Question & Answer

Describe the conditions in which a donation of property to a charity will result in a charitable contribution deduction of fair market value and when it will result in a deduction of the tax basis of the property.

How might the reimbursement of a portion of an employee expense influence the deductibility of the expense for the employee?

Despite being a publicly traded company only since 1987, Northland Cranberries of Wisconsin Rapids, Wisconsin, is one of the world’s largest cranberry growers. During its short life as a publicly traded corporation, it has engaged in an aggressive growth strategy. As a consequence, the company has taken on significant amounts of both short-term and long-term debt. The following information is taken from recent annual reports of the company.   Instructions (a) Evaluate the company’s liquidity by calculating and analyzing working capital and the current ratio. (b) The discussion of the company’s liquidity, shown below, was provided by the company in the Management Discussion and Analysis section of the company’s annual report. Comment on whether you agree with management’s statements, and what might be done to remedy the situation.

Illustrate the impact on the IS curve of a general increase in interest-rate differentials following a credit market disruption like that experienced during the financial crisis of the late 2000s.

Your aunt recently received the annual report for a company in which she has invested. The report notes that the statements have been prepared in accordance with IFRS. She has also heard that certain terms have special meanings in accounting relative to everyday use. She would like you to explain the meaning of terms she has come across related to accounting. Instructions Access the IASB Framework at the IASB website (http://eifrs.iasb.org/ ). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to prepare responses to the following items. (Provide paragraph citations.) (a) How is “materiality” defined in the framework? (b) Briefly discuss how materiality relates to (1) the relevance of financial information, and (2) completeness. (c) Your aunt observes that under IFRS, the financial statements are prepared on the accrual basis. According to the framework, what does “accrual basis” mean?

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marksand- Spencer-Annual-report-and-financial-statements-2012.pdf. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) Using the notes to the consolidated financial statements, determine M&S’s revenue recognition policies. (b) Give two examples of where historical cost information is reported in M&S’s financial statements and related notes. Give two examples of the use of fair value information reported in either the financial statements or related notes. (c) How can we determine that the accounting principles used by M&S are prepared on a basis consistent with those of last year? (d) What is M&S’s accounting policy related to refunds and loyalty schemes? Why does M&S include the accounting for refunds and loyalty schemes in its critical accounting estimates and judgments?

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 $27,700.

In January of year 0, Justin paid $4,800 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting. What amount of the insurance premium may Justin deduct in year 0 in each of the following alternative scenarios?

A mold has a downsprue of length = 6.0 in. The cross-sectional area at the bottom of the sprue is 0.5 in2 . The sprue leads into a horizontal runner which feeds the mold cavity, whose volume = 75 in3 . Determine (a) the velocity of the molten metal flowing through the base of the downsprue, (b) the volume rate of flow, and (c) the time required to fill the mold cavity

Daniel Barenboim sells and erects shell houses, that is, frame structures that are completely finished on the outside but are unfinished on the inside except for flooring, partition studding, and ceiling joists. Shell houses are sold chiefly to customers who are handy with tools and who have time to do the interior wiring, plumbing, wall completion and finishing, and other work necessary to make the shell houses livable dwellings. Barenboim buys shell houses from a manufacturer in unassembled packages consisting of all lumber, roofing, doors, windows, and similar materials necessary to complete a shell house. Upon commencing operations in a new area, Barenboim buys or leases land as a site for its local warehouse, field office, and display houses. Sample display houses are erected at a total cost of $30,000 to $44,000 including the cost of the unassembled packages. The chief element of cost of the display houses is the unassembled packages, inasmuch as erection is a short, low-cost operation. Old sample models are torn down or altered into new models every 3 to 7 years. Sample display houses have little salvage value because dismantling and moving costs amount to nearly as much as the cost of an unassembled package. Instructions (a) A choice must be made between (1) expensing the costs of sample display houses in the periods in which the expenditure is made and (2) spreading the costs over more than one period. Discuss the advantages of each method. (b) Would it be preferable to amortize the cost of display houses on the basis of (1) the passage of time or (2) the number of shell houses sold? Explain.

Reed Pentak, a finance major, has been following globalization and made the following observation concerning accounting convergence: “I do not see many obstacles concerning development of a single accounting standard for inventories.” Prepare a response to Reed to explain the main obstacle to achieving convergence in the area of inventory accounting.

Use the information from BE17-5 but assume the stock was purchased as a trading security. Prepare Fairbanks’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment.

Give some other examples of changes in one injection or withdrawal that can affect others.

