Question & Answer

Fatima pays $120,000 cash for Brittany’s one-third interest in the Westlake Partnership. Just prior to the sale, Brittany’s basis in Westlake is $96,000. Westlake reports the following balance sheet: Assets: Tax Basis FMV Cash $ 96,000 $ 96,000 Land 192,000 264,000    Totals $ 288,000 $ 360,000 Liabilities and capital: Capital- Amy 96,000 - Brittany 96,000 - Ben 96,000   Totals $ 288,000 a. What are the amount and character of Brittany’s recognized gain or loss on the sale? b. What is Fatima’s basis in her partnership interest? What is Fatima’s inside basis? c. If Westlake were to sell the land for $264,000 shortly after the sale of Brittany’s partnership interest, how much gain or loss would the partnership recognize? d. How much gain or loss would Fatima recognize if the land were sold for 264,000? e. Suppose Westlake has a §754 election in place. What is Fatima’s special basis adjustment? How much gain or loss would Fatima recognize on a subsequent sale of the land in this situation?

In what order are the loss limitation rules applied to limit partners’ losses from partnerships?

When incorporating Spotfree, a cleaning company, Jayne transferred accounts receivable (fair market value $20,000 and $0 tax basis) and $12,000 of accounts payable from her cash-method sole proprietorship to Spotfree in exchange for Spotfree stock valued at $8,000. Assume the transfer qualifies under §351.   a. What are the amount and character of the gain Jayne must recognize on the exchange?  b. What is Jayne's basis in the Spotfree stock she received in the exchange?

1.              : What does this case illustrate about the risks of starting a business with a partner? How might those risks be minimized? Explain.

What is a conversion coating?

How can the interaction of the multiplier and accelerator explain cyclical fluctuations in national income?

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?

Why is it necessary to convert accrual-based net income to a cash basis when preparing a statement of cash flows?

What are the advantages and disadvantages for a developing country of pursuing a policy of ISI?

(Threshold Concept 6) 1. What would you understand by the ‘wage elasticity of demand for labour’? How would the magnitude of this elasticity affect the working of the market for (a) plumbers and (b) footballers? (Threshold Concept 6) 2. How can income elasticity of demand help explain how the structure of economies changes over the years.

What is the difference between a full year and a short year? Describe circumstances in which a business may have a short year.

Explain the incentive for private equity funds to invest in a firm and improve its operations. (LO1)

What is the difference between the wet lay-up approach and the prepreg approach in hand lay-up?

In which country in Figure 11.5 would you expect to find the highest proportion of poor people? Describe how income is distributed in the two cases.

Why are some deductions called “abovetheline” deductions and others called “belowtheline” deductions?What is the “line”?

Redraw Figures 2.23 and 2.24 assuming that the initial change in price was caused by a shift in the supply curve.

A machinability rating is to be determined for a new work material using the cutting speed for a 60- min tool life as the basis of comparison. For the base material (B1112 steel), test data resulted in Taylor equation parameter values of n = 0.29 and C = 500, where speed is in m/min and tool life is min. For the new material, the parameter values were n = 0.21 and C = 400. These results were obtained using cemented carbide tooling. (a) Compute a machinability rating for the new material. (b) Suppose the machinability criterion were the cutting speed for a 10-min tool life rather than the present criterion. Compute the machinability rating for this case. (c) What do the results of the two calculations show about the difficulties in machinability measurement?

Adams Inc. will deposit $30,000 in a 12% fund at the end of each year for 8 years beginning December 31, 2014. What amount will be in the fund immediately after the last deposit?

Hardly a day goes by without an article appearing on the crises affecting many of our financial institutions in the United States. It is estimated that the savings and loan (S&L) debacle of the 1980s, for example, ended up costing $500 billion ($2,000 for every man, woman, and child in the United States). Some argue that if the S&Ls had been required to report their investments at fair value instead of cost, large losses would have been reported earlier, which would have signaled regulators to close those S&Ls and, therefore, minimize the losses to U.S. taxpayers. Instructions Explain how reported accounting numbers might affect an individual’s perceptions and actions. Cite two examples.

You have been asked by the financial vice president to develop a short presentation on the lower-of-cost-or-market method for inventory purposes. The financial VP needs to explain this method to the president because it appears that a portion of the company’s inventory has declined in value. Instructions The financial VP asks you to answer the following questions. (a) What is the purpose of the lower-of-cost-or-market method? (b) What is meant by “market”? (Hint: Discuss the ceiling and floor constraints.) (c) Do you apply the lower-of-cost-or-market method to each individual item, to a category, or to the total of the inventory? Explain. (d) What are the potential disadvantages of the lower-of-cost-or-market method?

If a bond’s coupon rate is greater than the investor’s required rate of return on the bond, would the bond’s price be greater than or less than its par value? Explain. (LO1)

Fill in the missing figures in the Table 6.3. (Note that the figures for MC come in the spaces between each level of output.)

Job costing; overhead rates The Eastern Seaboard Company uses an estimated rate for allocating factory overhead to job orders based on machine hours for the machining department and on a direct labour cost basis for the finishing department. The company budgeted the following for last year:       During December, the cost record for job 602 shows the following:   Required (a)     What is the estimated overhead allocation rate that should be used in the machining department? In the finishing department? (b)     What is the total overhead allocated to job 602? (c)      Assuming that job 602 consisted of 200 units of product, what is the unit cost for this job? (d)     What factors affect the volume of production in a period? Can we know all of the factors before the period begins? Why? (e)      Explain why the company would use two different overhead allocation bases.

Why did the SEC impose a temporary ban on short sales of specific stocks in 2008? Do you think a ban on short selling is effective? (LO1)

How have growth rates varied over the decades? Does the answer vary by country?