Question & Answer

Revenue is usually recognized at the point of sale. Under special circumstances, however, bases other than the point of sale are used for the timing of revenue recognition. Instructions (a) Why is the point of sale usually used as the basis for the timing of revenue recognition? (b) Disregarding the special circumstances when bases other than the point of sale are used, discuss the merits of each of the following objections to the sale basis of revenue recognition: (1) It is too conservative because revenue is earned throughout the entire process of production. (2) It is not conservative enough because accounts receivable do not represent disposable funds, sales returns and allowances may be made, and collection and bad debt expenses may be incurred in a later period. (c) Revenue may also be recognized (1) during production and (2) when cash is received. For each of these two bases of timing revenue recognition, give an example of the circumstances in which it is properly used and discuss the accounting merits of its use in lieu of the sale basis.

Why is it difficult to estimate the magnitude of the benefits of completing the internal market of the EU?

How are product variety and production quantity related when comparing typical factories?

What is the difference between fixed routing and variable routing in material transport systems?

Presented below is financial information for two different companies. Alatorre Company Eduardo Company Sales revenue $90,000 (d) Sales returns and allowances (a) $ 5,000 Net sales 81,000 95,000 Cost of goods sold 56,000 (e) Gross profi t (b) 38,000 Operating expenses 15,000 23,000 Net income (c) Instructions Compute the missing amounts.

Presented below is information related to Viel Company at December 31, 2014, the end of its first year of operations. Sales revenue $310,000 Cost of goods sold 140,000 Selling and administrative expenses 50,000 Gain on sale of plant assets 30,000 Unrealized gain on available-for-sale investments 10,000 Interest expense 6,000 Loss on discontinued operations 12,000 Allocation to noncontrolling interest 40,000 Dividends declared and paid 5,000 Instructions Compute the following: (a) income from operations, (b) net income, (c) net income attributable to Viel Company’s controlling shareholders, (d) comprehensive income, and (e) retained earnings balance at December 31, 2014.

A building that was purchased on December 31, 2000, for $2,500,000 was originally estimated to have a life of 50 years with no salvage value at the end of that time. Depreciation has been recorded through 2014. During 2015, an examination of the building by an engineering firm discloses that its estimated useful life is 15 years after 2014. What should be the amount of depreciation for 2015?

{Planning}Through November, Tex has received gross income of $120,000.For December, Tex is considering whether to accept one more work engagement for the year.Engagement 1 will generate $7,000 of revenue at a cost of $4,000, which is deductible for AGI.In contrast, engagement 2 will generate $7,000 of revenue at a costof $3,000,which is deductible as an itemized deduction.Tex files as a single taxpayer.

Job costing journal entries Vern’s Van Service customises light trucks according to customers’ orders. This month the entity worked on five jobs, numbered 207 to 211. Materials requisitions for the month were as follows:       An analysis of the payroll records revealed the following distribution for labour costs:       Other overhead costs (consisting of rent, depreciation, taxes, insurance, utilities, etc.) amounted to $3600. At the beginning of the period, management anticipated that overhead cost would be $6400 and total direct labour would amount to $5000. Overhead is allocated on the basis of direct labour dollars.   Jobs 207 to 210 were finished during the month; Job 211 is still in process. Jobs 207 to 209 were picked up and paid for by customers. Job 210 is still on the lot waiting to be picked up.   Required (a)     Prepare the journal entries to reflect the incurrence of materials, labour, and overhead costs; the allocation of overhead; and the transfer of units to finished goods and cost of sales. (b)     Close overapplied or underapplied overhead to cost of sales.

On December 31, 2013, Main Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2014, the company made the following expenditures related to this building: March 1, $360,000; June 1, $600,000; July 1, $1,500,000; December 1, $1,500,000. The building was completed in February 2015. Additional information is provided as follows. 1. Other debt outstanding 10-year, 13% bond, December 31, 2007, interest payable annually $4,000,000 6-year, 10% note, dated December 31, 2011, interest payable annually $1,600,000 2. March 1, 2014, expenditure included land costs of $150,000 3. Interest revenue earned in 2014 $49,000 Instructions (a) Determine the amount of interest to be capitalized in 2014 in relation to the construction of the building. (b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2014.

Beverly Crusher is a licensed CPA. During the first month of operations of her business (a sole proprietorship), the following events and transactions occurred. April 2 Invested $32,000 cash and equipment valued at $14,000 in the business. 2 Hired a secretary-receptionist at a salary of $290 per week payable monthly. 3 Purchased supplies on account $700. (Debit an asset account.) 7 Paid offi ce rent of $600 for the month. 11 Completed a tax assignment and billed client $1,100 for services rendered. (Use Service Revenue account.) 12 Received $3,200 advance on a management consulting engagement. 17 Received cash of $2,300 for services completed for Ferengi Co. 21 Paid insurance expense $110. 30 Paid secretary-receptionist $1,160 for the month. 30 A count of supplies indicated that $120 of supplies had been used. 30 Purchased a new computer for $6,100 with personal funds. (The computer will be used exclusively for business purposes.) Instructions Journalize the transactions in the general journal. (Omit explanations.)

] Megan and Matthew are equal partners in the J & J Partnership (calendar-year-end entity). On January 1 of the current year, they decide to liquidate the partnership. Megan’s basis in her partnership interest is $100,000, and Matthew’s is $35,000. The two partners receive identical distributions, with each receiving the following assets: Tax BasisFMV Cash $ 30,000 $ 30,000 Inventory 5,000 6,000 Land 500 1,000    Totals $ 35,500 $37,000 a. What are the amount and character of Megan’s recognized gain or loss? b. What is Megan’s basis in the distributed assets? c. What are the amount and character of Matthew’s recognized gain or loss? d. What is Matthew’s basis in the distributed assets?

