Question & Answer

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.

Explain how the Sarbanes-Oxley Act improved the transparency of banks. Why might the act have a negative impact on some banks? (LO2)

Consider the data in Problem 21.10 except that rake angle is a variable, and its effect on the forces in parts (b), (c), and (d) is to be evaluated. (a) Using a spreadsheet calculator, compute the values of shear force, cutting force, thrust force, and friction force as a function of rake angle over a range of rake angles between the high value of 20° in Problem 21.10 and a low value of -10°. Use intervals of 5° between these limits. The chip thickness ratio decreases as rake angle is reduced and can be approximated by the following relationship: r = 0.38 + 0.006 , where r = chip thickness and = rake angle. (b) What observations can be made from the computed results?

Explain why many savings institutions experience financial problems at the same time. (LO3)

How are asymmetric shocks dealt with within a country? To what extent can this process be mirrored within the eurozone?

Determine the direction of bond prices over the last year and explain the reason for it. (LO1, LO2)

George Solti, the controller for Garrison Lumber Company, has recently hired you as assistant controller. He wishes to determine your expertise in the area of inventory accounting and therefore asks you to answer the following unrelated questions. (a) A company is involved in the wholesaling and retailing of automobile tires for foreign cars. Most of the inventory is imported, and it is valued on the company’s records at the actual inventory cost plus freight-in. At year-end, the warehousing costs are prorated over cost of goods sold and ending inventory. Are warehousing costs considered a product cost or a period cost? (b) A certain portion of a company’s “inventory” is composed of obsolete items. Should obsolete items that are not currently consumed in the production of “goods or services to be available for sale” be classified as part of inventory? (c) A company purchases airplanes for sale to others. However, until they are sold, the company charters and services the planes. What is the proper way to report these airplanes in the company’s financial statements? (d) A company wants to buy coal deposits but does not want the financing for the purchase to be reported on its financial statements. The company therefore establishes a trust to acquire the coal deposits. The company agrees to buy the coal over a certain period of time at specified prices. The trust is able to finance the coal purchase and pay off the loan as it is paid by the company for the minerals. How should this transaction be reported?

As the recently appointed auditor for William J. Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2014, are prepared. The controller for William J. Bryan Corporation mentions that only one account is kept for intangible assets. The account is shown below. Intangible Assets Debit Credit Balance Jan. 4 Research and development costs 940,000 940,000 Jan. 5 Legal costs to obtain patent 75,000 1,015,000 Jan. 31 Payment of 7 months’ rent on property 91,000 1,106,000 leased by Bryan Feb. 11 Premium on common stock 250,000 856,000 March 31 Unamortized bond discount on bonds 84,000 940,000 due March 31, 2034 April 30 Promotional expenses related to 207,000 1,147,000 start-up of business June 30 Operating losses for fi rst 6 months 241,000 1,388,000 Instructions Prepare the entry or entries necessary to correct this account. Assume that the patent has a useful life of 10 years.

] Louis files as a single taxpayer. In April of this year he received a $900 refund of state income taxes that he paid last year. How much of the refund, if any, must Louis include in gross income under the following independent scenarios? Assume the standard deduction last year was $13,850.

What is a smart contract? Explain how smart contracts are used on the blockchain. (LO3)

What is the difference between earned and unearned income?

The following information was taken from the records of Roland Carlson Inc. for the year 2014. Income tax applicable to income from continuing operations $187,000; income tax applicable to loss on discontinued operations $25,500; income tax applicable to extraordinary gain $32,300; income tax applicable to extraordinary loss $20,400; and unrealized holding gain on availablefor- sale securities $15,000. Extraordinary gain $ 95,000 Cash dividends declared $ 150,000 Loss on discontinued operations 75,000 Retained earnings January 1, 2014 600,000 Administrative expenses 240,000 Cost of goods sold 850,000 Rent revenue 40,000 Selling expenses 300,000 Extraordinary loss 60,000 Sales revenue 1,900,000 Shares outstanding during 2014 were 100,000. Instructions (a) Prepare a single-step income statement. (b) Prepare a comprehensive income statement for 2014, using the two statement format. (c) Prepare a retained earnings statement for 2014.

What is the nature of an installment sale? How do installment sales differ from ordinary credit sales?

What factors determine the effectiveness of discretionary fiscal policy?

What other types of transport could be directly provided by the government or a local authority?

How does the ultrasonic machining process work?

