Question & Answer

Describe a situation in which a former C corporation that elected to be taxed as an S corporation may have its S election automatically terminated, but a similarly situated corporation that has always been taxed as an S corporation would not.

What controversy relates to the accounting for net operating loss carryforwards?

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.

Explain the general difference between the portfolio composition of private pension funds and public pension funds. (LO6)

If the government borrows but does not spend the proceeds, what effect will this have on the money supply if it borrows from (a) the banking sector; (b) the non-bank private sector?

Inventory information for Part 311 of Monique Aaron Corp. discloses the following information for the month of June. June 1 Balance 300 units @ $10 June 10 Sold 200 units @ $24 11 Purchased 800 units @ $12 15 Sold 500 units @ $25 20 Purchased 500 units @ $13 27 Sold 300 units @ $27 Instructions (a) Assuming that the periodic inventory method is used, compute the cost of goods sold and ending inventory under (1) LIFO and (2) FIFO. (b) Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the value of the ending inventory at LIFO? (c) Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the gross profit if the inventory is valued at FIFO? (d) Why is it stated that LIFO usually produces a lower gross profit than FIFO?

Horizon Outfitters Company includes in its trial balance for December 31 an item for Accounts Receivable $789,000. This balance consists of the following items: Due from regular customers $523,000 Refund receivable on prior year’s income taxes (an established claim) 15,500 Travel advance to employees 22,000 Loan to wholly owned subsidiary 45,500 Advances to creditors for goods ordered 61,000 Accounts receivable assigned as security for loans payable 75,000 Notes receivable past due plus interest on these notes 47,000 Total $789,000 Illustrate how these items should be shown in the balance sheet as of December 31.

Benita is concerned that she will not be able to complete her tax return by April 15.  Can she request an extension to file her return?  By what date must she do so? Assuming she requests an extension, what is the latest date that she could file her return this year without penalty?

Explain the motivation behind the Fed’s policy of purchasing massive amounts of mortgage-backed securities during the 2008 credit crisis. What could this policy accomplish that the Fed’s traditional monetary policy might not accomplish? (LO2, LO3)

Look through the costs and benefits that we identified from the completion of the internal market. Do the same costs and benefits arise from the enlarged EU of 27 members?

What is working capital? How does working capital relate to the operating cycle?

A blanking die is to be designed to blank the part outline shown in Figure P20.4. The material is 4 mm thick stainless steel (half hard). Determine the dimensions of the blanking punch and the die opening.

1.       Some people argue that the matrix structure should be adopted only as a last resort because the dual chains of command can create more problems than they solve. Discuss. Do you agree or disagree? Why?

At the beginning of the year, Poplock began a calendar-year, dog-boarding business called Griff’s Palace. Poplock bought and placed in service the following assets during the year:

Cutting Edge is a monthly magazine that has been on the market for 18 months. It currently has a circulation of 1.4 million copies. Negotiations are underway to obtain a bank loan in order to update the magazine’s facilities. They are producing close to capacity and expect to grow at an average of 20% per year over the next 3 years. After reviewing the financial statements of Cutting Edge, Andy Rich, the bank loan officer, had indicated that a loan could be offered to Cutting Edge only if it could increase its current ratio and decrease its debt to equity ratio to a specified level. Jonathan Embry, the marketing manager of Cutting Edge, has devised a plan to meet these requirements. Embry indicates that an advertising campaign can be initiated to immediately increase circulation. The potential customers would be contacted after the purchase of another magazine’s mailing list. Thecampaign would include: 1. An offer to subscribe to Cutting Edge at 3/4 the normal price. 2. A special offer to all new subscribers to receive the most current world atlas whenever requested at a guaranteed price of $2. 3. An unconditional guarantee that any subscriber will receive a full refund if dissatisfied with the magazine. Although the offer of a full refund is risky, Embry claims that few people will ask for a refund after receiving half of their subscription issues. Embry notes that other magazine companies have tried this sales promotion technique and experienced great success. Their average cancellation rate was 25%. On average, each company increased its initial circulation threefold and in the long run increased circulation to twice that which existed before the promotion. In addition, 60% of the new subscribers are expected to take advantage of the atlas premium. Embry feels confident that the increased subscriptions from the advertising campaign will increase the current ratio and decrease the debt to equity ratio. You are the controller of Cutting Edge and must give your opinion of the proposed plan. Instructions (a) When should revenue from the new subscriptions be recognized? (b) How would you classify the estimated sales returns stemming from the unconditional guarantee? (c) How should the atlas premium be recorded? Is the estimated premium claims a liability? Explain. (d) Does the proposed plan achieve the goals of increasing the current ratio and decreasing the debt to equity ratio?

