Question & Answer

Kehoe, Inc. owes $40,000 to Ritter Company. How much would Kehoe have to pay each year if the debt is retired through four equal payments (made at the end of the year), given an interest rate on the debt of 12%? (Round to two decimal places.)

Under what circumstances would you expect the after-tax return from an investment in a capital asset to approach that of tax-exempt assets assuming equal before-tax rates of return?

Explain the current environment regarding revenue recognition.

Describe in general the process by which new tax legislation is enacted.

Cool Touch Cookware (CTC) has been in business for about 10 years now. Daisy and Kesha are each 50 percent owners of the business. They initially established the business with cash contributions. CTC manufactures unique cookware that remains cool to the touch when in use. CTC has been fairly profitable over the years. Daisy and Kesha have both been actively involved in managing the business. They have developed very good personal relationships with many customers (both wholesale and retail) that, Daisy and Kesha believe, keep the customers coming back.   On September 30 of the current year, CTC had all of its assets appraised. Below is CTC’s balance sheet, as of September 30, with the corresponding appraisals of the fair market value of all of its assets. Note that CTC has several depreciated assets. CTC uses the hybrid method of accounting. It accounts for its gross margin-related items under the accrual method, and it accounts for everything else using the cash method of accounting.     Assets Adjusted  Tax Basis FMV Cash $150,000 $150,000 Accounts receivable 20,000 15,000 Inventory* 90,000 300,000 Equipment 120,000 100,000 Investment in XYZ stock 40,000 120,000 Land (used in the business) 80,000 70,000 Building 200,000 180,000    Total Assets $700,000 $935,000**   Liabilities Accounts payable $ 40,000 Bank loan60,000 Mortgage on building100,000 Equity 500,000  Total liabilities and equity$700,000   *CTC uses the LIFO method for determining the adjusted basis of its inventory. Its basis in the inventory under the FIFO method would have been $110,000. **In addition, Daisy and Kesha had the entire business appraised at $1,135,000, which is $200,000 more than the value of the identifiable assets.   From January 1 of the current year through September 30, CTC reported the following income: Ordinary business income    $530,000 Dividends from XYZ stock    $12,000 Long-term capital losses $15,000 Interest income $ 3,000   Daisy and Kesha are considering changing the business form of CTC.   Required: a. Assume CTC is organized as a C corporation. Identify significant tax and nontax issues associated with converting CTC from a C corporation to an S corporation. [Hint: see §§1374 and 1363(d).] b. Assume CTC is organized as a C corporation. Identify significant tax and nontax issues associated with converting CTC from a C corporation to an LLC. Assume CTC converts to an LLC (taxed as a partnership) by distributing its assets to its shareholders, who then contribute the assets to a new LLC. [Hint: see §§331, 336, and 721(a).] c. Assume that CTC is a C corporation with a net operating loss carryforward as of the beginning of the year in the amount of $500,000 and that the NOL originated in 2019. Identify significant tax and nontax issues associated with converting CTC from a C corporation to an LLC (taxed as a partnership). Assume CTC converts to an LLC by distributing its assets to its shareholders, who then contribute the assets to a new LLC. [Hint: see §§172(a), 331, 336, and 721(a).]

Recording transactions in the accounting system requires knowledge of the important characteristics of the elements of financial statements, such as assets and liabilities. In addition, accountants must understand the inherent uncertainty in accounting measures and distinctions between related accounting concepts that are important in evaluating the effects of transactions on the financial statements. 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 respond to the following items. (Provide paragraph citations.) (a) Provide the definition of an asset and discuss how the economic benefits embodied in an asset might flow to a company. (b) Provide the definition of a liability and discuss how a company might satisfy a liability. (c) What is “accrual basis”? How do adjusting entries illustrate application of the accrual basis?

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) What were M&S’s total assets at 31 March 2012? At 2 April 2011? (b) How much cash (and cash equivalents) did M&S have on 31 March 2012? (c) What were M&S’s selling and marketing expenses in 2012? In 2011? (d) What were M&S’s revenues in 2012? In 2011? (e) Using M&S’s financial statements and related notes, identify items that may result in adjusting entries for prepayments and accruals. (f) What were the amounts of M&S’s depreciation and amortization expense in 2011 and 2012?

