Question 1
Complete the Inventory audit section: Just part 3 and 4 please. 3- Tie the Inventory Warehouse Report to Apollo?s Inventory Status Report supplied by Karina last week. 4- Next, judgmentally sample a number of unit costs from recent invoices and tie them to the Inventory Status Report. If the numbers agree, tie the Inventory Status Report into the Inventory Lead Schedule. Lastly, tie the lead schedule into the Trial Balance. Review the Planning section with emphasis on the Workpaper Indexing, Trial Balances, and Apollo Shoes Minutes and the Accounts Receivable section with emphasis on the Audit of Accounts Receivable ? confirmations. ++++++++++++++++++Workpaper Indexing++++++++++++++ Date: Mon, 29 OCT 2007 06:42:35 +0000 From: "Darlene Wardlaw" Subject: Upcoming Apollo Shoes Engagement Apollo denied our request to speak with the predecessor auditors because of ?litigation concerns.? I?ve looked at the 8-K filed by Apollo and the auditors referenced in the 10-K. I didn?t attach a copy because it didn?t say much, just something about ?incongruent goals,? blah, blah, blah. Against my advice, Arnold decided to accept the engagement anyway. Keep your eyes open! The good news is that the predecessor auditors, Smith and Smith, CPAs, have a good reputation, so you can use last year?s audited numbers from the 10-K. The bad news is that we don?t have access to prior year working papers. You?ll need to come up with programs for the substantive audit procedures for each of the functional balance sheet areas (indicated with an asterisk (*) below). You can download copies of the audit programs from AuditNet (www.auditnet.org) under ?Auditors Sharing Audit Programs? or get them from an old auditing textbook. My preference is to place the audit programs at the beginning of each section. Label the sections as follows: GA series (GA-1, GA-2, etc.) General and Administrative (Planning) ICC series Revenue/Collection Cycle Internal Control Evaluation ICD series Purchasing/Disbursements Internal Control Evaluation ICP series Payroll Internal Control Evaluation A series Trial Balance/Financial Statements/Adjustments/Footnotes B series* Cash Substantive Workpapers C series* Accounts Receivable Substantive Workpapers D series* Inventory Substantive Workpapers E series* Prepaids Substantive Workpapers F series* Property, Plant and Equipment Substantive Workpapers I series* Other Assets Substantive Workpapers L series* Current Liabilities Substantive Workpapers N series* Notes Payable Substantive Workpapers Q series* Stockholders? Equity Substantive Workpapers R series* Revenue Substantive Workpapers X series* Expenses Substantive Workpapers Because we are so understaffed during busy season, you are going to have to perform the bulk of the audit yourself. I was only able to get you a spring intern (Bradley Crumpler) from Caledonia State University (heck, I didn?t even know they had an accounting program!). He is the only unassigned person in the office right now. Because I am unsure of his training, I suggest that you only use him for ?grunt work.? Also, I checked into the background and experience of Karina Ramirez, Apollo?s Internal Auditor. Apparently, she was an auditor with a Big 4 firm for 8 years before coming to Apollo and has served on the state CPA society?s ethics committee. I also went through her workpapers; they appear to be top-notch. Lastly, she reports directly to the Audit Committee, so we can rely on her to be objective. I think we can rely on her work during our engagement. DW P.S. Thanks for drafting the engagement letter. I only had to make a couple of changes before Arnold signed it. ++++++++++++++++++Trial Balances++++++++++++++ Is attached ++++++++++++++++++Apollo Shoes Minutes++++++++++++++ Date: Mon, 7 JAN 2008 12:45:39 +0000 From: "Darlene Wardlaw" Subject: Apollo Shoes minutes Attachments: <><><> Hope the inventory observation went well. I saw Bradley in the office working on some inventory stuff. He said that he would e-mail it to you when it was completed. Sorry I haven?t made it out to Apollo yet. I did meet with Jeff Chestnutt (Apollo?s corporate secretary) who allowed me to copy the minutes of the Board of Directors. The board of directors met twice during the period under audit, January 1 through December 31, and once more last week. I have attached copies. Study these minutes ? they provide a history of every important event and transaction that Apollo has undergone during the past