Describe the turning process.

Presented below is the current liabilities section of Micro Corporation. ($000) 2015 2014 Current liabilities Notes payable $ 68,713 $ 7,700 Accounts payable 179,496 101,379 Compensation to employees 60,312 31,649 Accrued liabilities 158,198 77,621 Income taxes payable 10,486 26,491 Current maturities of long-term debt 16,592 6,649 Total current liabilities $493,797 $251,489 Instructions Answer the following questions. (a) What are the essential characteristics that make an item a liability? (b) How does one distinguish between a current liability and a long-term liability? (c) What are accrued liabilities? Give three examples of accrued liabilities that Micro might have. (d) What is the theoretically correct way to value liabilities? How are current liabilities usually valued? (e) Why are notes payable reported first in the current liabilities section? (f) What might be the items that comprise Micro’s liability for “Compensation to employees”?

What is the Antioch process?

A turning operation uses a cutting speed = 200 m/min, feed = 0.25 mm/rev, and depth of cut = 4.00 mm. The thermal diffusivity of the work material = 20 mm2 /s and the volumetric specific heat = 3.5 (10-3 ) J/mm3 -C. If the temperature increase above ambient temperature (20°F) is measured by a tool-chip thermocouple to be 700°C, determine the specific energy for the work material in this operation.

Nottebart Corporation has outstanding 10,000 shares of $100 par value, 6% preferred stock and 60,000 shares of $10 par value common stock. The preferred stock was issued in January 2014, and no dividends were declared in 2014 or 2015. In 2016, Nottebart declares a cash dividend of $300,000. How will the dividend be shared by common and preferred stockholders if the preferred is (a) noncumulative and (b) cumulative?

Is a qualifying relative always a qualifying person for purposes of determining head of household filing status?

What happens to partnership losses allocated to partners in excess of the tax basis in their partnership interests?

Daisy Taylor has developed a viable new business idea. Her idea is to design and manufacture cookware that remains cool to the touch when in use. She has had several family members and friends try out her prototype cookware, and they have consistently given the cookware rave reviews. With this encouragement, Daisy started giving serious thought to starting up a business called “Cool Touch Cookware” (CTC). Daisy understands that it will take a few years for the business to become profitable.  She would like to grow her business and perhaps at some point “go public” or sell the business to a large retailer.   Daisy, who is single, decided to quit her full-time job so that she could focus all of her efforts on the new business. Daisy had some savings to support her for a while, but she did not have any other source of income. She was able to recruit Kesha and Aryan to join her as initial equity investors in CTC. Kesha has an MBA and a law degree. She was employed as a business consultant when she decided to leave that job to work with Daisy and Aryan. Aryan owns a very profitable used car business. Because buying and selling used cars takes all his time, he is interested in becoming only a passive investor in CTC. He wanted to get in on the ground floor because he really likes the product and believes CTC will be wildly successful. While CTC originally has three investors, Daisy and Kesha have plans to grow the business and seek more owners and capital in the future.   The three owners agreed that Daisy would contribute land and cash for a 30 percent interest in CTC, Kesha would contribute services (legal and business advisory) for the first two years for a 30 percent interest, and Aryan would contribute cash for a 40 percent interest. The plan called for Daisy and Kesha to be actively involved in managing the business, while Aryan would not be. The three equity owners’ contributions are summarized as follows:     Daisy Contributed FMV Adjusted  Basis Ownership Interest Land (held as investment) $120,000 $70,000 30% Cash$30,000   Kesha Contributed Services $150,000 30%   Aryan Contributed Cash $200,000 40%   Working together, Daisy and Kesha made the following five-year income and loss projections for CTC. They anticipate the business will be profitable and that it will continue to grow after the first five years.   Cool Touch Cookware 5-Year Income and Loss Projections     Year Income (Loss) 1 ($200,000) 2 ($80,000) 3 ($20,000) 4 $60,000 5 $180,000     With plans for Daisy and Kesha to spend a considerable amount of their time working for and managing CTC, the owners would like to develop a compensation plan that works for all parties. Down the road, they plan to have two business locations (in different cities). Daisy would take responsibility for the activities of one location and Kesha would take responsibility for the other. Finally, they would like to arrange for some performance-based financial incentives for each location.  To get the business activities started, Daisy and Kesha determined CTC would need to borrow $800,000 to purchase a building to house its manufacturing facilities and its administrative offices (at least for now). Also, in need of additional cash, Daisy and Kesha arranged to have CTC borrow $300,000 from a local bank and to borrow $200,000 cash from Aryan. CTC would pay Aryan a market rate of interest on the loan, but there was no fixed date for principal repayment.   Required: Identify significant tax and nontax issues or concerns that may differ across entity types and discuss how they are relevant to the choice of entity decision for CTC.   Several issues or concerns exist in forming a new business and choosing an entity. Some of the non-tax issues are:

What are the significant differences in the equipment and operating procedures between injection molding of thermoplastics and injection molding of thermosets?

Presented in Illustration 21-31 are the financial statement disclosures from the January 31, 2012, annual report of Wal-Mart Stores, Inc. Instructions Answer the following questions related to these disclosures. (a) What is the total obligation under capital leases at January 31, 2012, for Wal-Mart? (b) What is the total rental expense reported for leasing activity for the year ended January 31, 2012, for Wal-Mart? (c) Estimate the off-balance-sheet liability due to Wal-Mart’s operating leases at January 31, 2012.

Besides flat rolling and shape rolling, identify some additional bulk forming processes that use rolls to effect the deformation

How are state-sponsored 529 educational savings plans taxed if investment returns are used for educational purposes? Are the returns taxed differently if they are not ultimately used to pay for education costs?

Why are the molds generally more costly in mechanical thermoforming than in pressure or vacuum thermoforming?