Question & Answer

In year 0, Canon purchased a machine to use in its business for $56,000. In year 3, Canon sold the machine for $42,000. Between the date of the purchase and the date of the sale, Canon depreciated the machine by $32,000.  a. What are the amount and character of the gain or loss Canon will recognize on the sale, assuming that it is a partnership?  b. What are the amount and character of the gain or loss Canon will recognize on the sale, assuming that it is a corporation? c. What are the amount and character of the gain or loss Canon will recognize on the sale, assuming that it is a corporation and the sale proceeds were increased to $60,000?  d. What are the amount and character of the gain or loss Canon will recognize on the sale, assuming that it is a corporation and the sale proceeds were decreased to $20,000?

How do legal corporations protect shareholders from liability? If you formed a small corporation, would you be able to avoid repaying a bank loan from your community bank if the corporation went bankrupt? Explain.

What is a photoresist?

What book-tax differences in year 1 and year 2 associated with its capital gains and losses would DEF Inc. report in the following alternative scenarios?  Identify each book-tax difference as favorable or unfavorable and as permanent or temporary.   a.  In year 1, DEF recognized a loss of $15,000 on land that it had held for investment.  In year 1, it also recognized a $30,000 gain on equipment it had purchased a few years ago. The equipment sold for $50,000 and had an adjusted basis of $20,000.  DEF had deducted $40,000 of tax depreciation on the equipment. In year 2, DEF recognized a capital loss of $2,000.

Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Fields patent number 758-6002-1A is as follows. Date Activity Cost 2005–2006 Research conducted to develop precipitator $384,000 Jan. 2007 Design and construction of a prototype 87,600 March 2007 Testing of models 42,000 Jan. 2008 Fees paid engineers and lawyers to prepare patent application; patent granted June 30, 2008 59,500 Nov. 2009 Engineering activity necessary to advance the design of the precipitator to the manufacturing stage 81,500 Dec. 2010 Legal fees paid to successfully defend precipitator patent 42,000 April 2011 Research aimed at modifying the design of the patented precipitator 43,000 July 2015 Legal fees paid in unsuccessful patent infringement suit against a competitor 34,000 Fields assumed a useful life of 17 years when it received the initial precipitator patent. On January 1, 2013, it revised its useful life estimate downward to 5 remaining years. Amortization is computed for a full year if the cost is incurred prior to July 1, and no amortization for the year if the cost is incurred after June 30. The company’s year ends December 31. Instructions Compute the carrying value of patent No. 758-6002-1A on each of the following dates: (a) December 31, 2008. (b) December 31, 2012. (c) December 31, 2015.

A shaper is used to reduce the thickness of a 50 mm part to 45 mm. The part is made of cast iron and has a tensile strength of 270 MPa and a Brinell hardness of 165 HB. The starting dimensions of the part are 750 mm x 450 mm x 50 mm. The cutting speed is 0.125 m/sec and the feed is 0.40mm/pass. The shaper ram is hydraulically driven and has a return stroke time that is 50% of the cutting stroke time. An extra 150 mm must be added before and after the part for acceleration and deceleration to take place. Assuming the ram moves parallel to the long dimension of the part, how long will it take to machine?

Presented below is information related to Dino Radja Company. Ending Inventory Price Date (End-of-Year Prices) Index December 31, 2011 $ 80,000 100 December 31, 2012 115,500 105 December 31, 2013 108,000 120 December 31, 2014 122,200 130 December 31, 2015 154,000 140 December 31, 2016 176,900 145 Instructions Compute the ending inventory for Dino Radja Company for 2011 through 2016 using the dollar-value LIFO method.

You run into Greg Norman at a party and begin discussing financial statements. Greg says, “I prefer the single-step income statement because the multiple-step format generally overstates income.” How should you respond to Greg?

Presented below are two different situations related to Mckee Corporation’s debt obligations. Mckee’s next financial reporting date is December 31, 2014. The financial statements are authorized for issuance on March 1, 2015. 1. Mckee has a long-term obligation of $400,000, which is maturing over 4 years in the amount of $100,000 per year. The obligation is dated November 1, 2014, and the first maturity date is November 1, 2015. 2. Mckee has a short-term obligation due February 15, 2015. Its lender agrees to extend the maturity date of this loan to February 15, 2017. The agreement for extension is signed on January 15, 2015.

Sasha is a self-employed taxpayer. They recently spent $1,000 for airfare to travel to Italy. What amount of the airfare is deductible in each of the following alternative scenarios?

Tiger Corporation reported taxable income of $500,000 from operations this year.  During the year, the company made a distribution of land to its sole shareholder, Mike Fairway. The land’s fair market value was $75,000 and its tax and E&P basis to Tiger was $125,000. Mike assumed a mortgage attached to the land of $15,000. Tiger had accumulated E&P of $750,000 at the beginning of the year.

