Question & Answer

List the three parts of a common twist drill. List the three parts of a common twist drill.

The information shown below and on page 1170 was disclosed during the audit of Elbert Inc. 1. Amount Due Year per Tax Return 2014 $130,000 2015 104,000 2. On January 1, 2014, equipment costing $600,000 is purchased. For financial reporting purposes, the company uses straight-line depreciation over a 5-year life. For tax purposes, the company uses the elective straight-line method over a 5-year life. (Hint: For tax purposes, the half-year convention as discussed in Appendix 11A must be used.) 3. In January 2015, $225,000 is collected in advance rental of a building for a 3-year period. The entire $225,000 is reported as taxable income in 2015, but $150,000 of the $225,000 is reported as unearned revenue in 2015 for financial reporting purposes. The remaining amount of unearned revenue is to be recognized equally in 2016 and 2017. 4. The tax rate is 40% in 2014 and all subsequent periods. (Hint: To find taxable income in 2014 and 2015, the related income taxes payable amounts will have to be “grossed up.”) 5. No temporary differences existed at the end of 2013. Elbert expects to report taxable income in each of the next 5 years. Instructions (a) Determine the amount to report for deferred income taxes at the end of 2014, and indicate how it should be classified on the balance sheet. (b) Prepare the journal entry to record income taxes for 2014. (c) Draft the income tax section of the income statement for 2014, beginning with “Income before income taxes.” (Hint: You must compute taxable income and then combine that with changes in cumulative temporary differences to arrive at pretax financial income.) (d) Determine the deferred income taxes at the end of 2015, and indicate how they should be classified on the balance sheet. (e) Prepare the journal entry to record income taxes for 2015. (f) Draft the income tax section of the income statement for 2015, beginning with “Income before income taxes.”

Diamond Mountain was originally thought to be one of the few places in North America to contain diamonds, so Diamond Mountain Inc. (DM) purchased the land for $1,000,000. Later, DM discovered that the only diamonds on the mountain had been planted there and the land was worthless for mining. DM engineers discovered a new survey technology and discovered a silver deposit estimated at 5,000 pounds on Diamond Mountain. DM immediately bought new drilling equipment and began mining the silver.  In years 1-3 following the opening of the mine, DM had net (gross) income of $200,000 ($700,000), $400,000 ($1,100,000), and $600,000 ($1,450,000), respectively. Mining amounts for each year were as follows: 750 pounds (year 1), 1,450 pounds (year 2), and 1,800 pounds (year 3). At the end of year 2, engineers used the new technology (which had been improving over time) and estimated there were still an estimated 6,000 pounds of silver deposits. DM also began a research and experimentation project with the hopes of gaining a patent for its new survey technology. Diamond Mountain Inc. chose to capitalize research and experimentation expenditures and to amortize the costs over 60 months or until it obtained a patent on its technology. In March of year 1, DM spent $95,000 on research and experimentation. DM spent another $75,000 in February of year 2 for research and experimentation. DM realizes benefits from the research and experimentation expenditures when the costs are incurred. In September of year 2, DM paid $20,000 of legal fees and was granted the patent in October of year 2 (the entire process of obtaining a patent was unusually fast). The patent's life is 20 years.

: How do you think that the team evolved to this low level of cooperation and cohesiveness?

Outline the purpose of strategy maps.

What are interim reports? Why are balance sheets often anot provided with interim data?

Explain why systemic risk is a source of concern in the bond and other debt markets. Also explain how the Financial Reform Act of 2010 was intended to reduce systemic risk. (LO2)

Cool Touch Cookware (CTC) has been in business for about 10 years now. Daisy and Kesha are each 50 percent owners of the business. They initially established the business with cash contributions. CTC manufactures unique cookware that remains cool to the touch when in use. CTC has been fairly profitable over the years. Daisy and Kesha have both been actively involved in managing the business. They have developed very good personal relationships with many customers (both wholesale and retail) that, Daisy and Kesha believe, keep the customers coming back.   On September 30 of the current year, CTC had all of its assets appraised. Below is CTC’s balance sheet, as of September 30, with the corresponding appraisals of the fair market value of all of its assets. Note that CTC has several depreciated assets. CTC uses the hybrid method of accounting. It accounts for its gross margin-related items under the accrual method, and it accounts for everything else using the cash method of accounting.     Assets Adjusted  Tax Basis FMV Cash $150,000 $150,000 Accounts receivable 20,000 15,000 Inventory* 90,000 300,000 Equipment 120,000 100,000 Investment in XYZ stock 40,000 120,000 Land (used in the business) 80,000 70,000 Building 200,000 180,000    Total Assets $700,000 $935,000**   Liabilities Accounts payable $ 40,000 Bank loan60,000 Mortgage on building100,000 Equity 500,000  Total liabilities and equity$700,000   *CTC uses the LIFO method for determining the adjusted basis of its inventory. Its basis in the inventory under the FIFO method would have been $110,000. **In addition, Daisy and Kesha had the entire business appraised at $1,135,000, which is $200,000 more than the value of the identifiable assets.   From January 1 of the current year through September 30, CTC reported the following income: Ordinary business income    $530,000 Dividends from XYZ stock    $12,000 Long-term capital losses $15,000 Interest income $ 3,000   Daisy and Kesha are considering changing the business form of CTC.   Required: a. Assume CTC is organized as a C corporation. Identify significant tax and nontax issues associated with converting CTC from a C corporation to an S corporation. [Hint: see §§1374 and 1363(d).] b. Assume CTC is organized as a C corporation. Identify significant tax and nontax issues associated with converting CTC from a C corporation to an LLC. Assume CTC converts to an LLC (taxed as a partnership) by distributing its assets to its shareholders, who then contribute the assets to a new LLC. [Hint: see §§331, 336, and 721(a).] c. Assume that CTC is a C corporation with a net operating loss carryforward as of the beginning of the year in the amount of $500,000 and that the NOL originated in 2019. Identify significant tax and nontax issues associated with converting CTC from a C corporation to an LLC (taxed as a partnership). Assume CTC converts to an LLC by distributing its assets to its shareholders, who then contribute the assets to a new LLC. [Hint: see §§172(a), 331, 336, and 721(a).]

