Question & Answer

The TimpRiders LP has operated a motorcycle dealership for a number of years. Amir is the limited partner, Francesca is the general partner, and they share capital and profits equally. Francesca works full time managing the partnership. Both the partnership and the partners report on a calendar-year basis. At the start of the current year, Amir and Francesca had bases of $10,000 and $3,000 respectively, and the partnership did not have any liabilities. During the current year, the partnership reported the following results from operations: Net sales $650,000 Cost of goods sold $500,000 Operating expenses $160,000 Short-term capital loss $2,000 Tax-exempt interest $2,000 §1231 gain $6,000 On the last day of the year, the partnership distributed $3,000 each to Amir and Francesca. a. What outside basis do Amir and Francesca have in their partnership interests at the end of the year? b. How much of their losses are currently not deductible by Amir and Francesca because of the tax-basis limitation? c. To what extent does the passive activity loss limitation apply in restricting their deductible losses for the year? d. Using the information provided, prepare TimpRiders’ page 1 and Schedule K to be included with its Form 1065 for the current year. Also, prepare a Schedule K-1 for Amir and Francesca.

Danny’s Lawn Equipment sells high-quality lawn mowers and offers a 3-year warranty on all new lawn mowers sold. In 2014, Danny sold $300,000 of new specialty mowers for golf greens for which Danny’s service department does not have the equipment to do the service. Danny has entered into an agreement with Mower Mavens to provide all warranty service on the special mowers sold in 2014. Danny wishes to measure the fair value of the agreement to determine the warranty liability for sales made in 2014. The controller for Danny’s Lawn Equipment estimates the following expected warranty cash outflows associated with the mowers sold in 2014. Cash Flow Probability Year Estimate Assessment 2015 $2,500 20% 4,000 60% 5,000 20% 2016 $3,000 30% 5,000 50% 6,000 20% 2017 $4,000 30% 6,000 40% 7,000 30% Instructions Using expected cash flow and present value techniques, determine the value of the warranty liability for the 2014 sales. Use an annual discount rate of 5%. Assume all cash flows occur at the end of the year.

Presented below are comments made in the financial press. Instructions Prepare responses to the requirements in each item. (a) Rep. John Dingell, at one time the ranking Democrat on the House Commerce Committee, threw his support behind the FASB’s controversial derivatives accounting standard and encouraged the FASB to adopt the rule promptly. Indicate why a member of Congress might feel obligated to comment on this proposed FASB standard. (b) In a strongly worded letter to Senator Lauch Faircloth (R-NC) and House Banking Committee Chairman Jim Leach (R-IA), the American Institute of Certified Public Accountants (AICPA) cautioned against government intervention in the accounting standard-setting process, warning that it had the potential of jeopardizing U.S. capital markets. Explain how government intervention could possibly affect capital markets adversely.

1. If a bank buys a £500 000 Treasury bill at the start of its 91-day life for £480 000, at roughly what price could it sell it to another financial institution after 45 days Why is it not possible to predict that precise price when the bill is first purchased? 2. Suppose there were a sudden surge in demand for cash from the general public. Would the existence of inter-bank market loans help to meet the demand in any way?

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?

If you were the owner of a clothes shop, how would you set about deciding what prices to charge for each garment at the end-of-season sale?