year. Make notes in the form below for the audit working papers of matters relevant for the audit of the 2007 financial statements. Prepare a working paper (GA-3) for my review with proper headings and these two columns: Information Relevant to 2007 Audit Audit Action Recommended You may want to stick a copy of the minutes in the workpapers (GA-3-1, GA-3-2, etc.) behind your memo when you are done with them. DW MEETING HELD JANUARY 3, 2007 Larry Lancaster, incoming chairman of the board, presided over the first meeting of the year, beginning at 3 P.M. The meeting was conducted in the boardroom of Apollo?s new global headquarters. All members were present: Larry Lancaster Josephine Mandeville** Fritz Brenner** Ivan Gorr* Theodore Horstmann** Harry Baker* Eric Unum * Outside director ** Outside director and member of the audit committee. The minutes of the December 15, 2006 meeting were reviewed and approved. Reporting on the annual meeting of shareholders, Mr. Lancaster welcomed the new or reelected board members: Josephine C. Mandeville, Professor of Accountancy and Typing at the Graduate School of Business and Clerical Skills; Ivan W. Gorr, President and CEO of Far More Drugs; Harry R. Baker, Executive Vice President and Treasurer of the Iguana Growers of America Inc., Theodore Horstmann, Minister of Commerce of Anglonesia; and Fritz Brenner, President of The Widget Corporation Mr. Unum presented the forecast for the year, attached. Sales are expected to increase 10 percent, with costs of goods sold and general expenses bearing about the same relationships as experienced last year. Mr. Lancaster stated, ?Well, they better increase by that much, or heads will roll!? Mr. Lancaster?s plan to move production to within the company was discussed. Over Mr. Horstmann?s vehement disagreement, the board authorized purchase of equipment totaling $1.3 million to facilitate internal production of Apollo products by a vote of 6-1. Mr. Unum reported that the Company?s short-term line of credit was refinanced as of January 2, 2007 and rolled into a long-term note payable with the Twenty-First National Bank of Maine, due January 1, 2008. Mr. Brenner moved a declaration of dividends for the year ended the previous December 31. The motion died for lack of a second. Mr. Unum moved, and Mr. Lancaster seconded, officers? salary increases of 10 percent for 2007. The board approved these salaries by a 4-3 vote: President and CEO, Larry Lancaster $2,750,000 Exec Sr. VP and CFO, Joe Bootwell 1,320,000 VP Marketing, Fred Durkin 1,100,000 VP Finance, Eric Unum 649,000 VP Legal Affairs, Sue Fultz 1,650,000 VP Operations, Daisy Gardner 450,000 Internal Audit Director, Karina Ramirez 235,000 Treasurer, Mary Costain 222,000 Controller, Samuel Carboy 214,000 Mr. Lancaster encouraged everyone to watch the 2007 Superbowl to watch for Apollo?s 15- second commercial. He noted that the cost of the commercial time rose approximately 10% from last year. The cost of production and airing the ad is now approaching $1,000,000. Meeting ended 5:30 P.M. /s/ Jeff Chesnut, Secretary AudComMins?010307.doc MEETING HELD JUNE 30, 2007 Larry Lancaster, chairman of the board, presided over the second meeting of the year, beginning at 3 P.M. All members were present: Larry Lancaster Josephine Mandeville** Fritz Brenner** Ivan Gorr* Theodore Horstmann** Harry Baker* Eric Unum * Outside director ** Outside director and member of the audit committee. The minutes of the January 3 meeting were reviewed and approved. Mr. Lancaster reported on damage caused by a ?Nor?easter? storm that hit Shoetown in April. Damages amounted to approximately $50,000, just under the insurance deductible. Mr. Unum reported that sales revenues are not meeting expectations, primarily because of parents? growing disenchantment with spoiling their children; parents were no longer willing to buy $300 premium shoes for their kids as they did in previous years. Mr. Gorr concurred and mentioned something about ?not sparing the rod.? In order to compensate for decreased sales, the Company has raised prices by about 10% with respect to product costs. Mr. Lancaster lamented that the quality of Apollo products was too high?the shoes were just not wearing out fast enough. Mr. Lancaster also stated that because of the strength of current product lines and as a cost-cutting measure, he decided to stop research and development efforts on the Phoneshoe, thereby eliminating Research and Development