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 descriptions are used by P&G in its balance sheet to classify its property, plant, and equipment? (b) What method or methods of depreciation does P&G use to depreciate its property, plant, and equipment? (c) Over what estimated useful lives does P&G depreciate its property, plant, and equipment? (d) What amounts for depreciation and amortization expense did P&G charge to its income statement in 2011, 2010, and 2009? (e) What were the capital expenditures for property, plant, and equipment made by P&G in 2011, 2010, and 2009?

Walkin Inc. is considering the write-down of its long-term plant because of a lack of profitability. Explain to the management of Walkin how to determine whether a write-down is permitted.

Would it be possible with this basic needs approach to say (a) that one country was more developed than another; (b) that one country was developing faster than another?

Explain how gains or losses on impaired assets should be reported in income.

Is it possible for the overall tax rate on corporate taxable income to be lower than the tax rate on flow-through entity taxable income? If so, under what conditions would you expect the overall corporate tax rate to be lower?

Supply Explain how the ample reserves framework that the Fed currently uses has a different impact on the money supply than the open market operations that the Fed used prior to the credit crisis. (LO2)

George purchased a life annuity to provide him monthly payments for as long as he lives. Based on IRS tables, George’s life expectancy is 100 months. Is George able to recover his cost of the annuity if he dies before he receives 100 monthly payments? Explain. What happens for tax purposes if George receives more than 100 payments?

How is isostatic pressing distinguished from conventional pressing and sintering in PM?

Three savings and loan institutions (S&Ls) have identical balance sheet compositions: a high concentration of short-term deposits that are used to provide long-term, fixed-rate mortgages. The S&Ls took the following positions one year ago. Name of S&L            Position LaCrosse                    Sold financial futures Stevens Point              Purchased put options on interest rate futures Whitewater                 Did not take any position in futures Assume that interest rates declined consistently over the last year. Which of the three S&Ls would have achieved the best performance based on this information? Explain. (LO4, LO6)

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marks-and- Spencer-Annual-report-and-financial-statements-2012.pdf. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) What descriptions are used by M&S in its statement of financial position to classify its property, plant, and equipment? (b) What method or methods of depreciation does M&S use to depreciate its property, plant, and equipment? (c) Over what estimated useful lives does M&S depreciate its property, plant, and equipment? (d) What amounts for depreciation and amortization expense did M&S charge to its income statement in 2012 and 2011? (e) What were the capital expenditures for property, plant, and equipment made by M&S in 2012 and 2011?

Matt Holmes recently joined Klax Company as a staff accountant in the controller’s office. Klax Company provides warehousing services for companies in several midwestern cities. The location in Dubuque, Iowa, has not been performing well due to increased competition and the loss of several customers that have recently gone out of business. Matt’s department manager suspects that the plant and equipment may be impaired and wonders whether those assets should be written down. Given the company’s prior success, this issue has never arisen in the past, and Matt has been asked to conduct some research on this issue. Instructions If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses. (a) What is the authoritative guidance for asset impairments? Briefly discuss the scope of the standard (i.e., explain the types of transactions to which the standard applies). (b) Give several examples of events that would cause an asset to be tested for impairment. Does it appear that Klax should perform an impairment test? Explain. (c) What is the best evidence of fair value? Describe alternate methods of estimating fair value.

Janice Traylor is single. She has an 18-year-old son named Marty. Marty is Janice’s only child. Marty has lived with Janice his entire life. However, Marty recently joined the Marines and was sent on a special assignment to Australia. During the current year, Marty spent nine months in Australia. Marty was extremely homesick while in Australia because he had never lived away from home. However, Marty knew this assignment was only temporary, and he couldn’t wait to come home and find his room just the way he left it. Janice has always filed as head of household, and Marty has always been considered a qualifying child (and he continues to meet all the tests with the possible exception of the residence test due to his stay in Australia). However, this year Janice is unsure whether she qualifies as head of household due to Marty’s nine-month absence during the year. Janice has come to you for advice on whether she qualifies for head of household filing status. How would you advise her?

“A worksheet is a permanent accounting record, and its use is required in the accounting cycle.” Do you agree? Explain.

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

What are the main goals of the Federal Open Market Committee? How does it attempt to achieve these goals? (LO1)

What factors could cause a rise in the market rate of interest?

Dresser Company’s weekly payroll, paid on Fridays, totals $8,000. Employees work a 5-day week. Prepare Dresser’s adjusting entry on Wednesday, December 31, and the journal entry to record the $8,000 cash payment on Friday, January 2.