Question & Answer

This is not tax planning.  Instead, this strategy is tax evasion.  The rewards of tax evasion include stiff monetary penalties and imprisonment.

How should correction of errors be reported in the financial statements?

Using the same information as in E14-22, answer the following questions related to American Bank (creditor). Instructions (a) What interest rate should American Bank use to calculate the loss on the debt restructuring? (b) Compute the loss that American Bank will suffer from the debt restructuring. Prepare the journal entry to record the loss. (c) Prepare the interest receipt schedule for American Bank after the debt restructuring. (d) Prepare the interest receipt entry for American Bank on December 31, 2016. (e) What entry should American Bank make on January 1, 2018?

Chippewas Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2014, to expand its production capacity to meet customers’ demand for its product. Chippewas issues an $800,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $160,000 installments due at the end of each year over the life of the note. Instructions (Round to nearest dollar in all computations.) (a) Prepare the journal entry(ies) at the date of purchase. (b) Prepare the journal entry(ies) at the end of the first year to record the payment and interest, assuming that the company employs the effective-interest method. (c) Prepare the journal entry(ies) at the end of the second year to record the payment and interest. (d) Assuming that the equipment had a 10-year life and no salvage value, prepare the journal entry Anecessary to record depreciation in the first year. (Straight-line depreciation is employed.)

Jenkins has a one-third capital and profits interest in the Maverick General Partnership. On January 1, year 1, Maverick has $120,000 of general liabilities obligations and Jenkins has a $50,000 tax basis (including his share of Maverick’s liabilities) in his partnership interest. During the year, Maverick incurred a $30,000 nonrecourse liability that is not secured by real estate. Because Maverick is a rental real estate partnership, Jenkins is deemed to be a passive participant in Maverick. His share of the Maverick losses for year 1 is $75,000. Jenkins is not involved in any other passive activities, and this is the first year he has been allocated losses from Maverick. a. Determine how much of the Maverick loss Jenkins will currently be able to deduct on his tax return for year 1, and list the losses suspended due to tax basis, at-risk, and passive activity loss limitations. b. If Jenkins sells his interest on January 1, year 2, what happens to his suspended losses from year 1? [Hint: See §706(c)(2)(A); Reg. §1.704-1(d)(1); Prop. Reg. §1.465-66(a); and Sennett v. Comm’r, 80 TC 825 (1983).]

At December 31, 2014, Hillyard Corporation has a deferred tax asset of $200,000. After a careful review of all available evidence, it is determined that it is more likely than not that $60,000 of this deferred tax asset will not be realized. Prepare the necessary journal entry.

Identifiable assets for the seven industry segments of Foley Corporation are: Penley $500 Cheng $200 Konami 550 Takuhi 150 KSC 250 Molina 475 Red Moon 400 Based only on the identifiable assets test, which industry segments are reportable?

There are 16 correct answers in the following multiple choice questions (some questions have multiple answers that are correct). To attain a perfect score on the quiz, all correct answers must be given. Each correct answer is worth 1 point. Each omitted answer or wrong answer reduces the score by 1 point, and each additional answer beyond the correct number of answers reduces the score by 1 point. Percentage score on the quiz is based on the total number of correct answers. 17.1 The following equipment is used for crushing and grinding of minerals in the preparation of traditional ceramics raw materials. Which of the pieces listed is used for grinding (two correct answers): (a) ball mill, (b) hammer mill, (c) jaw crusher, (d) roll crusher, and (e) roller mill? 17.2 Which one of the following compounds becomes a plastic and formable material when mixed with suitable proportions of water: (a) aluminum oxide, (b) hydrogen oxide, (c) hydrous aluminum silicate, or (d) silicon dioxide? 17.3 At which one of the following water contents does clay become a suitably plastic material for the traditional ceramics plastic forming processes: (a) 5%, (b) 10%, (c) 20%, or (d) 40%? 17.4 Which of the following processes are not plastic forming methods used in the shaping of traditional ceramics (three correct answers): (a) dry pressing, (b) extrusion, (c) jangling, (d) jiggering, (e) jolleying, (f) slip casting, and (g) spinning? 17.5 The term green piece in ceramics refers to a part that has been shaped but not yet fired: (a) true or (b) false? 17.6 In the final product made of a polycrystalline new ceramic material, strength increases with grain size: (a) true or (b) false? 17.7 Which one of the following processes for the new ceramic materials accomplishes shaping and sintering simultaneously: (a) doctor-blade process, (b) freeze drying, (c) hot pressing, (d) injection molding, or (e) isostatic pressing? 17.8 Which of the following are the purposes of finishing operations used for parts made of the new ceramics (two best answers): (a) apply a surface coating, (b) electroplate the surface, (c) improve surface finish, (d) increase dimensional accuracy, and (e) work harden the surface? 17.9 Which of the following terms describes what a cemented carbide is (one best answer): (a) ceramic, (b) cermet, (c) composite, (d) metal, (e) new ceramic, or (f) traditional ceramic? 17.10 Which of the following geometric features should be avoided if possible in the design of structural components made of new ceramics (three best answers): (a) deep holes, (b) rounded inside corners, (c) rounded outside corners, (d) sharp edges, (e) thick sections, and (f) threads?