expense for the current year. The development lab will be modified in 2008 to house a personal gym for corporate executives. Scientists working in the lab have been reassigned to maintenance duties elsewhere in the company. The Company has also saved postage and telephone expense through increased use of e-mail. In other business, the board authorized the write-off of one account receivable for $8,810.13 for an account that had been outstanding for over a year. Mr. Lancaster noted that he did not anticipate any other write-offs during the year, or that ?heads would roll!? Mr. Unum moved that Apollo advance $1,000,000 to Mr. Lancaster as a personal loan to cover personal legal expenses related to his previous employer. Mr. Unum further suggested that the promissory note plus accrued interest of 1% per year be due on June 30, 2045. Mr. Lancaster suggested that it be recorded in ?other receivables,? rather than ?employee advances? so as to not trouble shareholders with needless details. After general agreement among the board that similar options be made available to other board members in the future on an as needed basis, the advance was approved unanimously. Mr. Lancaster asked Mr. Unum to have the check drawn to him immediately at the conclusion of the board meeting. The board unanimously supported Ernst Hathaway?s promotion from Director of MIS to VP-Information Systems. He reported on the plans for the purchase and installation of a new information system. The board authorized up to $1.2 million for the purchase of the new computer system. Ms. Mandeville offered to consult on the purchase and installation. To fund the purchase and pay other expenses, Mr. Unum requested that the board authorized a draw of $44,053,000 on the Company?s line of credit on July 1. This proposal was unanimously approved. Meeting ended 7:30 P.M. /s/ Jeff Chesnut, Secretary AudComMins?063007.doc ? MEETING HELD JANUARY 3, 2008 Larry Lancaster, chairman of the board, presided over the regular meeting, beginning at 2 P.M. All members were present: Larry Lancaster Josephine Mandeville** Fritz Brenner** Ivan Gorr* Theodore Horstmann** Harry Baker* EricUnum * Outside director ** Outside director and member of the audit committee. The minutes of the June 30 meeting were reviewed and approved. The selection by the audit committee of Anderson, Olds & Watershed as auditors was ratified. The $750,000 fee was approved for the 2007 audit. Ms. Mandeville moved, and Mr. Gorr seconded, a proposal to declare retroactively a cash dividend of $810,000 payable March 1 to stockholders of record on December 31. Approved by a vote of 5?2. Ms. Fultz, VP-Legal affairs, stated that on January 2, 2008 (yesterday), a class action suit alleging gross negligence and violation of warranty of merchantability was brought against Apollo for $12,000,000. The action stems from the use of one of the Company's products in an aquatic environment, which may have caused severe electrical shock to the wearer(s). She is working closely with Apollo?s legal counsel, Perley Stebbins, to vigorously defend Apollo?s good name. Ms.Fultz stated that the company?s current insurance does not cover these types of actions. Mr. Baker inquired as to the status of the machinery purchased in early 2006. Mr. Lancaster replied that the machinery would be set up ?soon.? Mr. Lancaster moved and Mr. Unum seconded the approval of officers? bonuses for the year just ended December 31. Approved by a 4?3 vote. President, Larry Lancaster $200,000 VP Marketing, Fred Durkin 50,000 VP Finance, Eric Unum 50,000 VP Information Systems, Ernst Hathaway 50,000 VP Legal Affairs, Sue Fultz 50,000 VP Operations, Daisy Gardner 50,000 The Board approved the Company?s contribution to the Employee Benefits program. Mr. Unum stated that the contribution was increased by $300,000 for 2007, up 10% over the past several years to appease growing employee dissatisfaction. Given the company?s plans to automate the distribution process, Mr. Unum stated that employee benefits will decrease significantly in future years. Mr. Unum noted also that the company decided not to air a Superbowl ad this year. Meeting ended 8:30 P.M. /s/ Jeff Chesnut, Secretary AudComMins?010308.doc ++++++++++++++++Audit of Accounts Receivable++++++++++ Date: Mon, 28 JAN 2008 15:37:42 +0000 From: "Darlene Wardlaw" Subject: Audit of Accounts Receivable We received a number of account receivable (and one pre-paid insurance) confirmations that I