Question & Answer

How are defined benefit plans different from defined contribution plans? How are they similar?

Dan has AGI of $50,000 and paid the following taxes during this tax year. Calculate how much Dan can deduct for taxes as an itemized deduction this year.

J.C. has been a professional gambler for many years.  He loves this line of work and believes the incomis tax-free.  a.  Use an available tax research service to determine whether J.C.’s thinking is correct.  Is the answer to this question found in the Internal Revenue Code?  If not, what type of authority answers this question? b.  Write a short memo communicating the results of your research.

The following information has been obtained for the Gocker Corporation. 1. Prior to 2014, taxable income and pretax financial income were identical. 2. Pretax financial income is $1,700,000 in 2014 and $1,400,000 in 2015. 3. On January 1, 2014, equipment costing $1,200,000 is purchased. It is to be depreciated on a straightline basis over 5 years for tax purposes and over 8 years for financial reporting purposes. (Hint: Use the half-year convention for tax purposes, as discussed in Appendix 11A.) 4. Interest of $60,000 was earned on tax-exempt municipal obligations in 2015. 5. Included in 2015 pretax financial income is an extraordinary gain of $200,000, which is fully taxable. 6. The tax rate is 35% for all periods. 7. Taxable income is expected in all future years. Instructions (a) Compute taxable income and income taxes payable for 2015. (b) Prepare the journal entry to record 2015 income tax expense, income taxes payable, and deferred taxes. (c) Prepare the bottom portion of Gocker’s 2015 income statement, beginning with “Income before income taxes and extraordinary item.” (d) Indicate how deferred income taxes should be presented on the December 31, 2015, balance sheet.

Which of the following unions find themselves in a weak bargaining position for the above reasons? (a)  The shopworkers’ union (USDAW). (b)  The tube and train drivers’ union (ASLEF). (c)  The farm workers’ union (part of Unite).

Martinez Corporation engaged in the following cash transactions during 2014. Sale of land and building $191,000 Purchase of treasury stock 40,000 Purchase of land 37,000 Payment of cash dividend 95,000 Purchase of equipment 53,000 Issuance of common stock 147,000 Retirement of bonds 100,000 Compute the net cash provided (used) by investing activities.

Roland Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2013 for $10,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2014, new technology was introduced that would accelerate the obsolescence of Roland’s equipment. Roland’s controller estimates that expected future net cash flows on the equipment will be $6,300,000 and that the fair value of the equipment is $5,600,000. Roland intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Roland uses straightline depreciation. Instructions (a) Prepare the journal entry (if any) to record the impairment at December 31, 2014. (b) Prepare any journal entries for the equipment at December 31, 2015. The fair value of the equipment at December 31, 2015, is estimated to be $5,900,000. (c) Repeat the requirements for (a) and (b), assuming that Roland intends to dispose of the equipment and that it has not been disposed of as of December 31, 2015.

Kulikowski Inc., a client, is considering the authorization of a 10% common stock dividend to common stockholders. The financial vice president of Kulikowski wishes to discuss the accounting implications of such an authorization with you before the next meeting of the board of directors. Instructions (a) The first topic the vice president wishes to discuss is the nature of the stock dividend to the recipient. Discuss the case against considering the stock dividend as income to the recipient. (b) The other topic for discussion is the propriety of issuing the stock dividend to all “stockholders of record” or to “stockholders of record exclusive of shares held in the name of the corporation as treasury stock.” Discuss the case against issuing stock dividends on treasury shares.

Ray and Matias each own 50 percent capital and profits interests in Alpine Properties LLC. Alpine builds and manages rental real estate, and Ray and Matias each work full time (over 1,000 hours per year) managing Alpine. Alpine’s liabilities (at both the beginning and end of the year) consist of $1,500,000 in nonrecourse mortgages obtained from an unrelated bank and secured by various rental properties. At the beginning of the current year, Ray and Matias each had a tax basis of $250,000 in his LLC interest, including his share of the nonrecourse mortgage liability. Alpine’s ordinary business losses for the current year totaled $600,000, and neither member is involved in other activities that generate passive income. a. How much of each member’s loss is suspended because of the tax-basis limitation? b. How much of each member’s loss is suspended because of the at-risk limitation? c. How much of each member’s loss is suspended because of the passive activity loss limitation? [Hint: See §469(c)(7).] d. If both Ray and Matias are single and Ray has a current-year loss of $100,000 from a sole proprietorship, how much trade or business loss can each deduct on his tax return in the current year?

Should a liability be recorded for risk of loss due to lack of insurance coverage? Discuss.

What is a buckyball?

