Question & Answer

Explain when a taxpayer will be subject to the 10 percent penalty when receiving distributions from a Roth IRA.

Grady is a 45-year-old employee with AMUCK Garbage Corporation. AMUCK pays group-term life insurance premiums for employees, and Grady chose the maximum face amount of $120,000. What amount, if any, of the premium AMUCK paid on his behalf must Grady include in his gross income for the year? Provide a tax authority to support your answer.

Below is the comparative balance sheet for Stevie Wonder Corporation. Dec. 31, Dec. 31, 2014 2013 Cash $ 16,500 $ 21,000 Short-term investments 25,000 19,000 Accounts receivable 43,000 45,000 Allowance for doubtful accounts (1,800) (2,000) Prepaid expenses 4,200 2,500 Inventory 81,500 65,000 Land 50,000 50,000 Buildings 125,000 73,500 Accumulated depreciation—buildings (30,000) (23,000) Equipment 53,000 46,000 Accumulated depreciation—equipment (19,000) (15,500) Delivery equipment 39,000 39,000 Accumulated depreciation—delivery equipment (22,000) (20,500) Patents 15,000 202 $379,400 $300,000 Dec. 31, Dec. 31, 2014 2013 Accounts payable $ 26,000 $ 16,000 Short-term notes payable (trade) 4,000 6,000 Accrued payables 3,000 4,600 Mortgage payable 73,000 53,400 Bonds payable 50,000 62,500 Capital stock 140,000 102,000 Paid-in capital in excess of par 10,000 4,000 Retained earnings 73,400 51,500 $379,400 $300,000 Dividends in the amount of $15,000 were declared and paid in 2014. Instructions From this information, prepare a worksheet for a statement of cash flows. Make reasonable assumptions as appropriate. The short-term investments are considered available-for-sale and no unrealized gains or losses have occurred on these securities.

Dontae stated that he didn’t want to earn any more money because it would “put him in a higher tax bracket.”  What is wrong with Dontae’s reasoning?

BCS Corporation is a calendar-year, accrual-method taxpayer. BCS was formed and started its business activities on January 1 of this year. It reported the following information for the year. Indicate BCS’s deductible amount for this year in each of the following alternative scenarios.  a) BCS provides two-year warranties on products it sells to customers. For its current year sales, BCS estimated and accrued $200,000 in warranty expense for financial accounting purposes. During this year, BCS spent $30,000 repairing its product under the warranty.  b) BCS accrued an expense for $50,000 for amounts it anticipated it would be required to pay under the workers’ compensation act. During the year, BCS actually paid $10,000 for workers’ compensation-related liabilities. c) In June of this year, a display of BCS’s product located in its showroom fell and injured a customer. The customer sued BCS for $500,000. The case is scheduled to go to trial next year. BCS anticipates that it will lose the case and this year accrued a $500,000 expense on its financial statements. d) Assume the same facts as in (c) except that BCS was required to pay $500,000 to a court-appointed escrow fund this year. If BCS loses the case next year, the money from the escrow fund will be transferred to the customer suing BCS. e) On December 1 of this year, BCS acquired equipment from Equip Company. As part of the purchase, BCS signed a separate contract which provided that Equip would warranty the equipment for two years (starting on December 1 of this year). The extra cost of the warranty was $12,000, which BCS finally paid to Equip in January of next year.

What are the major sources of cash (inflows) in a statement of cash flows? What are the major uses (outflows) of cash?

What is the full disclosure principle in accounting? Why has disclosure increased substantially in the last 10 years?

Compare and contrast for and from AGI deductions.Why are for AGI deductions likely more valuable to taxpayers than from AGI deductions?

Discuss at least two items that are important to the value of companies like Intel or IBM but that are not recorded in their balance sheets. What are some reasons why these items are not recorded in the balance sheet?

What are the components of an interest rate? Why is it important for accountants to understand these components?

1.      : Donate the $1,000 to Northeast High, and consider the $10,000 bonus a good return on your investment. There is nothing illegal or immoral about making the donation.

What tests are applied to determine if losses should be characterized as passive?