74. Fizbo Corporation is in the business of breeding and racing horses. Fizbo has taxable income of $5,000,000 other than from these transactions. It has nonrecaptured §1231 losses of $10,000 from 2020 and $13,000 from 2018.    Consider the following transactions that occur during 2024: a. A building with an adjusted basis of $300,000 is totally destroyed by fire. Fizbo receives insurance proceeds of $400,000 but does not plan to replace the building. The building was built 12 years ago at a cost of $420,000 and was used to provide lodging for employees.  b. Fizbo sells four acres of undeveloped farmland (used for grazing) for $50,000. Fizbo purchased the land 15 years ago for $15,000. c. Fizbo sells a racehorse for $250,000. The racehorse was purchased four years ago for $200,000. Total depreciation taken on the racehorse was $160,000.  d. Fizbo exchanges equipment that was purchased three years ago for $300,000 for $100,000 of IBM common stock. The adjusted basis of the equipment is $220,000. If straight-line depreciation had been used, the adjusted basis would be $252,000. e. On November 1, Fizbo sold XCON stock for $50,000. Fizbo had purchased the stock on December 12, 2023, for $112,000.   Part (1): After all netting is complete, what is Fizbo’s total amount of income from these transactions to be treated as ordinary income or loss? What is its capital gain or loss?   Part (2):  What is Fizbo’s taxable income for the year after including the effects of these transactions?

Assume the same facts as in the previous problem, except that at the beginning of year 1 Sunita loaned Bikes-R-Us $3,000.  In year 2, Bikes-R-Us reported ordinary income of $12,000. What amount is Sunita allowed to deduct in year 1?  What are her stock and debt bases in the corporation at the end of year 1?  What are her stock and debt bases in the corporation at the end of year 2?

Addison Co. has one temporary difference at the beginning of 2014 of $500,000. The deferred tax liability established for this amount is $150,000, based on a tax rate of 30%. The temporary difference will provide the following taxable amounts: $100,000 in 2015, $200,000 in 2016, and $200,000 in 2017. If a new tax rate for 2017 of 20% is enacted into law at the end of 2014, what is the journal entry necessary in 2014 (if any) to adjust deferred taxes?

Draw a supply and demand diagram with the price of labour (the wage rate) on the vertical axis and the quantity of labour (the number of workers) on the horizontal axis. What will happen to employment if the government raises wages from the equilibrium to some minimum wage above the equilibrium?

The first audit of the books of Bruce Gingrich Company was made for the year ended December 31, 2015. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are: 1. At the beginning of 2013, the company purchased a machine for $510,000 (salvage value of $51,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation, but failed to deduct the salvage value in computing the depreciation base for the 3 years. 2. At the end of 2014, the company failed to accrue sales salaries of $45,000. 3. A tax lawsuit that involved the year 2013 was settled late in 2015. It was determined that the company owed an additional $85,000 in taxes related to 2013. The company did not record a liability in 2013 or 2014 because the possibility of loss was considered remote, and charged the $85,000 to a loss account in 2015. 4. Gingrich Company purchased a copyright from another company early in 2013 for $45,000. Gingrich had not amortized the copyright because its value had not diminished. The copyright has a useful life at purchase of 20 years. 5. In 2015, the company wrote off $87,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings. Instructions Prepare the journal entries necessary in 2015 to correct the books, assuming that the books have not been closed. Disregard effects of corrections on income tax.

] Compare and contrast how bad debt expense is determined for financial accounting purposes and how the deduction for bad debts is determined for accrual-method taxpayers. How do cash-method taxpayers determine their bad debt expense for accounts receivable?

Describe the tax benefits from “bunching” itemized deductions in one year. Describe the characteristics of the taxpayers who are most likely to benefit from using bunching and explain why this is so.

Larry purchased an annuity from an insurance company that promises to pay him $1,500 per month for the rest of his life. Larry paid $170,820 for the annuity. Larry is in good health and is 72 years old. Larry received the first annuity payment of $1,500 this month. Use the expected number of payments in Exhibit 5-1 for this problem.

A product whose total work content time = 50 minutes is to be assembled on a manual production line. The required production rate is 30 units per hour. From previous experience with similar products, it is estimated that the manning level will be close to 1.5. Assume that the uptime proportion and line balancing efficiency are both = 1.0. If 9 seconds will be lost from the cycle time for repositioning, determine (a) the cycle time and (b) the numbers of workers and stations that will be needed on the line.

