Question & Answer

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

The stockholders’ equity section of Tkachuk Corporation appears below as of December 31, 2014. 8% preferred stock, $50 par value, authorized 100,000 shares, outstanding 90,000 shares $ 4,500,000 Common stock, $1.00 par, authorized and issued 10 million shares 10,000,000 Additional paid-in capital 20,500,000 Retained earnings $134,000,000 Net income 33,000,000 167,000,000 $202,000,000 Net income for 2014 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of $18,000,000 (before tax) as a result of a major casualty, which should be classified as an extraordinary item. Preferred stock dividends of $360,000 were declared and paid in 2014. Dividends of $1,000,000 were declared and paid to common stockholders in 2014. Instructions Compute earnings per share data as it should appear on the income statement of Tkachuk Corporation.

The net income per books of Linda Patrick Company was determined without knowledge of the errors indicated. Net Income Error in Ending Year per Books Inventory 2009 $50,000 Overstated $ 3,000 2010 52,000 Overstated 9,000 2011 54,000 Understated 11,000 2012 56,000 No error 2013 58,000 Understated 2,000 2014 60,000 Overstated 8,000 Instructions Prepare a worksheet to show the adjusted net income figure for each of the 6 years after taking into account the inventory errors.

What are hot assets, and why are they important in the sale of a partnership interest?

Explain how the Covid-19 pandemic affected the credit risk premium and liquidity in the commercial paper market. (LO1)

What is forging?

The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2014. On December 31, 2014, management projected its future net cash flows from this equipment to be $300,000 and its fair value to be $230,000. The company intends to use this equipment in the future. Instructions (a) Prepare the journal entry (if any) to record the impairment at December 31, 2014. (b) Where should the gain or loss (if any) on the write-down be reported in the income statement? (c) At December 31, 2015, the equipment’s fair value increased to $260,000. Prepare the journal entry (if any) to record this increase in fair value. (d) What accounting issues did management face in accounting for this impairment?

Stephanie Delaney, CPA, is the newly hired director of corporate taxation for Acme Incorporated, which is a publicly traded corporation. Ms. Delaney’s first job with Acme was the review of the company’s accounting practices on deferred income taxes. In doing her review, she noted differences between tax and book depreciation methods that permitted Acme to realize a sizable deferred tax liability on its balance sheet. As a result, Acme paid very little in income taxes at that time. Delaney also discovered that Acme has an explicit policy of selling off plant assets before they reversed in the deferred tax liability account. This policy, coupled with the rapid expansion of its plant asset base, allowed Acme to “defer” all income taxes payable for several years, even though it always has reported positive earnings and an increasing EPS. Delaney checked with the legal department and found the policy to be legal, but she’s uncomfortable with the ethics of it. Instructions Answer the following questions. (a) Why would Acme have an explicit policy of selling plant assets before the temporary differences reversed in the deferred tax liability account? (b) What are the ethical implications of Acme’s “deferral” of income taxes? (c) Who could be harmed by Acme’s ability to “defer” income taxes payable for several years, despite positive earnings? (d) In a situation such as this, what are Ms. Delaney’s professional responsibilities as a CPA?

Explain why securities firms from the United States have expanded into foreign markets. (LO1)

State how each of the following items is reflected in the financial statements. (a) Change from FIFO to LIFO method for inventory valuation purposes. (b) Charge for failure to record depreciation in a previous period. (c) Litigation won in current year, related to prior period. (d) Change in the realizability of certain receivables. (e) Write-off of receivables. (f) Change from the percentage-of-completion to the completed-contract method for reporting net income.

The following information was taken from the records of Roland Carlson Inc. for the year 2014. Income tax applicable to income from continuing operations $187,000; income tax applicable to loss on discontinued operations $25,500; income tax applicable to extraordinary gain $32,300; income tax applicable to extraordinary loss $20,400; and unrealized holding gain on availablefor- sale securities $15,000. Extraordinary gain $ 95,000 Cash dividends declared $ 150,000 Loss on discontinued operations 75,000 Retained earnings January 1, 2014 600,000 Administrative expenses 240,000 Cost of goods sold 850,000 Rent revenue 40,000 Selling expenses 300,000 Extraordinary loss 60,000 Sales revenue 1,900,000 Shares outstanding during 2014 were 100,000. Instructions (a) Prepare a single-step income statement. (b) Prepare a comprehensive income statement for 2014, using the two statement format. (c) Prepare a retained earnings statement for 2014.

Explain why the medical expense provisions are sometimes referred to as “wherewithal” deductions and how this rationale is reflected in the limits on these deductions.

1.       : Do you agree with the idea that people have innate biases and will automatically discriminate if left to their own devices? Discuss.