Last year, Wyeth Company recorded an impairment on an asset held for use. Recent appraisals indicate that the asset has increased in value. Should Wyeth record this recovery in value?

Is business income allocated from a flow-through business entity to its owners self-employment income? Explain.

Describe a lockup provision and explain why it might be required by the lead underwriter. (LO3)

Volker Inc. issued $2,500,000 of convertible 10-year bonds on July 1, 2014. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $54,000, which is being amortized monthly on a straight-line basis. The bonds are convertible after one year into 8 shares of Volker Inc.’s $100 par value common stock for each $1,000 of bonds. On August 1, 2015, $250,000 of bonds were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. At the time of conversion, any accrued interest on bonds being converted is paid in cash. Instructions Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following dates. (Round to the nearest dollar.) (a) August 1, 2015. (Assume the book value method is used.) (b) August 31, 2015. (c) December 31, 2015, including closing entries for end-of-year.

What are the advantages and disadvantages of local collaborations, such as LEPs, as compared to geographically larger collaboration?

Consider the prevailing conditions for inflation (including oil prices), the economy, interest rates, and any other factors that could affect exchange rates. Based on these conditions, do you think the euro’s value will likely appreciate or depreciate against the dollar for the remainder of this semester? Offer some logic to support your answer. Which factor do you think will have the biggest impact on the euro’s exchange rate? (LO2)

The net income per books of Linda Patrick Company was determined without knowledge of the errors indicated. Net Income Error in Ending Year per Books Inventory 2009 $50,000 Overstated $ 3,000 2010 52,000 Overstated 9,000 2011 54,000 Understated 11,000 2012 56,000 No error 2013 58,000 Understated 2,000 2014 60,000 Overstated 8,000 Instructions Prepare a worksheet to show the adjusted net income figure for each of the 6 years after taking into account the inventory errors.

Assume that countries A and B are of similar size, that they have similar economies, and that the government debt levels of both countries are within reasonable limits. Assume that the regulations in country A require complete disclosure of financial reporting by issuers of debt in that country, whereas regulations in country B do not require much disclosure of financial reporting. Explain why the government of country A is able to issue debt at a lower cost than the government of country B. (LO3)

Elastomers and thermosetting polymers are both cross-linked. Why are their properties so different?

Name the principal groups of processes included in fusion welding.

Compare task forces, teams, project managers, and relational coordination in terms of how they can provide coordination across departments and hierarchical levels.

Ryan is self-employed. This year Ryan used his personal auto for several long business trips. Ryan paid $1,500 for gasoline on these trips. His depreciation on the car if he was using it fully for business purposes would be $3,000. During the year, he drove his car a total of 12,000 miles (combination of business and personal travel).

Net income for the year for Tanizaki, Inc. was $750,000, but the statement of cash flows reports that net cash provided by operating activities was $860,000. Tanizaki also reported capital expenditures of $75,000 and paid dividends in the amount of $30,000. Compute Tanizaki’s free cash flow.

‘We treat spoiled units as fully completed regardless of when the spoiled units are detected. This method makes unit costing much simpler.’ What is wrong with this approach?

During 2010, George Winston Corporation spent $170,000 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2010, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $18,000 related to the patent were incurred as of October 1, 2010. Instructions (a) Prepare all journal entries required in 2010 and 2011 as a result of the transactions above. (b) On June 1, 2012, Winston spent $9,480 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2012. Prepare all journal entries required in 2012 and 2013. (c) In 2014, Winston determined that a competitor’s product would make the New Age Piano obsolete and the patent worthless by December 31, 2015. Prepare all journal entries required in 2014 and 2015.

List three factors that managers might consider in deciding whether to expend resources to reduce spoilage.

Under what circumstances will a partner recognize a gain from an operating distribution?

Included in Outkast Company’s December 31, 2014, trial balance are the following accounts: Prepaid Rent $5,200; Debt Investments (trading) $56,000; Unearned Fees $17,000; Land (held for investment) $39,000; Notes Receivable (long-term) $42,000. Prepare the long-term investments section of the balance sheet.