Cash donations to a charity are subject to a number of very specific substantiation requirements. Describe these requirements and how charitable gifts can be substantiated. Describe the substantiation requirements for property donations.

Super Corp. was organized under the laws of the state of Montana.  It issued common voting stock and common nonvoting stock to its two shareholders.  Is Super Corp. eligible to elect S corporation status?  Why or why not?

Using the facts in problem 43, what interest rate does Surething Inc. need to offer to make Hugh indifferent between investing in the two bonds?

Presented below are three models for setting GAAP. 1. The purely political approach, where national legislative action decrees GAAP. 2. The private, professional approach, where GAAP is set and enforced by private professional actions only. 3. The public/private mixed approach, where GAAP is basically set by private-sector bodies that behave as though they were public agencies and whose standards to a great extent are enforced through governmental agencies. Instructions (a) Which of these three models best describes standard-setting in the United States? Comment on your answer. (b) Why do companies, financial analysts, labor unions, industry trade associations, and others take such an active interest in standard-setting? (c) Cite an example of a group other than the FASB that attempts to establish accounting standards. Speculate as to why another group might wish to set its own standards.

Grady received $8,200 of Social Security benefits this year. Grady also reported salary and interest income this year. What amount of the benefits must Grady include in his gross income under the following two independent situations?

In this model, where the country is a price taker and faces a horizontal supply curve (the small country assumption), is any of the cost of the tariff borne by the overseas suppliers?

Do all investment projects generate significant spillovers

Morgan Leasing Company signs an agreement on January 1, 2014, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the noncancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $245,000. The fair value of the asset at January 1, 2014, is $245,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $43,622, none of which is guaranteed. 4. Cole Company assumes direct responsibility for all executory costs. 5. The agreement requires equal annual rental payments, beginning on January 1, 2014. 6. Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor. Instructions (Round all numbers to the nearest cent.) (a) Assuming the lessor desires a 10% rate of return on its investment, calculate the amount of the annual rental payment required. (Round to the nearest dollar.) (b) Prepare an amortization schedule that would be suitable for the lessor for the lease term. (c) Prepare all of the journal entries for the lessor for 2014 and 2015 to record the lease agreement, the receipt of lease payments, and the recognition of income. Assume the lessor’s annual accounting period ends on December 31.

Aero Inc. had the following balance sheet at December 31, 2013.   During 2014, the following occurred. 1. Aero liquidated its available-for-sale investment portfolio at a loss of $5,000. 2. A tract of land was purchased for $38,000. 3. An additional $30,000 in common stock was issued at par. 4. Dividends totaling $10,000 were declared and paid to stockholders. 5. Net income for 2014 was $35,000, including $12,000 in depreciation expense. 6. Land was purchased through the issuance of $30,000 in additional bonds. 7. At December 31, 2014, Cash was $70,200, Accounts Receivable was $42,000, and Accounts Payable was $40,000. Instructions (a) Prepare a statement of cash flows for the year 2014 for Aero. (b) Prepare the unclassified balance sheet as it would appear at December 31, 2014. (c) Compute Aero’s free cash flow and current cash debt coverage for 2014. (d) Use the analysis of Aero to illustrate how information in the balance sheet and statement of cash flows helps the user of the financial statements.

Use the information for IBM from BE21-6. Assume the direct-financing lease was recorded at a present value of $150,000. Prepare IBM’s December 31, 2014, entry to record interest.

Describe two specific accounting methods that are treated as initiated by the taxpayer without any need for consent of the IRS when the business qualifies under the gross receipts test.

1.       You have been hired to manage a 20-person staff for Nightlight Travels, a travel agency in Las Vegas. For a full year, sales have been hammered by the COVID-19 pandemic, and staff morale has plummeted as key employees left for positions in more secure industries. The few remaining key customer relationships have been damaged by the sloppy and unprofessional work habits of the remaining staff members. Your first responsibility as a new manager is to create next year’s budget for all planned expenditures. But first you must decide if you will adopt a hierarchical approach or a decentralized approach to control. Which would you choose, and why?

Re-word the explanation of marginal disutility of work in terms of the marginal utility of leisure.

Ashlee, Hiroki, Kate, and Albee LLC each own a 25 percent interest in Tally Industries LLC, which generates annual gross receipts of over $10 million. Ashlee, Hiroki, and Kate manage the business, but Albee LLC is a nonmanaging member. Although Tally Industries has historically been profitable, for the last three years losses have been allocated to the members. Given these facts, the members want to know whether Tally Industries can use the cash method of accounting. Why or why not? [Hint: See §448(b)(3).]

What is the distinguishing feature of an excise tax?

Consider the prevailing conditions that could affect the demand for stocks, including inflation, the economy, the budget deficit, the Fed’s monetary policy, political conditions, and the general mood of investors. Based on these conditions, would you consider purchasing stock index options at this time? Offer some logic to support your answer. Which factor do you think will have the biggest impact on stock index option prices? (LO2, LO5)

Explain the differences between general and specific knowledge. Give an example of an industry where knowledge is quite general and an example of an industry that requires specific knowledge.