Question 1
Problem 1 ZYX Inc. makes a single product and uses a standard cost system. Variable overhead is applied on the basis of direct labor hours. The following information is given: Standard costs per unit: Raw materials (1.5 grams at $16 per gram) $24.00 Direct labor (0.75 hours at $8 per hour) $6.00 Variable overhead (0.75 hours at $3 per hour) $2.25 Actual experience for current year: Units produced 22,400 units Purchases of direct materials (21,000 grams at $17 per gram) $357,000 Direct materials used 33,400 grams Direct labor (16,750 hours at $8 per hour) $134,000 Variable overhead cost incurred $48,575 REQUIRED: Compute the following variances (each worth 2.5 points): a. Direct materials price variance. b. Direct materials quantity variance. c. Direct labor rate variance. d. Direct labor efficiency variance. e. Variable overhead spending variance f. Variable overhead efficiency variance g. Which variances would you investigate, and why? 3 points PROBLEM 2 Segment reporting (8 points) Health Solutions provides three types of client services in the health-care industry. Its March income statement is as follows: Sales $900,000 Variable costs (605,000) Contribution margin 295,000 Fixed Expenses: Service (70,000) Selling, general and administrative (65,000) Net operating income $160,000 Other information for the three types of services is as follows: Hospitals Physicians Nursing Care Sales $350,000 $250,000 $300,000 Contribution margin ratio 30% 40% 30% Direct fixed expenses of services $20,000 $18,000 $16,000 Allocated common fixed services expenses $1,000 $1,000 $1,500 Required: Prepare an income statement segment by client categories, including a column for the total company. Assess the health of the three segments (in 50 words or less) Transfer pricing Division X makes a component that it sells externally for $54 and can also sell internally to Division Z. The variable cost associated with producing one unit = $30. Division Z currently buys all of its 10,000 units in the external market at the cost of $50 per unit. REQUIRED: a. Calculate the floor and ceiling transfer prices if Division X is currently producing and selling at its full capacity of 100,000 units. Should the transfer be made? If the transfer is made, what is the effect on total company NOI? b. Calculate the floor and ceiling transfer prices if Division X has 12,000 units of excess capacity. Should the transfer be made? If the transfer is made, what is the effect on total company NOI?
Question 2
The Following assignment has several requirements, but I only need help with one question. I have solved requirement 1 and 2. I need help with number 3 please. Parent, Inc. is contemplating a tender offer to acquire 80 percent of Subsidiary Corporation's common stock. Subsidiary's shares are currently quoted on the New York Stock Exchange at $85 per share. In order to have a reasonable chance of the tender offer attracting 80 percent of Subsidiary's stock, Parent believes it will have to offer at least $105 per share. If the tender offer is made and is successful, the purchase will be consummated on January 1, 2009. A typical part of the planning of a proposed business combination is the preparation of projected or pro forma consolidated financial statements. As a member of Parent's accounting group, you have been asked to prepare the pro forma 2009 consolidated financial statements for Parent and Subsidiary assuming that 80 percent of Subsidiary's stock is acquired at a price of $105 per share. To support your computations, Martha Franklin, the chairperson of Parent's acquisitions committee, has provided you with the projected 2009 financial statements for Subsidiary. (The projected financial statements for Subsidiary and several other companies were prepared earlier for the acquisition committee's use in targeting a company for acquisition.) The projected financial statements for Subsidiary for 2009 and Parent's actual 2008 financial statements are presented in table 1. Assumptions Ms. Franklin has asked you to use the following assumptions to project Parent's 2009 financial statements: Sales will increase by 10 percent in 2009. All sales will be on account. Accounts receivable will be 5 percent lower on December 31, 2009, than on December 31, 2008. Cost of goods sold will increase by 9 percent in 2009. All purchases of merchandise will be on account. Accounts payable are expected to be $50,500 on December 31, 2009. Inventory will be 3 percent higher on December 31, 2009, than on December 31, 2008. Straight-line depreciation is used for all fixed assets. No fixed assets will be disposed of during 2009. The annual depreciation on existing assets is $40,000 per year. Equipment will be purchased on January 1, 2009, for $48,000 cash. The equipment will have an estimated life of 10 years with no salvage value. Operating expenses, other than depreciation, will increase by 14 percent in 2009. All operating expenses, other than depreciation, will be paid in cash. Parent's income tax rate is 40 percent, and taxes are paid in cash in four equal payments. Payments will be made on the 15th of April, June, September, and December. For simplicity, assume taxable income equals financial reporting income before taxes. Parent will continue the $2.50 per share annual cash dividend on its common stock. If the tender offer is successful, Parent will finance the acquisition by issuing $170,000 of 6 percent non-convertible bonds at par on January 1, 2009. The