Does a taxpayer apply the §1231 look-back rule in a year when the taxpayer recognizes a net §1231 loss?  Explain.

A gundrilling operation is used to drill a 9/64-in diameter hole to a certain depth. It takes 4.5 minutes to perform the drilling operation using high pressure fluid delivery of coolant to the drill point. The current spindle speed = 4000 rev/min, and feed = 0.0017 in/rev. In order to improve the surface finish in the hole, it has been decided to increase the speed by 20% and decrease the feed by 25%. How long will it take to perform the operation at the new cutting conditions?

Oliver Corporation has owned stock of Conrad Corporation since 2011. At December 31, 2014, its balances related to this investment were: Equity Investments $185,000 Fair Value Adjustment (AFS) 34,000 Dr. Unrealized Holding Gain or Loss—Equity 34,000 Cr. On January 1, 2015, Oliver purchased additional stock of Conrad Company for $475,000 and now has significant influence over Conrad. If the equity method had been used in 2011–2014, Oliver’s share of income would have been $33,000 greater than dividends received. Prepare Oliver’s journal entries to record th purchase of the investment and the change to the equity method.

A shielded metal arc-welding operation is performed on steel at a voltage = 30 volts and a current = 225 amps. The heat transfer factor = 0.85 and melting factor = 0.75. The unit melting energy for steel = 10.2 J/mm3. Determine (a) the rate of heat generation at the weld and (b) the volume rate of metal welded.

On July 1 of year 1, Riverside Corp. (RC), a calendar-year taxpayer, acquired the assets of another business in a taxable acquisition. When the purchase price was allocated to the assets purchased, RC determined it had purchased $1,200,000 of goodwill for both book and tax purposes.  At the end of year 1, the auditors for RC determined that the goodwill had not been impaired during the year.  In year 2, however, the auditors concluded that $200,000 of the goodwill had been impaired, and they required RC to write down the goodwill by $200,000 for book purposes.

The certified public accountant is frequently called upon by management for advice regarding methods of computing depreciation. Of comparable importance, although it arises less frequently, is the question of whether the depreciation method should be based on consideration of the assets as units, as a group, or as having a composite life. Instructions (a) Briefly describe the depreciation methods based on treating assets as (1) units and (2) a group or as having a composite life. (b) Present the arguments for and against the use of each of the two methods. (c) Describe how retirements are recorded under each of the two methods.

By referring to each of the above determinants of supply, identify what would cause (a) the supply of potatoes to fall and (b) the supply of leather to rise.

What is the difference between a closed-loop control system and an open-loop control system?

Ryan is self-employed. This year Ryan used his personal auto for several long business trips. Ryan paid $1,500 for gasoline on these trips. His depreciation on the car if he was using it fully for business purposes would be $3,000. During the year, he drove his car a total of 12,000 miles (combination of business and personal travel).

Ben Sisko Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment. Abstract company’s fee for title search $ 520 Architect’s fees 3,170 Cash paid for land and dilapidated building thereon 87,000 Removal of old building $20,000 Less: Salvage 5,500 14,500 Interest on short-term loans during construction 7,400 Excavation before construction for basement 19,000 Machinery purchased (subject to 2% cash discount, which was not taken) 55,000 Freight on machinery purchased 1,340 Storage charges on machinery, necessitated by noncompletion of building when machinery was delivered 2,180 New building constructed (building construction took 6 months from date of purchase of land and old building) 485,000 Assessment by city for drainage project 1,600 Hauling charges for delivery of machinery from storage to new building 620 Installation of machinery 2,000 Trees, shrubs, and other landscaping after completion of building (permanent in nature) 5,400 Instructions Determine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment. Assume the benefits of capitalizing interest during construction exceed the cost of implementation. Indicatehow any costs not debited to these accounts should be recorded.

Ballard Company rents a warehouse on a month-to-month basis for the storage of its excess inventory. The company periodically must rent space whenever its production greatly exceeds actual sales. For several years, the company officials have discussed building their own storage facility, but this enthusiasm wavers when sales increase sufficiently to absorb the excess inventory. What is the nature of this type of lease arrangement, and what accounting treatment should be accorded it?

Explain how legal business entities differ in terms of the liability protection they provide their owners.

Under this system how would you expect countries to respond to a balance of payments surplus? Would a revaluation benefit such countries?

A stepping motor has 200 step angles. Its output shaft is directly coupled to leadscrew with pitch = 0.250 in. A worktable is driven by the leadscrew. The table must move a distance of 5.00 in from its present position at a travel speed of 20.0 in/min. Determine (a) the number of pulses required to move the table the specified distance and (b) the required motor speed and pulse rate to achieve the specified table speed.