Question & Answer

How might the FOMC statement (issued following the committee’s meeting) stabilize financial markets more than if no statement were provided? (LO2)

When the FASB issues new pronouncements, the implementation date is usually 12 months from date of issuance, with early implementation encouraged. Karen Weller, controller, discusses with her financial vice president the need for early implementation of a rule that would result in a fairer presentation of the company’s financial condition and earnings. When the financial vice president determines that early implementation of the rule will adversely affect the reported net income for the year, he discourages Weller from implementing the rule until it is required. Instructions Answer the following questions. (a) What, if any, is the ethical issue involved in this case? (b) Is the financial vice president acting improperly or immorally? (c) What does Weller have to gain by advocacy of early implementation? (d) Which stakeholders might be affected by the decision against early implementation?

Jimmy has fallen on hard times recently. Last year he borrowed $250,000 and added an additional $50,000 of his own funds to purchase $300,000 of undeveloped real estate. This year the value of the real estate dropped dramatically and Jimmy’s lender agreed to reduce the loan amount to $230,000. For each of the following independent situations, indicate the amount Jimmy must include in gross income and explain your answer:

Explain the assignment of income doctrine. In what situations would this doctrine potentially apply?

Rocco operates a beauty salon as a sole proprietorship. Rocco also owns and rents an apartment building. In 2024, Rocco had the following income and expenses. Determine Rocco’s AGI and complete page 1 (through line 11) and Schedule 1 of Form 1040 for Rocco. You may assume that Rocco will owe $2,502 in self-employment tax on his salon income, with $1,251 representing the employer portion of the self-employment tax. You may also assume that his divorce from Svetlana was finalized in 2016.

Daniel Hardware Co. is considering alternative financing arrangements for equipment used in its warehouses. Besides purchasing the equipment outright, Daniel is also considering a lease. Accounting for the outright purchase is fairly straightforward, but because Daniel has not used equipment leases in the past, the accounting staff is less informed about the specific accounting rules for leases. The staff is aware of some lease rules related to a “90 percent of fair value,” “75 percent of useful life,” and “residual value deficiencies,” but they are unsure about the meanings of these terms in lease accounting. Daniel has asked you to conduct some research on these items related to lease capitalization criteria. 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 objective of lease classification criteria? (b) An important element of evaluating leases is determining whether substantially all of the risks and rewards of ownership are transferred in the lease. How is “substantially all” defined in the authoritative literature? (c) Besides the noncancelable term of the lease, name at least three other considerations in determining the “lease term.” (d) A common issue in the accounting for leases concerns lease requirements that the lessee make up a residual value deficiency that is attributable to damage, extraordinary wear and tear, or excessive usage (e.g., excessive mileage on a leased vehicle). Do these features constitute a lessee guarantee of the residual value such that the estimated residual value of the leased property at the end of the lease term should be included in minimum lease payments? Explain.

Rocky and Bullwinkle Partnership sold a parcel of land during the current year and realized a gain of $250,000. Rocky and Bullwinkle did not recognize gain related to the sale of the land on its tax return. Is this possible? Explain how a taxpayer could realize a gain but not recognize it.

Rondo and his business associate, Larry, are considering forming a business entity called R&L, but they are unsure about whether to form it as a C corporation, an S corporation, or an LLC taxed as a partnership for tax purposes. Rondo and Larry would each invest $50,000 in the business. Thus, each owner would take an initial basis in his ownership interest of $50,000 no matter which entity type is formed. Shortly after the formation of the entity, the business borrowed $30,000 from the bank. If applicable, this debt will be shared equally between the two owners. a. After taking the loan into account, what is Rondo’s tax basis in his R&L stock if R&L is formed as a C corporation? b. After taking the loan into account, what is Rondo’s tax basis in his R&L stock if R&L is formed as an S corporation? c. After taking the loan into account, what is Rondo’s tax basis in his R&L ownership interest if R&L is formed as an LLC and taxed as a partnership?

What are some forms of off-balance-sheet financing?

How will advertising affect the cartel’s MC and AR curves? How will this affect the profit-maximising output? Is there any problem here for the cartel in fixing the price?

A turning operation uses a 2/64 in nose radius cutting tool on a free machining steel with a feed rate = 0.010 in/rev and a cutting speed = 300 ft/min. Determine the surface roughness for this cut.

If the part illustrated in Figure P20.32 were made by shear spinning, determine (a) the wall thickness along the cone-shaped portion, and (b) the spinning reduction r.

Define what a printed circuit board (PCB) is

Explain how purchasers of financial futures contracts can offset their position. How is their gain or loss determined? What is the maximum loss to a purchaser of a futures contract? (LO1)

According to the blow molding video, what materials are used in blow molding? Name three.

Lacy is divorced and the custodial parent of a three-year-old girl named Bailey. Lacy and Bailey live with Lacy’s parents, who pay all the costs of maintaining the household (such as mortgage, property taxes, and food). Lacy pays for Bailey’s clothing, entertainment, and health insurance costs. These costs comprised only a small part of the total costs of maintaining the household. Lacy does not qualify as her parents’ dependent.

Clark owns stock in BCS Corporation that he purchased in January of the current year. The stock has appreciated significantly during the year. It is now December of the current year, and Clark is deciding whether he should sell the stock. What tax and nontax factors should Clark consider before making the decision on whether to sell the stock now?

Which would you expect to fluctuate more: the money multiplier (DM4/Dcash), or the simple ratio, M4/cash, illustrated in Figure 18.4?

Winsor Inc. recently purchased Holiday Corp., a large midwestern home painting corporation. One of the terms of the merger was that if Holiday’s income for 2014 was $110,000 or more, 10,000 additional shares would be issued to Holiday’s stockholders in 2015. Holiday’s income for 2013 was $120,000. Instructions (a) Would the contingent shares have to be considered in Winsor’s 2013 earnings per share computations? (b) Assume the same facts, except that the 10,000 shares are contingent on Holiday’s achieving a net income of $130,000 in 2014. Would the contingent shares have to be considered in Winsor’s earnings per share computations for 2013?

Dejan owns stock in two S corporations, Blue and Green. He actively participates in the management of Blue but maintains ownership in Green only as a passive investor.  Dejan has no other business investments.  Both Blue and Green anticipate a loss this year, and Dejan’s basis in his stock of both corporations is $0. All else equal, if Dejan plans on making a capital contribution to at least one of the corporations this year, to which firm should he contribute in order to increase his chances of deducting the loss allocated to him from the entity?  Why?

A steel test specimen (modulus of elasticity = 30 x 106 lb/in2 ) in a compression test has a starting height = 2.0 in and diameter = 1.5 in. The metal yields (0.2% offset) at a load = 140,000 lb. At a load of 260,000 lb, the height has been reduced to 1.6 in. Determine (a) yield strength and (b) flow curve parameters (strength coefficient and strain-hardening exponent). Assume that the cross-sectional area increases uniformly during the test.

Under what circumstances can a college student qualify for the earned income credit?

Assume the same data as in P21-13 and that Chambers Medical Center has an incremental borrowing rate of 10%. Instructions (a) Discuss the nature of this lease in relation to the lessee, and compute the amount of the initial lease liability. (b) Prepare a 10-year lease amortization schedule. (c) Prepare all of the lessee’s journal entries for the first year.

What is preform molding?

For taxpayers qualifying for home office deductions, what are considered to be indirect expenses of maintaining the home? How are these expenses allocated to personal and home office use? Can taxpayers choose to calculate home office expenses without regard to actual expenses allocated to the home office? Explain.