In its December 31, 2014, balance sheet Oakley Corporation reported as an asset, “Net notes and accounts receivable, $7,100,000.” What other disclosures are necessary?

Sinise Industries acquired two copyrights during 2014. One copyright related to a textbook that was developed internally at a cost of $9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2014, the date it was published. The second copyright (a history research textbook) was purchased from University Press on December 1, 2014, for $24,000. This textbook has an indefinite useful life. How should these two copyrights be reported on Sinise’s balance sheet as of December 31, 2014?

In computing the interest component of pension expense, what interest rates may be used?

1.    How might a corporate management team go about determining whether the company should diversify? What factors should team members consider? What kinds of information should they collect?

The following information is related to Dickinson Company for 2014. Retained earnings balance, January 1, 2014 $ 980,000 Sales revenue 25,000,000 Cost of goods sold 16,000,000 Interest revenue 70,000 Selling and administrative expenses 4,700,000 Write-off of goodwill 820,000 Income taxes for 2014 1,244,000 Gain on the sale of investments (normal recurring) 110,000 Loss due to fl ood damage—extraordinary item (net of tax) 390,000 Loss on the disposition of the wholesale division (net of tax) 440,000 Loss on operations of the wholesale division (net of tax) 90,000Dividends declared on common stock $250,000 Dividends declared on preferred stock 80,000 Dickinson Company decided to discontinue its entire wholesale operations and to retain its manufacturing operations. On September 15, Dickinson sold the wholesale operations to Rogers Company. During 2014, there were 500,000 shares of common stock outstanding all year. Instructions Prepare a multiple-step income statement and a retained earnings statement.

If you were given complete authority in the matter, howwould you propose that GAAP should be developed andenforced?

The following data relate to the Machinery account of Eshkol, Inc. at December 31, 2014. Machinery A B C D Original cost $46,000 $51,000 $80,000 $80,000 Year purchased 2009 2010 2011 2013 Useful life 10 years 15,000 hours 15 years 10 years Salvage value $ 3,100 $ 3,000 $ 5,000 $ 5,000 Depreciation Sum-of-the- Double-decliningmethod years’-digits Activity Straight-line balance Accum. depr. through 2014* $31,200 $35,200 $15,000 $16,000 *In the year an asset is purchased, Eshkol, Inc. does not record any depreciation expense on the asset. In the year an asset is retired or traded in, Eshkol, Inc. takes a full year’s depreciation on the asset. The following transactions occurred during 2015. (a) On May 5, Machine A was sold for $13,000 cash. The company’s bookkeeper recorded this retirement in the following manner in the cash receipts journal. Cash 13,000 Machinery (Machine A) 13,000 (b) On December 31, it was determined that Machine B had been used 2,100 hours during 2015. (c) On December 31, before computing depreciation expense on Machine C, the management of Eshkol, Inc. decided the useful life remaining from January 1, 2015, was 10 years. (d) On December 31, it was discovered that a machine purchased in 2014 had been expensed completely in that year. This machine cost $28,000 and has a useful life of 10 years and no salvage value. Management has decided to use the double-declining-balance method for this machine, which can be referred to as “Machine E.” Instructions Prepare the necessary correcting entries for the year 2015. Record the appropriate depreciation expense on the above-mentioned machines.

At December 31, 2013, Shiga Naoya Corporation had the following stock outstanding. 10% cumulative preferred stock, $100 par, 107,500 shares $10,750,000 Common stock, $5 par, 4,000,000 shares 20,000,000 During 2014, Shiga Naoya did not issue any additional common stock. The following also occurred during 2014. Income from continuing operations before taxes $23,650,000 Discontinued operations (loss before taxes) $ 3,225,000 Preferred dividends declared $ 1,075,000 Common dividends declared $ 2,200,000 Effective tax rate 35% Instructions Compute earnings per share data as it should appear in the 2014 income statement of Shiga Naoya Corporation. (Round to two decimal places.)

Research and development activities may include (a) personnel costs, (b) materials and equipment costs, and (c) indirect costs. What is the recommended accounting treatment for these three types of R&D costs?

Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out 40% of net income in dividends each year. Instructions Use the information in the following T-account for the investment in Sub to answer the following questions. Investment in Sub Co. 1,000,000 110,000 44,000 (a) How much was Parent Co.’s share of Sub Co.’s net income for the year? (b) How much was Parent Co.’s share of Sub Co.’s dividends for the year? (c) What was Sub Co.’s total net income for the year? (d) What was Sub Co.’s total dividends for the year?

If XYZ Corporation is a shareholder of BCD Corporation, how many times will  BCD’s before-tax income potentially be taxed? Has Congress provided any tax relief for this result? Explain.

Explain the differences and similarities between personal property, real property, intangible property, and natural resources. Also, provide an example of each type of asset.