In each of the following independent cases the company closes its books on December 31. 1. Sanford Co. sells $500,000 of 10% bonds on March 1, 2014. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2017. The bonds yield 12%. Give entries through December 31, 2015. 2. Titania Co. sells $400,000 of 12% bonds on June 1, 2014. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2018. The bonds yield 10%. On October 1, 2015, Titania buys back $120,000 worth of bonds for $126,000 (includes accrued interest). Give entries through December 1, 2016. 3 4 Instructions For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.)

1. Why may a food shop charge higher prices than supermarkets for ‘essential items’ and yet very similar prices for delicatessen items? 2. Which of these two items is a petrol station more likely to sell at a discount: (a) oil; (b) sweets? Why?

In forming Parts Inc. as a corporation, Candice transferred inventory to Parts Inc. in exchange for 30 percent of the corporation's stock (60 shares valued at $130,000). The inventory's fair market value was $147,000 and its tax basis to Candice was $75,000. The inventory was subject to a $17,000 liability that Parts Inc. assumed on the transfer. Candice borrowed the $17,000 from the bank (using the inventory as collateral) shortly before transferring the inventory to Parts Inc., and she used the loan proceeds to pay for a family vacation to Europe.  a. Assuming the transfer qualifies under §351 and that the liability has a tax-avoidance purpose, what gain or loss will Candice recognize on the transfer?  b. Assuming the transfer qualifies under §351  and that the liability has a tax-avoidance purpose, what is Candice's basis in the stock she received in the exchange? c. Suppose the liability does not have a tax-avoidance purpose. What gain will Candice recognize on the transfer?  d. Assuming the liability does not have a tax-avoidance purpose,  what is Candice's basis in the stock she received in the exchange?

Travis is a professional landscaper. He provides his clients with a one-year (12-month) warranty for retaining walls he installs. In June of this year, Travis installed a wall for an important client, Sheila. In early November, Sheila informed Travis that the retaining wall had failed. To repair the wall, Travis paid $700 cash for additional stone that he delivered to Sheila’s location on November 20 of this year. Travis also offered to pay a mason $800 to repair the wall. Due to some bad weather and the mason’s work backlog, the mason agreed to begin the work by the end of January of the next year. Even though Travis expected the mason to finish the project by end of February, Travis informed the mason that he would only pay the mason the $800 when he completed the job.  a) Assuming Travis is an accrual-method taxpayer, how much can he deduct this year from these activities? b) Assuming Travis is a cash-method taxpayer, how much can he deduct this year from these activities?

You have been assigned to examine the financial statements of Zarle Company for the year ended December 31, 2014. You discover the following situations. 1. Depreciation of $3,200 for 2014 on delivery vehicles was not recorded. 2. The physical inventory count on December 31, 2013, improperly excluded merchandise costing $19,000 that had been temporarily stored in a public warehouse. Zarle uses a periodic inventory system. 3. A collection of $5,600 on account from a customer received on December 31, 2014, was not recorded until January 2, 2015. 4. In 2014, the company sold for $3,700 fully depreciated equipment that originally cost $25,000. The company credited the proceeds from the sale to the Equipment account. 5. During November 2014, a competitor company filed a patent-infringement suit against Zarle claiming damages of $220,000. The company’s legal counsel has indicated that an unfavorable verdict is probable and a reasonable estimate of the court’s award to the competitor is $125,000. The company has not reflected or disclosed this situation in the financial statements. 6. Zarle has a portfolio of trading securities. No entry has been made to adjust to market. Information on cost and fair value is as follows. Cost Fair Value December 31, 2013 $95,000 $95,000 December 31, 2014 $84,000 $82,000 7. At December 31, 2014, an analysis of payroll information shows accrued salaries of $12,200. The Salaries and Wages Payable account had a balance of $16,000 at December 31, 2014, which was unchanged from its balance at December 31, 2013. 8. A large piece of equipment was purchased on January 3, 2014, for $40,000 and was charged to Maintenance and Repairs Expense. The equipment is estimated to have a service life of 8 years and no residual value. Zarle normally uses the straight-line depreciation method for this type of equipment. 9. A $12,000 insurance premium paid on July 1, 2013, for a policy that expires on June 30, 2016, was charged to insurance expense. 10. A trademark was acquired at the beginning of 2013 for $50,000. No amortization has been recorded since its acquisition. The maximum allowable amortization period is 10 years. Instructions Assume the trial balance has been prepared but the books have not been closed for 2014. Assuming all amounts are material, prepare journal entries showing the adjustments that are required. (Ignore income tax considerations.)

1.    : Using Porter’s competitive strategies, how would you describe the strategies of Walmart and T.J. Maxx?