Assume that there is a positive economic shock and the economy expands. Why may it continue to expand for some time? Why may the expansion eventually cease and be followed by a recession?

Identify the principal components of a stamping die that performs blanking

Indicate how each of the following accounts should be classified in the equity section. (a) Share Capital—Ordinary. (e) Share Premium—Treasury. (b) Retained Earnings. (f) Share Capital—Preference. (c) Share Premium—Ordinary. (g) Accumulated Other Comprehensive Income. (d) Treasury Shares.

Consider the advantages and disadvantages of extending property rights so that everyone would have the right to prevent people imposing any costs on them whatsoever (or charging them to do so).

Briggs and Stratton reported unamortized debt issue costs of $5.1 million. How should the costs of issuing these bonds be accounted for and classified in the financial statements?

Included in Gonzalez Company’s December 31 trial balance is a note receivable of $12,000. The note is a 4-month, 10% note dated October 1. Prepare Gonzalez’s December 31 adjusting entry to record $300 of accrued interest, and the February 1 journal entry to record receipt of $12,400 from the borrower.

Where, if at all, should the following items be classified on a balance sheet? (a) Goods out on approval to customers. (b) Goods in transit that were recently purchased f.o.b. destination. (c) Land held by a realty firm for sale. (d) Raw materials. (e) Goods received on consignment. (f) Manufacturing supplies.

Which members of a family are included in the family attribution rules? Is there any rationale for the family members included in the test?

The U.S. Securities and Exchange Commission (SEC) was created in 1934 and consists of five commissioners and a large professional staff. The SEC professional staff is organized into five divisions and several principal offices. The primary objective of the SEC is to support fair securities markets. The SEC also strives to foster enlightened stockholder participation in corporate decisions of publicly traded companies. The SEC has a significant presence in financial markets, the development of accounting practices, and corporation-shareholder relations, and has the power to exert influence on entities whose actions lie within the scope of its authority. Instructions (a) Explain from where the Securities and Exchange Commission receives its authority. (b) Describe the official role of the Securities and Exchange Commission in the development of financial accounting theory and practices. (c) Discuss the interrelationship between the Securities and Exchange Commission and the Financial Accounting Standards Board with respect to the development and establishment of financial accounting theory and practices.

For an accrual-method partnership, are accounts receivable considered unrealized receivables? Explain.

a.       Because Nikki’s 28.57% discount ($14,000 – $10,000/$14,000) is less than Shine Company’s gross profit percentage, the bargain purchase from her employer does not result in taxable income. b.     Nikki will recognize $25 of taxable income from the discounted services provided by Shine Company.  Discounts more than 20% for services are taxable. Thus, Nikki’s taxable discount is $25 ($125 Discount received – (20% x $500)=$25).

Just under two million pensioners were identified as living in poverty in the UK in 2020. In the same year it was estimated that total property wealth of pensioner households had grown to a record high of £1.133 trillion. What does this imply about inequality and poverty?

Shown below is the liabilities and stockholders’ equity section of the balance sheet for Jana Kingston Company and Mary Ann Benson Company. Each has assets totaling $4,200,000. Jana Kingston Co. Mary Ann Benson Co. Current liabilities $ 300,000 Current liabilities $ 600,000 Long-term debt, 10% 1,200,000 Common stock ($20 par) 2,900,000 Common stock ($20 par) 2,000,000 Retained earnings (Cash Retained earnings (Cash dividends, $328,000) 700,000 dividends, $220,000) 700,000 $4,200,000 $4,200,000 For the year, each company has earned the same income before interest and taxes. Jana Kingston Co. Mary Ann Benson Co. Income before interest and taxes $1,200,000 $1,200,000 Interest expense 120,000 –0– 1,080,000 1,200,000 Income taxes (45%) 486,000 540,000 Net income $ 594,000 $ 660,000 At year end, the market price of Kingston’s stock was $101 per share, and Benson’s was $63.50. Instructions (a) Which company is more profitable in terms of return on total assets? (b) Which company is more profitable in terms of return on common stock equity? (c) Which company has the greater net income per share of stock? Neither company issued or reacquired shares during the year. (d) From the point of view of net income, is it advantageous to the stockholders of Jana Kingston Co. to have the long-term debt outstanding? Why? (e) What is the book value per share for each company?

You have been engaged to review the financial statements of Gottschalk Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows. 1. Year-end wages payable of $3,400 were not recorded because the bookkeeper thought that “they were immaterial.” 2. Accrued vacation pay for the year of $31,100 was not recorded because the bookkeeper “never heard that you had to do it.” 3. Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $2,640 because “the amount of the check is about the same every year.” 4. Reported sales revenue for the year is $2,120,000. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state’s Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a selling expense.” At the end of the current year, the balance in the Sales Tax Expense account is $103,400. Instructions Prepare the necessary correcting entries, assuming that Gottschalk uses a calendar-year basis.