Question & Answer

Laura Li, a U.S. resident, works for three months this summer in China.  What type of tax authority may be especially useful in determining the tax consequences of her foreign income?

1. Which of the above theories overlap and in what way? 2. Why, do you think, is it difficult to find adequate empirical support for any of them?

L. A. and Paula file as married taxpayers.  In August of this year they received a $5,200 refund of state income taxes that they paid last year.  How much of the refund, if any, must L. A. and Paula include in gross income under the following independent scenarios?  Assume the standard deduction last year was $12,600. a.       Last year L. A. and Paula had itemized deductions of $10,200, and they chose to claim the standard deduction.  b.       Last year L. A. and Paula claimed itemized deductions of $23,200.  Their itemized deductions included state income taxes paid of $7,500. c.       Last year L. A. and Paula claimed itemized deductions of $15,400.  Their itemized deductions included state income taxes paid of $10,500.   Answer:

The following information relates to Starbucks for the year ended October 2, 2011: net income 1,245.7 million; unrealized holding loss of $10.9 million related to available-for-sale securities during the year; accumulated other comprehensive income of $57.2 million on October 3, 2010. Assuming no other changes in accumulated other comprehensive income, determine (a) other comprehensive income for 2011, (b) comprehensive income for 2011, and (c) accumulated other comprehensive income at October 2, 2011.

On January 1, 2013, Locke Company, a small machine-tool manufacturer, acquired for $1,260,000 a piece of new industrial equipment. The new equipment had a useful life of 5 years, and the salvage value was estimated to be $60,000. Locke estimates that the new equipment can produce 12,000 machine tools in its first year. It estimates that production will decline by 1,000 units per year over the remaining useful life of the equipment. The following depreciation methods may be used: (1) straight-line, (2) double-declining-balance, (3) sum-of-the-years’-digits, and (4) units-of-output. For tax purposes, the class life is 7 years. Use the MACRS tables for computing depreciation. Instructions (a) Which depreciation method would maximize net income for financial statement reporting for the 3-year period ending December 31, 2015? Prepare a schedule showing the amount of accumulated depreciation at December 31, 2015, under the method selected. Ignore present value, income tax, and deferred income tax considerations. (b) Which depreciation method (MACRS or optional straight-line) would minimize net income for income tax reporting for the 3-year period ending December 31, 2015? Determine the amount of accumulated depreciation at December 31, 2015. Ignore present value considerations.

Net income for the year for Carrie, Inc. was $750,000, but the statement of cash flows reports that net cash provided by operating activities was $860,000. What might account for the difference?

Listed below are selected transactions of Schultz Department Store for the current year ending December 31. 1. On December 5, the store received $500 from the Selig Players as a deposit to be returned after certain furniture to be used in stage production was returned on January 15. 2. During December, cash sales totaled $798,000, which includes the 5% sales tax that must be remitted to the state by the fifteenth day of the following month. 3. On December 10, the store purchased for cash three delivery trucks for $120,000. The trucks were purchased in a state that applies a 5% sales tax. 4. The store determined it will cost $100,000 to restore the area (considered a land improvement) surrounding one of its store parking lots, when the store is closed in 2 years. Schultz estimates the fair value of the obligation at December 31 is $84,000. Instructions Prepare all the journal entries necessary to record the transactions noted above as they occurred and any adjusting journal entries relative to the transactions that would be required to present fair financial statements at December 31. Date each entry. For simplicity, assume that adjusting entries are recorded only once a year on December 31.

Are taxpayers allowed to deduct net capital losses (capital losses in excess of capital gains)? Explain.

Compare and contrast the relationship test requirements for a qualifying child with the relationship requirements for a qualifying relative.

Winans Company uses the lower-of-cost-or-market method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2013, included product X. Relevant per-unit data for product X appear below. 2 Estimated selling price $45 Cost 40 Replacement cost 35 Estimated selling expense 14 Normal profi t 9 There were 1,000 units of product X on hand at December 31, 2013. Product X was incorrectly valued at $35 per unit for reporting purposes. All 1,000 units were sold in 2014. Instructions Compute the effect of this error on net income for 2013 and the effect on net income for 2014, and indicate the direction of the misstatement for each year.

Briefly discuss the IASB and FASB efforts to converge their accounting guidelines for leases.

(a) 6.71008. (c) .46319. (b) 2.15892. (d) 14.48656. Jose Oliva is considering two investment options for a $1,500 gift he received for graduation. Both investments have 8% annual interest rates. One offers quarterly compounding; the other compounds on a semiannual basis. Which investment should he choose? Why?

What is the most important heat treatment for hardening steels?

