Question & Answer

Explain how the probability distribution of a financial institution’s returns is affected when it uses interest rate futures to hedge. What does this imply about its risk? (LO2)

Assess the economic situation today. Is the current presidential administration more concerned with reducing unemployment or inflation? Does the Fed have a similar opinion? If not, is the administration publicly criticizing the Fed? Is the Fed publicly criticizing the administration? Explain. (LO2; LO3)

The Bank of Japan desires to decrease the value of the Japanese yen against the U.S. dollar. How could it use direct intervention to achieve this goal? (LO2)

1.       : Why is self-awareness important for being a good manager? Can you think of some specific negative consequences that might result from a manager with low self-awareness?

} Dennis is currently considering investing in municipal bonds that earn 6 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 8 percent.  If Dennis’ tax rate is 20 percent, which bond should he choose?  Which bond should he choose if his tax rate is 30 percent?  At what tax rate would he be indifferent between the bonds?  What strategy is this decision based upon?

Conlin Corporation had the following tax information. Year Taxable Income Tax Rate Taxes Paid 2012 $300,000 35% $105,000 2013 $325,000 30% $ 97,500 2014 $400,000 30% $120,000 In 2015, Conlin suffered a net operating loss of $480,000, which it elected to carry back. The 2015 enacted tax rate is 29%. Prepare Conlin’s entry to record the effect of the loss carryback.

Compute SWK Inc.’s tax liability for each of the following scenarios:

] Lionel is an unmarried law student at State University Law School, a qualified educational institution. This year Lionel borrowed $24,000 from County Bank and paid interest of $1,440. Lionel used the loan proceeds to pay his law school tuition. Calculate the amounts Lionel can deduct for interest on higher education loans under the following circumstances: a. Lionel’s AGI before deducting interest on higher education loans is $50,000. b. Lionel’s AGI before deducting interest on higher education loans is $89,000. c. Lionel’s AGI before deducting interest on higher education loans is $100,000.

Pam has a $27,000 basis (including her share of debt) in her 50 percent partnership interest in the Meddoc Partnership before receiving any distributions. This year Meddoc makes a current distribution to Pam of a parcel of land with a $40,000 fair market value and a $32,000 basis to the partnership. The land is encumbered with a $15,000 mortgage (the partnership’s only liability). a. What are the amount and character of Pam’s recognized gain or loss? b. What is Pam’s basis in the land? c. What is Pam’s remaining basis in her partnership interest?

Rolando purchases a golf cart from his employer, E-Z-Go Golf Carts, for a sizable discount. Explain the rules for determining if Rolando’s purchase results in taxable income for him.

1.       : Would you expect the structure of a company such as eBay, which operates almost entirely online, to differ from the structure of a bricks-and-mortar company, such as General Motors, which uses the Internet for some things, such as customer service and business-to-business transactions? Why or why not?

Presented below are four independent situations. (a) On December 31, 2014, Zarle Inc. sold computer equipment to Daniell Co. and immediately leased it back for 10 years. The sales price of the equipment was $520,000, its carrying amount is $400,000, and its estimated remaining economic life is 12 years. Determine the amount of deferred revenue to be reported from the sale of the computer equipment on December 31, 2014. (b) On December 31, 2014, Wasicsko Co. sold a machine to Cross Co. and simultaneously leased it back for one year. The sale price of the machine was $480,000, the carrying amount is $420,000, and it had an estimated remaining useful life of 14 years. The present value of the rental payments for the one  year is $35,000. At December 31, 2014, how much should Wasicsko report as deferred revenue from the sale of the machine? (c) On January 1, 2014, McKane Corp. sold an airplane with an estimated useful life of 10 years. At the same time, McKane leased back the plane for 10 years. The sales price of the airplane was $500,000, the carrying amount $379,000, and the annual rental $73,975.22. McKane Corp. intends to depreciate the leased asset using the sum-of-the-years’-digits depreciation method. Discuss how the gain on the sale should be reported at the end of 2014 in the financial statements. (d) On January 1, 2014, Sondgeroth Co. sold equipment with an estimated useful life of 5 years. At the same time, Sondgeroth leased back the equipment for 2 years under a lease classified as an operating lease. The sales price (fair value) of the equipment was $212,700, the carrying amount is $300,000, the monthly rental under the lease is $6,000, and the present value of the rental payments is $115,753. For the year ended December 31, 2014, determine which items would be reported on its income statement for the sale-leaseback transaction.

Describe a defined-benefit pension plan. Describe a defined-contribution plan and explain how it differs from a defined-benefit plan. (LO1)

In what ways are the inventory accounts of a retailing company different from those of a manufacturing company?

Under what circumstances would a taxpayer who generates a loss from renting a home that is not a residence be able to fully deduct the loss? What potential limitations apply?

What is a solder paste?

The strength coefficient and strain-hardening exponent of a certain test metal are 40,000 lb/in2 and 0.19, respectively. A cylindrical specimen of the metal with starting diameter = 2.5 in and length = 3.0 in is compressed to a length of 1.5 in. Determine the flow stress at this compressed length and the average flow stress that the metal has experienced during deformation

1.       : Imagine yourself as a potential member of a team responsible for designing a new package for a breakfast cereal. Do you think interpersonal skills would be equally important if the team is organized to interact on a face-to-face basis versus as a virtual team? Why or why not? Might different types of interpersonal skills be required for the two types of teams? Be specific.

1.      Broken Rock LLC was recently formed with the following members: Name Tax Year-End Capital/Profits % George Allen December 31 33.33% Elanax Corp. June 30 33.33% Elizabeth Cheam December 31 33.34% What is the required taxable year-end for Broken Rock LLC?

Wood Corporation was a C corporation in 2023 but elected to be taxed as an S corporation in 2024.  At the end of 2023, its earnings and profits were $15,500.  The following table reports Wood Corp.’s (taxable) income for 2024 (its first year as an S corporation).   Wood Corporation Income Statement December 31, 2024 Sales revenue $150,000 Cost of goods sold (35,000) Salary to owners (60,000) Employee wages (50,000) Depreciation expense (4,000) Miscellaneous expenses (4,000) Interest income 8,000 Qualified dividend income 2,000 Overall net income $7,000   What is Wood Corporation’s excess net passive income tax for 2024?

Discuss the appropriate treatment in the income statement for the following items: (a) Loss on discontinued operations. (b) Noncontrolling interest allocation. (c) Earnings per share. (d) Gain on sale of equipment.

Compare and contrast §1245 recapture and §1250 recapture.

What is the definition of fair value?

What is a variable-interest entity?

How is compensation expense computed using the fair value approach?