In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases. Cases 1 2 3 4 5 Cost $15.90 $16.10 $15.90 $15.90 $15.90 Net realizable value 14.50 19.20 15.20 10.40 16.40 Net realizable value less normal profi t 12.80 17.60 13.75 8.80 14.80 Market (replacement cost) 14.80 17.20 12.80 9.70 16.80

In a continuous processing situation (such as an oil refinery), the beginning and ending WIP inventories are frequently the same. How does this simplify determination of equivalent units completed?

A billet that is 75 mm long with diameter = 35 mm is direct extruded to a diameter of 20 mm. The extrusion die has a die angle = 75°. For the work metal, K = 600 MPa and n = 0.25. In the Johnson extrusion strain equation, a = 0.8 and b = 1.4. Determine (a) extrusion ratio, (b) true strain (homogeneous deformation), (c) extrusion strain, and (d) ram pressure and force at L = 70, 60, 50, 40, 30, 20, and 10 mm. Use of a spreadsheet calculator is recommended for part (d).

Strategy, balanced scorecard for organisation and employee Mark Hopper owns Dane Champions, a dog kennel that raises champion Great Danes for showing and breeding. His vision is to be the best-known breeder of Great Danes globally. His strategy is to breed and sell dogs from outstanding lineage from the standpoint of both physical health and good-natured temperaments. Following is information about operations over the last year.       Required (a)     Is the entity’s strategy one of cost leadership or product differentiation? Explain. (b)  (i)  Prepare a simple balanced scorecard with one performance measure for            each of the four perspectives for Dane Champions using only the data           presented. Explain your choices           (ii)  Explain how these measures are linked. (c)     Kennel operating costs include the cost of a local high school student who cleans out the kennels every afternoon after school. Mark is considering whether to set up an individual scorecard for the student. He only pays minimum wage, and although the student is fairly slow, the kennels are kept reasonably clean. Mark wonders whether the student would resent being monitored more closely. Describe one reason for using a scorecard with the student and one reason against using it.

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?

Using the facts in problem 36, if Campbell earns an additional $15,000 of taxable income, what is her marginal tax rate on this income?  What is her marginal rate if, instead, she had $15,000 of additional deductions?

Mel and Cindy Gibson’s 12-year-old daughter Rachel was abducted on her way home from school on March 15, 2024. Police reports indicated that a stranger had physically dragged Rachel into a waiting car and sped away. Everyone hoped that the kidnapper and Rachel would be located quickly. However, as of the end of the year, Rachel was still missing. The police were still pursuing several promising leads and had every reason to believe that Rachel was still alive. In 2025, Rachel was returned safely to her parents. a. Are the Gibsons allowed to claim Rachel as a dependent in 2024 even though she only lived in the Gibson’s home for two-and-one-half months? Explain and cite your authority.

Using the integrated DAD/DAS and EAPC/LRPC framework, analyse the effect of an unexpected increase in aggregate demand assuming that markets adjust relatively rapidly. Compare the adjustment path of the economy when inflationary expectations remain anchored with that when expectations are based on actual inflation in the previous period.

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 ordinary shares immediately after an interest payment date. At that time, the market price of the debentures is 104, and the ordinary shares are selling at $14 per share (par value $10). At date of issue, the company recorded Share Premium—Conversion Equity of $50,000. The company records the conversion as follows. Bonds Payable 960,000 Share Premium—Conversion Equity 50,000 Share Capital—Ordinary 800,000 Share Premium—Ordinary 210,000 Discuss the propriety of this accounting treatment.

What are some of the limitations of adhesive bonding?