Ramon incorporated his sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation’s stock. The property transferred to the corporation had the following fair market values and adjusted tax-adjusted bases.     FMV                    Adjusted Tax Basis Inventory$    10,000$         4,000 Building      50,000         30,000 Land    100,000         50,000 Total$  160,000$       84,000       The fair market value of the corporation’s stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Ramon. a. What amount of gain or loss does Ramon realize on the transfer of the property to his corporation?

Youngman Corporation has temporary differences at December 31, 2014, that result in the following deferred taxes. Deferred tax asset $24,000 Deferred tax liability $69,000 Indicate how these balances would be presented in Youngman’s December 31, 2014, statement of financial position.

Briefly discuss the convergence efforts that are under way by the IASB and FASB in the area of dilutive securities and earnings per share.

Horace Greeley Corporation was organized in 2013 and began operations at the beginning of 2014. The company is involved in interior design consulting services. The following costs were incurred prior to the start of operations. Attorney’s fees in connection with organization of the company $15,000 Purchase of drafting and design equipment 10,000 Costs of meetings of incorporators to discuss organizational activities 7,000 State fi ling fees to incorporate 1,000 $33,000 Instructions (a) Compute the total amount of organization costs incurred by Greeley. (b) Prepare the journal entry to record organization costs for 2014.

How might uncertainty propagate the impact of shocks, such as the COVID-19 pandemic, on the macroeconomy?

What is the purpose of a tombstone that is used with a horizontal machining center (HMC)? What is the purpose of a tombstone that is used with a horizontal machining center (HMC)?

Richardson Company is contemplating the establishment of a share-based compensation plan to provide long-run incentives for its top management. However, members of the compensation committee of the board of directors have voiced some concerns about adopting these plans, based on news accounts related to a recent accounting standard in this area. They would like you to conduct some research on this recent standard so they can be better informed about the accounting for these plans. 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) Identify the authoritative literature that addresses the accounting for share-based payment compensation plans. (b) Briefly discuss the objectives for the accounting for stock compensation. What is the role of fair value measurement? (c) The Richardson Company board is also considering an employee share-purchase plan, but the Board does not want to record expense related to the plan. What criteria must be met to avoid recording expense on an employee stock-purchase plan?

The diameter of an extruder barrel is 65 mm and its length = 1.75 m. The screw rotates at 55 rev/min. The screw channel depth = 5.0 mm, and the flight angle = 18°. The head pressure at the die end of the barrel is 5.0 x 106 Pa. The viscosity of the polymer melt is given as 100 Pa-s. Find the volume flow rate of the plastic in the barrel.

Emily purchased a building to store inventory for her business. The purchase price was $760,000. Emily also paid legal fees of $300 to acquire the building. In March, Emily incurred $2,000 to repair minor leaks in the roof (from storm damage earlier in the month) and $5,000 to make the interior suitable for her finished goods. What is Emily’s cost basis in the new building?

Each of the following items must be considered in preparing a statement of cash flows for Cruz Fashions Inc. for the year ended December 31, 2014. 1. Fixed assets that had cost $20,000 61⁄2 years before and were being depreciated on a 10-year basis, with no estimated scrap value, were sold for $4,750. 2. During the year, goodwill of $15,000 was considered impaired and was completely written off to expense. 3. During the year, 500 shares of common stock with a stated value of $25 a share were issued for $32 a share. 4. The company sustained a net loss for the year of $2,100. Depreciation amounted to $2,000 and patent amortization was $400. 5. Uncollectible accounts receivable in the amount of $2,000 were written off against Allowance for Doubtful Accounts. 6. Investments (available-for-sale) that cost $12,000 when purchased 4 years earlier were sold for $10,600. The loss was considered ordinary. 7. Bonds payable with a par value of $24,000 on which there was an unamortized bond premium of $2,000 were redeemed at 101. The gain was credited to ordinary income. Instructions For each item, state where it is to be shown in the statement and then how you would present the necessary information, including the amount. Consider each item to be independent of the others. Assume that correct entries were made for all transactions as they took place.