, the grinding wheel in both cases is 250 mm in diameter, 35 mm in width, and rotates at 1500 rev/min. It is desired to remove 25 mm of material from the surface. When traditional grinding is used, the infeed is set at 0.025 mm, and the wheel traverses twice (forward and back) across the work surface during each pass before resetting the infeed. There is no crossfeed since the wheel width is greater than the work width. Each pass is made at a workspeed of 12 m/min, but the wheel overshoots the part on both sides. With acceleration and deceleration, the wheel is engaged in the work for 50% of the time on each pass. When creep feed grinding is used, the depth is increased by 1000 and the forward feed is decreased by 1000. How long will it take to complete the grinding operation (a) with traditional grinding and (b) with creep feed grinding?

Using the facts from the previous problem, how would your answer change if Isabel’s after-tax rate of return were 8 percent?

A steel collar is to be heated from room temperature (70°F) to 700°F. Its inside diameter = 1.000 in, and its outside diameter = 1.625 in. If the coefficient of thermal expansion of the steel is = 6.7 x 10-6 in/in per °F, determine the increase in the inside diameter of the collar.

Tempe Corporation is a calendar-year corporation.  At the beginning of 2024, its election to be taxed as an S corporation became effective.  Tempe Corp.’s balance sheet at the end of 2023 reflected the following assets (it did not have any earnings and profits from its prior years as a C corporation): Asset Adjusted basis FMV Cash $20,000 $20,000 Accounts receivable 40,000 40,000 Inventory 160,000 200,000 Land 150,000 120,000   Totals $370,000 $380,000 Tempe Corp.’s business income for the year was $40,000 (this would have been its taxable income if it were a C corporation).  During 2024, Tempe Corp. sold all of the inventory it owned at the beginning of the year for $210,000.   a. What is its built-in gains tax in 2024?

A copper wire of diameter 0.80 mm fails at an engineering stress = 248.2 MPa. Its ductility is measured as 75% reduction of area. Determine the true stress and true strain at failure

Presented below are selected transactions on the books of Simonson Corporation. May 1, 2014 Bonds payable with a par value of $900,000, which are dated January 1, 2014, are sold at 106 plus accrued interest. They are coupon bonds, bear interest at 12% (payable annually at January 1), and mature January 1, 2024. (Use interest expense account for accrued interest.) Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the amortization of the proper amount of premium. (Use straight-line amortization.) Jan. 1, 2015 Interest on the bonds is paid. April 1 Bonds with par value of $360,000 are called at 102 plus accrued interest, and redeemed. (Bond premium is to be amortized only at the end of each year.) Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized.

In year 0, Longworth Partnership purchased a machine for $40,000 to use in its business. In year 3, Longworth sold the machine for $35,000. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $22,000.  a. What are the amount and character of the gain or loss Longworth will recognize on the sale?  b. What are the amount and character of the gain or loss Longworth will recognize on the sale if the sale proceeds are increased to $45,000?  c. What are the amount and character of the gain or loss Longworth will recognize on the sale if the sale proceeds are decreased to $15,000?

Dan Aykroyd Corp. was a 30% owner of Steve Martin Company, holding 210,000 shares of Martin’s common stock on December 31, 2013. The investment account had the following entries. Investment in Martin 1/1/12 Cost $3,180,000 12/6/12 Dividend received $150,000 12/31/12 Share of income 390,000 12/5/13 Dividend received 240,000 12/31/13 Share of income 510,000 On January 2, 2014, Aykroyd sold 126,000 shares of Martin for $3,440,000, thereby losing its significant influence. During the year 2014, Martin experienced the following results of operations and paid the following dividends to Aykroyd. Martin Dividends Paid Income (Loss) to Aykroyd 2014 $300,000 $50,400 At December 31, 2014, the fair value of Martin shares held by Aykroyd is $1,570,000. This is the first reporting date since the January 2 sale. Instructions (a) What effect does the January 2, 2014, transaction have upon Aykroyd’s accounting treatment for its investment in Martin? (b) Compute the carrying amount of the investment in Martin as of December 31, 2014 (prior to any fair value adjustment). (c) Prepare the adjusting entry on December 31, 2014, applying the fair value method to Aykroyd’s long-term investment in Martin Company securities.

List two types of transactions that would receive different accounting treatment using (a) strict cash-basis accounting, and (b) a modified cash basis.

What can we say about the slope of the TR and TC curves at the maximum profit point? What does this tell us about marginal revenue and marginal cost?

Presented below is a list of items that may or may not be reported as inventory in a company’s December 31 balance sheet. 1. Goods out on consignment at another company’s store. 2. Goods sold on an installment basis (bad debts can be reasonably estimated). 3. Goods purchased f.o.b. shipping point that are in transit at December 31. 4. Goods purchased f.o.b. destination that are in transit at December 31. 5. Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that covers all costs related to the inventory. 6. Goods sold where large returns are predictable. 7. Goods sold f.o.b. shipping point that are in transit at December 31. 8. Freight charges on goods purchased. 9. Interest costs incurred for inventories that are routinely manufactured. 10. Costs incurred to advertise goods held for resale. 11. Materials on hand not yet placed into production by a manufacturing firm. 12. Office supplies. 13. Raw materials on which a manufacturing firm has started production but which are not completely processed. 14. Factory supplies. 15. Goods held on consignment from another company. 16. Costs identified with units completed by a manufacturing firm but not yet sold. 17. Goods sold f.o.b. destination that are in transit at December 31. 18. Short-term investments in stocks and bonds that will be resold in the near future. Instructions Indicate which of these items would typically be reported as inventory in the financial statements. If an item should not be reported as inventory, indicate how it should be reported in the financial statements.