What is a bank’s gap, and what does it attempt to determine? Interpret a negative gap. What are some limitations of measuring a bank’s gap? (LO3)

Karen Weller, D.D.S., opened a dental practice on January 1, 2014. During the first month of operations, the following transactions occurred. 1. Performed services for patients who had dental plan insurance. At January 31, $750 of such services was performed but not yet billed to the insurance companies. 2. Utility expenses incurred but not paid prior to January 31 totaled $520. 3. Purchased dental equipment on January 1 for $80,000, paying $20,000 in cash and signing a $60,000, 3-year note payable. The equipment depreciates $400 per month. Interest is $500 per month. 4. Purchased a one-year malpractice insurance policy on January 1 for $12,000. 5. Purchased $1,600 of dental supplies. On January 31, determined that $500 of supplies were on hand. Instructions Prepare the adjusting entries on January 31. (Omit explanations.) Account titles are Accumulated Depreciation—Equipment, Depreciation Expense, Service Revenue, Accounts Receivable, Insurance Expense, Interest Expense, Interest Payable, Prepaid Insurance, Supplies, Supplies Expense, Utilities Expense, and Accounts Payable.

Camille Sikorski was divorced last year.She currently owns and provides a home for her 15-year-old daughter, Kaly, and 18-year-old son, Parker.Both children lived in Camille’s home for the entire year and Camille paid for all the costs of maintaining the home.She received a salary of $105,000 and contributed $6,000 of it to a qualified retirement account (a for AGI deduction).She also received $10,000 of alimony from her former husband.Finally, Camille paid $5,000 of expenditures that qualified as itemized deductions. a.       What is Camille’s taxable income?

(1)   {Planning} Laurie is thinking about investing in one or several of the following investment options: Corporate bonds (ordinary interest paid annually) Dividend-paying stock (qualified dividends) Life insurance (tax-exempt) Savings account Growth stock   a. Assuming all of the options earn similar returns before taxes, rank Laurie’s investment options from highest to lowest according to their after-tax returns.   b. Which of the investments employ the deferral and/or conversion tax planning strategies?   c. How does the time period of the investment affect the returns from these alternatives?   d. How do these alternative investments differ in terms of their nontax characteristics?

Identify the segment information that is required to be disclosed by GAAP.

Explain how the bond market facilitates a government’s fiscal policy. How do you think the bond market could discipline a government and discourage the government from borrowing (and spending) excessively? (LO1)

Presented below are three independent situations. Situation 1: A company offers a one-year warranty for the product that it manufactures. A history of warranty claims has been compiled, and the probable amounts of claims related to sales for a given period can be determined. Situation 2: Subsequent to the date of a set of financial statements but prior to the issuance of the financial statements, a company enters into a contract that will probably result in a significant loss to the company. The amount of the loss can be reasonably estimated. Situation 3: A company has adopted a policy of recording self-insurance for any possible losses resulting from injury to others by the company’s vehicles. The premium for an insurance policy for the same risk from an independent insurance company would have an annual cost of $4,000. During the period covered by the financial statements, there were no accidents involving the company’s vehicles that resulted in injury to others. Instructions Discuss the accrual or type of disclosure necessary (if any) and the reason(s) why such disclosure is appropriate for each of the three independent sets of facts above.

What is the purpose of the statement of cash flows? What information does it provide?

On April 1, 2014, Seminole Company sold 15,000 of its 11%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2015, Seminole took advantage of favorable prices of its stock to extinguish 6,000 of the bonds by issuing 200,000 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling for $31 per share on March 1, 2015. Instructions Prepare the journal entries needed on the books of Seminole Company to record the following. (a) April 1, 2014: issuance of the bonds. (b) October 1, 2014: payment of semiannual interest. (c) December 31, 2014: accrual of interest expense. (d) March 1, 2015: extinguishment of 6,000 bonds. (No reversing entries made.)

In an electrochemical machining operation, the frontal working area of the electrode is 2.5 in2. The applied current = 1500 amps, and the voltage = 12 volts. The material being cut is pure aluminum, whose specific removal rate is given in Table 26.1. (a) If the ECM process is 90 percent efficient, determine the rate of metal removal in in3/hr. (b) If the resistivity of the electrolyte = 6.2 ohm-in, determine the working gap

When the records of Debra Hanson Corporation were reviewed at the close of 2015, the errors listed below were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years 2014 and 2015. 2014 2015 Over- Under- No Over- Under- No Item statement statement Effect statement statement Effect 1. Failure to record amortization of patent in 2015. 2. Failure to record the correct amount of ending 2014 inventory. The amount was understated because of an error in calculation. 3. Failure to record merchandise purchased in 2014. Merchandise was also omitted from ending inventory in 2014 but was not yet sold. 4. Failure to record accrued interest on notes payable in 2014; that amount was recorded when paid in 2015. 5. Failure to refl ect supplies on hand on balance sheet at end of 2014.

1. Assume that demand for a product is inelastic. Will consumer expenditure go on increasing as price rises? Would there be any limit? 2. Can you think of any examples of goods which have a totally inelastic demand (a) at all prices; (b) over a particular price range?