Question & Answer

Outline the accounting procedures involved in applying the finance lease method by a lessee.

Montel argues that a flat income tax rate system is vertically equitable.  Oprah argues that a progressive tax rate structure is vertically equitable.  How do their arguments differ?  Who is correct?

Prophet Company signed a long-term purchase contract to buy timber from the U.S. Forest Service at $300 per thousand board feet. Under these terms, Prophet must cut and pay $6,000,000 for this timber during the next year. Currently, the market value is $250 per thousand board feet. At this rate, the market price is $5,000,000. Jerry Herman, the controller, wants to recognize the loss in value on the year-end financial statements, but the financial vice president, Billie Hands, argues that the loss is temporary and should be ignored. Herman notes that market value has remained near $250 for many months, and he sees no sign of significant change. Instructions (a) What are the ethical issues, if any? (b) Is any particular stakeholder harmed by the financial vice president’s decision? (c) What should the controller do?

Wise Company began operations at the beginning of 2015. The following information pertains to this company. 1. Pretax financial income for 2015 is $100,000. 2. The tax rate enacted for 2015 and future years is 40%. 3. Differences between the 2015 income statement and tax return are listed below: (a) Warranty expense accrued for financial reporting purposes amounts to $7,000. Warranty deductions per the tax return amount to $2,000. (b) Gross profit on construction contracts using the percentage-of-completion method per books amounts to $92,000. Gross profit on construction contracts for tax purposes amounts to $67,000. (c) Depreciation of property, plant, and equipment for financial reporting purposes amounts to $60,000. Depreciation of these assets amounts to $80,000 for the tax return. (d) A $3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income. (e) Interest revenue recognized on an investment in tax-exempt municipal bonds amounts to $1,500. 4. Taxable income is expected for the next few years. (Assume (a) is short-term in nature; assume (b) and (c) are long-term in nature.) Instructions (a) Compute taxable income for 2015. (b) Compute the deferred taxes at December 31, 2015, that relate to the temporary differences described above. Clearly label them as deferred tax asset or liability. (c) Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2015. (d) Draft the income tax expense section of the income statement, beginning with “Income before income taxes.”

Timo is the sole owner of Jazz Inc., an S corporation.  On October 31, 2024, Timo executed an unsecured demand promissory note of $15,000 and transferred the note to Jazz (Jazz could require Timo to pay it $15,000 on demand).  When Timo transferred the note to Jazz, his tax basis in his Jazz stock was zero. On January 31, 2025, Timo paid the $15,000 to Jazz as required by the promissory note.  For the taxable year ending December 31, 2024, Jazz incurred a business loss of $12,000.  How much of the loss clears the stock and debt basis hurdles for deductibility?

What are some of the reasons for downtime on a machining transfer line?

Presented below is information related to Ivan Calderon Corp. for the year 2014. Net sales $1,300,000 Write-off of inventory due to obsolescence $ 80,000 Cost of goods sold 780,000 Depreciation expense omitted by accident in 2013 55,000 Selling expenses 65,000 Casualty loss (extraordinary item) before taxes 50,000 Administrative expenses 48,000 Cash dividends declared 45,000 Dividend revenue 20,000 Retained earnings at December 31, 2013 980,000 Interest revenue 7,000 Effective tax rate of 34% on all items Instructions (a) Prepare a multiple-step income statement for 2014. Assume that 60,000 shares of common stock are outstanding. (b) Prepare a separate retained earnings statement for 2014.

Presented below is information related to Cramer, Inc. Instructions Comment on the appropriateness of the accounting procedures followed by Cramer, Inc. (a) Depreciation expense on the building for the year was $60,000. Because the building was increasing in value during the year, the controller decided to charge the depreciation expense to retained earnings instead of to net income. The following entry is recorded. Retained Earnings 60,000 Accumulated Depreciation—Buildings 60,000 (b) Materials were purchased on January 1, 2014, for $120,000 and this amount was entered in the Materials account. On December 31, 2014, the materials would have cost $141,000, so the following entry is made. Inventory 21,000 Gain on Inventories 21,000 (c) During the year, the company purchased equipment through the issuance of common stock. The stock had a par value of $135,000 and a fair value of $450,000. The fair value of the equipment was not easily determinable. The company recorded this transaction as follows. Equipment 135,000 Common Stock 135,000 (d) During the year, the company sold certain equipment for $285,000, recognizing a gain of $69,000. Because the controller believed that new equipment would be needed in the near future, she decided to defer the gain and amortize it over the life of any new equipment purchased. (e) An order for $61,500 has been received from a customer for products on hand. This order was shipped on January 9, 2015. The company made the following entry in 2014. Accounts Receivable 61,500 Sales Revenue 61,500

