Question & Answer

Aggie Corporation made a distribution of $500,000 to Rusty Cedar in partial liquidation of the company on December 31 of this year.  Rusty, an individual, owns 100 percent of Aggie Corporation. The distribution was in exchange for 50 percent of Rusty’s stock in the company. At the time of the distribution, the shares had a fair market value of $200 per share. Rusty’s tax basis in the shares was $50 per share. Aggie had E&P of $8,000,000 at the time of the distribution.

Explain the use of a sinking-fund provision. How can it reduce the investor’s risk? (LO2)

Agazzi Repair Shop had the following transactions during the first month of business as a proprietorship. Journalize the transactions. (Omit explanations.) Aug. 2 Invested $12,000 cash and $2,500 of equipment in the business. 7 Purchased supplies on account for $500. (Debit asset account.) 12 Performed services for clients, for which $1,300 was collected in cash and $670 was billed to the clients. 15 Paid August rent $600. 19 Counted supplies and determined that only $270 of the supplies purchased on August 7 are still on hand.

Yong recently paid his accountant $10,000 for elaborate tax planning strategies that exploit the timing strategy. Assuming this is an election year and there could be a power shift in the White House and Congress, what is a potential risk associated with Yong’s strategies?

This year, Paula and Simon (married filing jointly) estimate that their tax liability will be $200,000.  Last year, their total tax liability was $170,000.  They estimate that their tax withholding from their employers will be $175,000.  Are Paula and Simon required to increase their withholdings or make estimated tax payments this year to avoid the underpayment penalty?  If so, how much?

Describe what is meant by qualified business income for purposes of the deduction for qualified business income.

Explain how the conversion feature of convertible debt has a value (a) to the issuer and (b) to the purchaser.

Use the information for Rode Inc. given in BE19-13. Assume that it is more likely than not that the entire net operating loss carryforward will not be realized in future years. Prepare all the journal entries necessary at the end of 2014.

What are the primary characteristics of an annuity?Differentiate between an “ordinary annuity” and an “annuity due.”

Intangibles have either a limited useful life or an indefinite useful life. How should these two different types of intangibles be amortized?

Why are real wages likely to be more flexible downwards than money wages?

Kevan, Jerry, and Dave formed Albee LLC. Jerry and Dave each contributed $245,000 in cash. Kevan contributed the following assets:  Kevan: Basis Fair Market Value Cash $ 15,000 $ 15,000 Land* 120,000 440,000 Totals $ 135,000 $ 455,000

What types of business entities are taxed as flow-through entities?

Parnevik Company has the following securities in its investment portfolio on December 31, 2014 (all securities were purchased in 2014): (1) 3,000 shares of Anderson Co. common stock which cost $58,500, (2) 10,000 shares of Munter Ltd. common stock which cost $580,000, and (3) 6,000 shares of King Company preferred stock which cost $255,000. The Fair Value Adjustment account shows a credit of $10,100 at the end of 2014. In 2015, Parnevik completed the following securities transactions. 1. On January 15, sold 3,000 shares of Anderson’s common stock at $22 per share less fees of $2,150. 2. On April 17, purchased 1,000 shares of Castle’s common stock at $33.50 per share plus fees of $1,980. On December 31, 2015, the market prices per share of these securities were Munter $61, King $40, and Castle $29. In addition, the accounting supervisor of Parnevik told you that, even though all these securities have readily determinable fair values, Parnevik will not actively trade these securities because the top management intends to hold them for more than one year. Instructions (a) Prepare the entry for the security sale on January 15, 2015. (b) Prepare the journal entry to record the security purchase on April 17, 2015. (c) Compute the unrealized gains or losses and prepare the adjusting entry for Parnevik on December 31, 2015. (d) How should the unrealized gains or losses be reported on Parnevik’s balance sheet?