Irene is saving for a new car she hopes to purchase either four or six years from now. Irene invests $10,000 in a growth stock that does not pay dividends and expects a 6 percent annual before-tax return (the investment is tax deferred). When she cashes in the investment after either four or six years, she expects the applicable marginal tax rate on long-term capital gains to be 25 percent.    a) What will be the value of this investment four years from now? Six years from now? b) When Irene sells the investment, how much cash will she have after taxes to purchase the new car (four and six years from now)?

: Define the components of strategic management and the three levels of strategy.

What is a scanning probe instrument, and why is it so important in nanoscience and nanotechnology?

Tones Industries has the following patents on its December 31, 2013, balance sheet. Patent Item Initial Cost Date Acquired Useful Life at Date Acquired Patent A $30,600 3/1/10 17 years Patent B $15,000 7/1/11 10 years Patent C $14,400 9/1/12 4 years The following events occurred during the year ended December 31, 2014. 1. Research and development costs of $245,700 were incurred during the year. 2. Patent D was purchased on July 1 for $36,480. This patent has a useful life of 9½ years. 3. As a result of reduced demands for certain products protected by Patent B, a possible impairment of Patent B’s value may have occurred at December 31, 2014. The controller for Tones estimates the expected future cash flows from Patent B will be as follows. Year Expected Future Cash Flows 2015 $2,000 2016 2,000 2017 2,000 The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.) Instructions (a) Compute the total carrying amount of Tones’ patents on its December 31, 2013, balance sheet. (b) Compute the total carrying amount of Tones’ patents on its December 31, 2014, balance sheet.

Using the facts in problem 37, if Campbell earns an additional $15,000 of taxable income, what is her marginal tax rate on this income?  What is her marginal rate if, instead, she had $15,000 of additional deductions?

As stated in the chapter, notes to the financial statements are the means of explaining the items presented in the main body of the statements. Common note disclosures relate to such items as accounting policies, segmented information, and interim reporting. The financial statements of P&G are presented in Appendix 5B. The company’s complete annual report, including the notes to the financial statements, can be accessed at the book’s companion website, www.wiley.com/college/kieso. Instructions Refer to P&G’s financial statements and the accompanying notes to answer the following questions. (a) What specific items does P&G discuss in its Note 1—Summary of Significant Accounting Policies? (List the headings only.) (b) For what segments did P&G report segmented information? Which segment is the largest? Who is P&G’s largest customer? (c) What interim information was reported by P&G?

What is the difference between tax avoidance and tax evasion?

Carole, Karmen, and Cyrus formed ABC Corporation. Carole received 60 percent of the stock in ABC Corporation in exchange for appreciated property, Karmen received 30 percent of the stock in ABC Corporation in exchange for legal services, and Cyrus received 10 percent of the stock ABC Corporation in exchange for cash.   a. Must Carole recognize the gain she realized on her transfer of the appreciated property?   b. Suppose that, instead of receiving the entire 30 percent of the ABC Corporation stock in exchange for legal services, Karmen received 10 percent of the ABC Corporation stock in exchange for her legal services and she received 20 percent of the ABC Corporation stock in exchange for cash (i.e., she transferred both services and property to ABC Corporation). Must Carole recognize gain on her transfer of appreciated property?

If MUX/MUY were greater than PX/PY, how would consumers behave? What would bring consumption back to equilibrium where MUX/MUY = PX/PY?

What is the difference between an open mold and a closed mold?

Compare and contrast realization of income with recognition of income.

1.    : Walt Disney Company has four major strategic business units: movies (including Pixar and Touchstone), theme parks (Walt Disney World and Disneyland), consumer products (the Disney Store), and television (the ABC/Disney Television Group and ESPN). Place each of these SBUs on the BCG matrix based on your knowledge of them.

Adam elects the accrual method of accounting for his business. What amount of deductions does Adam recognize this year for the following transactions?  a) Adam guarantees that he will refund the cost of any goods sold to a client if the goods fail within a year of delivery. In December of this year, Adam agreed to refund $2,400 to clients, and he expects to make payment in January of next year. b) On December 1 of this year, Adam paid $480 for a one-year contract with CleanUP Services to clean his store. The agreement calls for services to be provided on a weekly basis. c) Adam was billed $240 for annual personal property taxes on his delivery van. Because this was the first time Adam was billed for these taxes, he did not make payment until January of next year. However, he considers the amounts immaterial.