Ten interrelated elements that are most directly related to measuring the performance and financial status of an enterprise are provided below. Assets Distributions to owners Expenses Liabilities Comprehensive income Gains Equity Revenues Losses Investments by owners Instructions Identify the element or elements associated with the 12 items below. (a) Arises from peripheral or incidental transactions. (b) Obligation to transfer resources arising from a past transaction. (c) Increases ownership interest. (d) Declares and pays cash dividends to owners. (e) Increases in net assets in a period from nonowner sources. (f) Items characterized by service potential or future economic benefit. (g) Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners. (h) Arises from income statement activities that constitute the entity’s ongoing major or central operations. (i) Residual interest in the assets of the enterprise after deducting its liabilities. (j) Increases assets during a period through sale of product. (k) Decreases assets during the period by purchasing the company’s own stock. (l) Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.

For a certain metal, the strength coefficient = 700 MPa and strain-hardening exponent = 0.27. Determine the average flow stress that the metal experiences if it is subjected to a stress that is equal to its strength coefficient K.

Snider Corporation, a publicly traded company, is preparing the interim financial data which it will issue to its stockholders and the Securities and Exchange Commission (SEC) at the end of the first quarter of the 2014–2015 fiscal year. Snider’s financial accounting department has compiled the following summarized revenue and expense data for the first quarter of the year. Sales revenue $60,000,000 Cost of goods sold 36,000,000 Variable selling expenses 1,000,000 Fixed selling expenses 3,000,000 Included in the fixed selling expenses was the single lump-sum payment of $2,000,000 for television advertisements for the entire year. Instructions (a) Snider Corporation must issue its quarterly financial statements in accordance with generally accepted accounting principles regarding interim financial reporting. (1) Explain whether Snider should report its operating results for the quarter as if the quarter were a separate reporting period in and of itself, or as if the quarter were an integral part of the annual reporting period. (2) State how the sales revenue, cost of goods sold, and fixed selling expenses would be reflected in Snider Corporation’s quarterly report prepared for the first quarter of the 2014–2015 fiscal year. Briefly justify your presentation. (b) What financial information, as a minimum, must Snider Corporation disclose to its stockholders in its quarterly reports?

Consider a life insurance company that needs to ensure that it can make a steady stream of payments over time to beneficiaries of its policyholders. Assume that the compensation for the insurance company’s portfolio managers is tied to the return earned on the investments each year. Write a short essay that explains how the compensation plan might lead to investment strategies that do not serve the needs of the policyholders.

What are some ways that a parent could effectively shift income to a child? What are some of the disadvantages of these methods?

What are dark pools? How can they help investors accumulate shares without other investors knowing about the trades? Why are dark pools criticized by public stock exchanges? Explain the strategy used by public stock exchanges to compete with dark pools. (LO2)

Give some examples of supply-side policies that would help to reduce the natural rate of unemployment.

What is the difference between machine welding and automatic welding?

Four years after issue, debentures with a face value of $1,000,000 and book value of $960,000 are tendered for conversion into 80,000 shares of common stock immediately after an interest payment date. At that time, the market price of the debentures is 104, and the common stock is selling at $14 per share (par value $10). The company records the conversion as follows. Bonds Payable 1,000,000 Discount on Bonds Payable 40,000 Common Stock 800,000 Paid-in Capital in Excess of Par— Common Stock 160,000 Discuss the propriety of this accounting treatment.

Adoption of fintech has occasionally resulted in cheaper financial service costs and more accessible financial goods and services. On the other hand, others could counter that adopting fintech comes with a cost because it necessitates owning cutting-edge technology that not everyone can afford. Do you think the financial system will be more inclusive as a result of fintech adoption, or will some marginalized groups still not be able to access those services? (LO1, LO4)

1.      : Prepare a memo to Taandil summarizing the new safety guidelines that affect the Lion Cub product line and requesting his authorization for implementation.

1.    : Albert Einstein once said, “The world is a dangerous place, not because of those who do evil, but because of those who look on and do nothing.” Do you agree? Discuss.

1.       : Which of the four components of emotional intelligence do you consider most important to an effective manager in today’s world? Why?

Amber is a tax expert, whereas Rob is a tax novice.  Explain how their process in identifying tax issues may differ.

Compare the management of a closed-end fund with that of an open-end fund. Given the differences in the funds’ characteristics, explain why the management of liquidity is different in the open-end fund as compared with the closed-end fund. Assume that the funds are the same size and have the same goal to invest in stocks and to earn a very high return. Which portfolio manager do you think will achieve a larger increase in the fund’s net asset value? Explain. (LO1, LO5)

1.       : Experts say that for teams to function well, members must get to know one another in some depth. What specifically would you do to facilitate this when team members are located together? What about in a global virtual team?

Are there any shops in your area that stay open later than others? If so, does this affect the prices they charge? Why do you think this is?