Explain the types of cash flow characteristics that would cause a firm to hedge interest rate risk by swapping floating-rate payments for fixed payments. Why would some firms avoid the use of interest rate swaps, even when they are highly exposed to interest rate risk? (LO1)

Why might the predictions of the rational choice model generally approximate human behaviour in many situations?

The diameter of an extruder barrel is 65 mm and its length = 1.75 m. The screw rotates at 55 rev/min. The screw channel depth = 5.0 mm, and the flight angle = 18°. The head pressure at the die end of the barrel is 5.0 x 106 Pa. The viscosity of the polymer melt is given as 100 Pa-s. Find the volume flow rate of the plastic in the barrel.

A 3.0-in-long cylindrical billet whose diameter = 1.5 in is reduced by indirect extrusion to a diameter = 0.375 in. Die angle = 90°. In the Johnson equation, a = 0.8 and b = 1.5. In the flow curve for the work metal, K = 75,000 lb/in2 and n = 0.25. Determine (a) extrusion ratio, (b) true strain (homogeneous deformation), (c) extrusion strain, (d) ram pressure, (e) ram force, and (f) power if the ram speed = 20 in/min.

Kobestrongly dislikes SUVs and is appalled that so many are on the road.  He proposes to eliminate the federal income tax and replace it with a $50,000 annual tax per SUV.  Based on the number of SUVs currently owned in the United States, he estimates the tax will generate exactly the amount of tax revenue currently collected from the income tax.  What is wrong with Kobe’s proposal?  What type of forecasting is Kobelikely using?

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?

Planning} Yong recently paid his accountant $10,000 for elaborate tax planning strategies that exploit the timing strategy.  Assuming this is an election year and there could be a power shift in the White House and Congress, what is a potential risk associated with Yong’s strategies?

Assume that as traffic density increases along a given stretch of road, there comes a point when traffic begins to slow down. The following table gives the times taken for a car to travel the stretch of road (in minutes) according to the number of cars entering the road per minute. Cars entering the road 5 6 7 8 9 10 11 Journey time 10 10 11 13 16 22 30 (a)  Copy out the table and add the following rows: (i) total journey time for all cars; (ii) extra journey time as traffic increases by one more car (marginal social time cost); (iii) additional time cost imposed on other road users for each additional car entering the road (marginal external time cost). (See Table 13.3 in the text.) (b)  Assume that time is valued at 10p per minute. On a graph, plot the marginal private time cost (journey time) and the marginal social time cost. (c)  Assume that electronic road pricing is introduced. What charge should be levied when traffic density reaches (i) 6 cars per minute; (ii) 8 cars per minute; (iii) 11 cars per minute? (d)  What additional information would you need in order to work out the socially efficient traffic density on this particular stretch of road?

To help pay for the city’s new stadium, the city of Birmingham recently enacted a 1 percent surcharge on hotel rooms. Is this a tax?  Why or why not?

Which of the above assumptions do you think would be correct in each of the following cases?                (a)  Supermarket checkout operators.                (b)  Agricultural workers.                (c)  Crane operators.                (d)  Economics teachers.                (e)  Call-centre workers.                (f)   Professional footballers.                (g)  Bar workers.

Are special offers likely to benefit consumers?

Gottschalk Company sponsors a defined benefit plan for its 100 employees. On January 1, 2014, the company’s actuary provided the following information. Accumulated other comprehensive loss (PSC) $150,000 Pension plan assets (fair value and market-related asset value) 200,000 Accumulated benefi t obligation 260,000 Projected benefi t obligation 380,000 The average remaining service period for the participating employees is 10 years. All employees are expected to receive benefits under the plan. On December 31, 2014, the actuary calculated that the present value of future benefits earned for employee services rendered in the current year amounted to $52,000; the projected benefit obligation was $490,000; fair value of pension assets was $276,000; the accumulated benefit obligation amounted to $365,000. The expected return on plan assets and the discount rate on the projected benefit obligation were both 10%. The actual return on plan assets is $11,000. The company’s current year’s contribution to the pension plan amounted to $65,000. No benefits were paid during the year. Instructions (a) Determine the components of pension expense that the company would recognize in 2014. (With only one year involved, you need not prepare a worksheet.) (b) Prepare the journal entry to record the pension expense and the company’s funding of the pension plan in 2014. (c) Compute the amount of the 2014 increase/decrease in gains or losses and the amount to be amortized in 2014 and 2015. (d) Indicate the pension amounts reported in the financial statement as of December 31, 2014.