bonds would first pay interest on July 1, 2009, and would pay interest semi-annually thereafter each January 1 and July 1 until maturity on January 1, 2019. The acquisition will be accounted for as a purchase and Parent will account for the investment using the equity method. Although most of the legal work related to the acquisition will be handled by Parent's staff attorney, direct costs to prepare and process the tender offer will total $2,000 and will be paid in cash by Parent in 2009. As of January 1, 2009, all of Subsidiary's assets and liabilities are fairly valued except for machinery with a book value of $8,000, an estimated fair value of $9,500, and a 5-year remaining useful life. Assume that straight-line depreciation is used to amortize any revaluation increment. No transactions between these companies occurred prior to 2009. Regardless of whether they combine, Parent plans to buy $50,000 of merchandise from Subsidiary in 2009 and will have $3,600 of these purchases remaining in inventory on December 31, 2009. In addition, Subsidiary is expected to buy $2,400 of merchandise from Parent in 2009 and to have $495 of these purchases in inventory on December 31, 2009. Parent and Subsidiary price their products to yield a 65 percent and 80 percent markup on cost, respectively. Parent intends to use three financial yardsticks to determine the financial attractiveness of the combination. First, Parent wishes to acquire Subsidiary Corporation only if 2009 consolidated earnings per share will be at least as high as the earnings per share Parent would report if no combination takes place. Second, Parent will consider the proposed combination unattractive if it will cause the consolidated current ratio to fall below 2 to 1. Third, return on average stockholders' equity must remain above 20 percent for the combined entity. If the financial yardsticks described above and the non-financial aspects of the combination are appealing, then the tender offer will be made. On the other hand, if these objectives are not met, the acquisition will either be restructured or abandoned. Question 3. Prepare pro forma consolidated worksheet. Prepare a pro forma consolidation worksheet for Parent, Inc. and its proposed subsidiary as of December 31, 2009. To ensure you are starting with the right numbers, use the solution provided to Milestone 1 for the adjusted pro forma 2009 financial statements of Parent, Inc., and the projected 2009 financial statements of Subsidiary Corporation in table 1. Show all consolidation adjusting entries including minority interest entries. Thank you.
Question 3
1. Sandra Sherman incorporates her apartment building. It has a basis of $50,000, a value of $150,000, is subject to a mortgage of $70,000 and has a depreciation recapture potential of $12,000. If Sandra receives stock worth $80,000, she will recognize: a. No gain. b. $30,000 of gain, $12,000 of which is ordinary. c. $12,000 of ordinary income. d. $20,000 of gain, $12,000 of which is ordinary. 2. Evan Erman transferred inventory to a corporation in a Code Sec. 351 transaction. His basis in the inventory was $10,000 and its value was $8,000. If he received $2,000 in cash and 100 shares of stock, the resulting bases are: a. Evan?s stock: $8,000; Corporation?s inventory: $10,000 b. Evan?s stock: $10,000; Corporation?s inventory: $10,000 c. Evan?s stock: $10,000; Corporation?s inventory: $8,000 d. Evan?s stock: $8,000; Corporation?s inventory: $12,000 3. One year Potter, Inc. had gross income from sales of $210,000, business expenses of $230,000, and dividend income from U.S. corporations of $150,000. Potter?s 80 percent dividends-received deduction was: a. $104,000 b. $120,000 c. $0 d. $150,000 4. Prior to a charitable gift to the Plato University of land with a basis of $6,000 and a value of $13,000, All-Set, Inc. had taxable income of $50,000. If the dividends-received deduction was $80,000, the charitable contribution deduction is: a. $5,000 b. $6,000 c. $2,925 d. $5,800 5. Exclusive of capital transactions, Pixie Corp. had $100,000 of taxable income. Its capital gains and losses were: Short-term gain $10,000 Long-term gain 12,000 Short-term loss (20,000) Long-term loss 5,000 Pixie?s taxable income for the year was: a. $97,000 b. $122,000 c. $100,000 d. $107,000 6. Black & White, Inc. has $20,000 in taxable income, plus a long-term capital gain of $10,000. Its tax liability is: a. $4,500 b. $10,200 c. $5,800 d. $7,500 7. The following statements about Code Sec. 1244 are all true, except: a. Property transferred for Code Sec. 1244 stock includes any property qualifying for Code Sec. 351 treatment. b. A partnership may be able to fl ow through a Code Sec. 1244 loss to some of its partners, but not to others. c. Convertible preferred stock may be Code Sec. 1244 stock. d. Code Sec. 1244 imposes specific passive income limitations on the corporation. 