The problem in a certain thermoforming operation is that there is too much thinning in the walls of the large cup-shaped part. The operation is conventional pressure thermoforming using a positive mold, and the plastic is an ABS sheet with an initial thickness of 3.2 mm. (a) Why is thinning occurring in the walls of the cup? (b) What changes could be made in the operation to correct the problem?

Rode Inc. incurred a net operating loss of $500,000 in 2014. Combined income for 2012 and 2013 was $350,000. The tax rate for all years is 40%. Rode elects the carryback option. Prepare the journal entries to record the benefits of the loss carryback and the loss carryforward. Rode expects to return to profitability in 2015.

Hawthorn Corporation’s adjusted trial balance contained the following accounts at December 31, 2014: Retained Earnings $120,000; Common Stock $750,000; Bonds Payable $100,000; Paid-in Capital in Excess of Par—Common Stock $200,000; Goodwill $55,000; Accumulated Other Comprehensive Loss $150,000; Noncontrolling Interest $35,000. Prepare the stockholders’ equity section of the balance sheet.

Why are specific energy values so much higher in grinding than in traditional machining processes such as milling?

A steel casting has a cylindrical geometry with 4.0 in diameter and weighs 20 lb. This casting takes 6.0 min to completely solidify. Another cylindrical-shaped casting with the same diameter-to-length ratio weighs 12 lb. This casting is made of the same steel, and the same conditions of mold and pouring were used. Determine: (a) the mold constant in Chvorinov's rule, (b) the dimensions, and (c) the total solidification time of the lighter casting. The density of steel = 490 lb/ft3 .

What is the technical difference between a screw and a bolt?

Some accountants have said that politicization in the development and acceptance of generally accepted accounting principles (i.e., rule-making) is taking place. Some use the term “politicization” in a narrow sense to mean the influence by governmental agencies, particularly the Securities and Exchange Commission, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromise that results when the bodies responsible for developing generally accepted accounting principles are pressured by interest groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Management Accountants, financial analysts, bankers, lawyers, and so on). Instructions (a) The Committee on Accounting Procedure of the AICPA was established in the mid- to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the first two indicate an increasing politicization (as the term is used in the broad sense) of accounting standard-setting? Explain your answer by indicating how the CAP, the APB, and the FASB operated or operate. Cite specific developments that tend to support your answer. (b) What arguments can be raised to support the “politicization” of accounting rule-making? (c) What arguments can be raised against the “politicization” of accounting rule-making?

How does separating current assets from property, plant, and equipment in the balance sheet help analysts?

How might a company obtain a price index in order to apply dollar-value LIFO?

What information is conveyed by the TTT curve?

Crocker Corp. owes D. Yaeger Corp. a 10-year, 10% note in the amount of $330,000 plus $33,000 of accrued interest. The note is due today, December 31, 2014. Because Crocker Corp. is in financial trouble, D. Yaeger Corp. agrees to forgive the accrued interest, $30,000 of the principal, and to extend the maturity date to December 31, 2017. Interest at 10% of revised principal will continue to be due on 12/31 each year. Assume the following present value factors for 3 periods. 21/4% 23/8% 21/2% 25/8% 23/4% 3% Single sum .93543 .93201 .92859 .92521 .92184 .91514 Ordinary annuity of 1 2.86989 2.86295 2.85602 2.84913 2.84226 2.82861 Instructions (a) Compute the new effective-interest rate for Crocker Corp. following restructure. (Hint: Find the interest rate that establishes approximately $363,000 as the present value of the total future cash flows.) (b) Prepare a schedule of debt reduction and interest expense for the years 2014 through 2017. (c) Compute the gain or loss for D. Yaeger Corp. and prepare a schedule of receivable reduction and interest revenue for the years 2014 through 2017. (d) Prepare all the necessary journal entries on the books of Crocker Corp. for the years 2014, 2015, and 2016. (e) Prepare all the necessary journal entries on the books of D. Yaeger Corp. for the years 2014, 2015, and 2016.