8. Hoover, Inc. had gross receipts from operations of $230,000, operating and other expenses of $310,000, and dividends received from a 45 percent-owned domestic corporation of $120,000. Hoover?s tax position for the year is: a. $8,000 taxable income b. $56,000 net operating loss c. $40,000 taxable income d. $80,000 net operating loss 9. During 2010, Vera Venture sold her interests in two small business corporations. Her loss on Ballpoint Pen Corporation stock was $120,000 and her loss on Pencils Corporation stock was $20,000. Both losses qualify under Code Sec. 1244. Vera files jointly with her husband. What is the amount and character of Vera?s loss to be reported on their joint return for 2010? a. $140,000 ordinary; $0 capital b. $100,000 ordinary; $40,000 capital c. $40,000 ordinary; $100,000 capital d. $0 ordinary; $140,000 capital 10. Comic Books Corporation, a calendar year corporation, had a net operating loss of $50,000 for 2010. Comic Books made a proper election to forgo the carryback period. For 2011, Comic Books correctly deducted $40,000 of the 2010 loss. Comic Books will lose the remaining $10,000 if it cannot be deducted by the end of which tax year? a. 2017 b. 2020 c. 2025 d. 2030 11. Ben Brown transferred property that had an adjusted basis to him of $40,000 and a fair market value of $50,000 to Crackers Corporation in exchange for 100 percent of Crackers?s only class of stock and $15,000 cash. At the time of the transfer, the stock had a fair market value of $35,000. What is the amount of gain to be recognized by Ben? a. $0 b. $10,000 c. $15,000 d. $25,000 12. Craig Co. is a domestic small business C corporation which has been actively engaged in a trade or business since its incorporation. Kimberly purchased 200 shares of Code Sec. 1202 stock from Craig Co. on September 1, 2006. Kimberly wants to sell the stock (a very large gain would result from the sale) but wants to be sure the gain qualifies for the 50 percent exclusion. When should Kimberly sell the stock in order to qualify for the exclusion? a. March 3, 2010 b. September 3, 2010 c. September 3, 2011 d. It does not matter. A sale at any time will qualify for the gain exclusion. 13. When deciding if a corporate instrument is debt or equity, the IRS will consider: a. the corporation?s debt to equity ratio b. if the debt is convertible into stock c. the relationship between stock and debt ownership percentages d. if the debt is preferred over or subordinate to other debt e. all of the above f. none of the above 14. A corporation must do which of the following with respect to its accounting period? a. select a calendar year b. select a fiscal year if it has a business reason for selction c. select a calendar year or fiscal, regardless of the reason for selection d. select a year that is the same as its major shareholders e. none of the above 15. Poco Co. incurs expenses for investigating whether to expand its present business. a. deduct them when incurred b. deduct them only if Poco Co. goes through with the expansion c. capitalize them and amortize them over 60 months d. capitalize and expense when the firm liquidates e. none of the above 16. Members of a parent-subsidiary controlled group may: a. file separate tax returns b. file separate tax returns and may elect a 100 percent dividends-received deduction c. file a consolidated tax return d. all of the above e. none of the above 17. The following entities are not subject to double taxation except: a. partnership b. sole proprietorship c. C corporation d. S corporation e. all are subject to double taxation f. none are subject to double taxation 18. Absent any special provision (e.g., Code Sec. 351), a transfer of property from a shareholder to a corporation in return for its shares would result in: a. full gain or loss recognition b. partial gain or loss recognition c. no gain or loss recognition d. none of the above 19. Mike and John form Lasveg Corporation. Mike transfers property and receives 75 shares of stock. John performs services and receives 25 shares of stock. The transactions qualify for Code Sec. 351 treatment for: a. Mike only b. John only c. Both Mike and John d. Neither Mike nor John 20. Dave formed Shull Company and transferred land ($100,000 fair market value; $40,000 adjusted basis) and equipment ($50,000 fair market value; $10,000 adjusted basis) in exchange for 100 shares of stock. Shull Company assumes the $45,000 mortgage on the land as part of the transfer. Dave?s tax consequences are: Recognized Basis in Gain 100 shares a. $0 $50,000 b. $5,000 $0 c. $50,000 $60,000 d. $100,000 $100,000 21. In 2008, Larry transferred property with an adjusted basis of $20,000 and a fair market value of $15,000 to a corporation in exchange for stock. Code Sec. 351 applies to the transfer and the stock qualifies as Code Sec 1244 stock. Larry sold the stock this year for $4,000. The result of the sale is: a. $16,000 long-term capital loss b. $16,000 ordinary loss c. $11,000 long-term capital loss and $5,000 ordinary loss d. $11,000 ordinary loss and $5,000 long-term capital loss 22. Staton Inc. is an accrual basis, calendar year taxpayer that was formed on June 1 of this year. It incurred and paid the following expenses during the year: Expenses incident to printing and issuing stock certificates $30,000 Accounting services incident to organization 15,200 Legal services incident to incorporation 25,000 Fees for incorporating at the state level 4,100 Expenses of organizational meetings and temporary directors 16,000 What is the largest deduction it can claim this year for organizational expenditures? a. $2,345 b. $3,512 c. $7,151 d. $8,317,Hi, these are some CPA exam questions which I am planning to take coming days. I would appreciate it if you could help. Thanks,Our professor who giving us the course prepration has answered the questions and I was very disappointed. 13 questions of your answers are wrong. I attached the right answers to know what have you done and I wrote the right answers in red. please return my money back since I am completely not satisfied. Tarek