put on your desk when I stopped by to talk to Samuel Carboy this morning. With the good response rate on the positive confirmations, you can probably start working on A/R now. While I think of it, you need to prepare a memo (C-2-1) addressing the following issues: 1. Describe the two forms of accounts receivable confirmation requests that you used and indicate the factors that you considered in determining which type to use. 2. What ?alternative procedures? are you going to use to verify the existence of these accounts and the gross value of the receivables if the customers who receive positive confirmations never reply, even to a second request? Put the confirmations in the workpapers (C-2-2, C-2-3, C-2-4, etc.). Address any discrepancies between the client and the customer and propose adjustments as necessary. It would also be helpful to indicate the payments received by Apollo on the Aged Trial Balance Schedule (C-2). You can get these off of any early January deposits slips. If you get copies from the client, be sure to tie the totals into deposits indicated on the cutoff bank statement received directly from the bank. Lastly, the allowance for doubtful accounts looks pretty low. A/R goes up, but the allowance goes down? I need a separate workpaper (C-3) addressing the reasonableness of Apollo?s Allowance for Doubtful Accounts. You can specifically identify troubled accounts, look at subsequent cash collections, look at what Apollo?s competitors do, look at what Apollo has done in the past (bad debt expense as a % of sales, allowance for doubtful accounts as a % of total receivables) to develop your estimate of what should be in the allowance. Also consider current and previous A/R Turnover and Days? Sales in A/R ratios. DW Apollo Shoes, Inc. Shoetown, ME Neutralizer 1359 Central Boulevard Derma, MS 39530 Attn: Accounts Payable Dept. Our auditors, Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND EITHER CONFIRM ITS ACCURACY OR REPORT ANY DIFFERENCES DIRECTLY TO OUR AUDITORS USING THE ENCLOSED REPLY ENVELOPE. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carboy ______________________ Samuel Carboy, Controller The balance due Apollo Shoes as of December 31, 2007, is $3,051,755.48 Purchases from Apollo Shoes during the year 2007 totaled $3,051,755.48 This balance is correct except as noted below: Our records indicate that we owe $1388.75 more than indicated above. We wrote a check to Apollo on 12/28 for $3,053,144.23 for 10 pallets of shoes. Date: 1/24/08 By: __Rudy Robinson______________________ Title: _Accounts Payable ______________ Apollo Shoes, Inc. Shoetown, ME Mall-Warts 146 Boardwalk Drive Atlantic City, NJ 08401 Attn: Accounts Payable Dept. Our auditors, Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND EITHER CONFIRM ITS ACCURACY OR REPORT ANY DIFFERENCES DIRECTLY TO OUR AUDITORS USING THE ENCLOSED REPLY ENVELOPE. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carboy ______________________ Samuel Carboy, Controller The balance due Apollo Shoes as of December 31, 2007, is $20,549,225.88 Purchases from Apollo Shoes during the year 2007 totaled $122,826,158.60 These amounts are correct except as noted below: The amounts appear right, but we entered into involuntary bankruptcy on November 3. We told Apollo about this back at that time. We don?t know why they shipped us so many pairs in late December (including over 1600 pairs of size 23?s that we can?t even give away!)! We didn?t order them and we can?t afford to send them back! Date: 1/18/08 By: __Action Jackson____________ Title: _Liquidation Coordinator______ Apollo Shoes, Inc. Shoetown, ME Run for Your Life Shoes Attn: Accounts Payable Dept. 5110 Speedway Drive Los Angeles, CA 90035 Our auditors, Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND EITHER CONFIRM ITS ACCURACY OR REPORT ANY DIFFERENCES DIRECTLY TO OUR AUDITORS USING THE ENCLOSED REPLY ENVELOPE. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carboy ______________________ Samuel Carboy, Controller The balance due Apollo Shoes as of December 31, 2007, is $2,165,500.55 Purchases from Apollo Shoes during the year 2007 totaled $2,165,500.55 This balance is correct except as noted below: Yes, we made one purchase from Apollo during the year, but we paid the entire amount on 1/8. Date: 1/18/08 By: __Justin Thompson_____________________ Title: _Accounts Payable Coordinator___________ Apollo Shoes, Inc. Shoetown, ME Tread Attn: Accounts Payable Dept. Highway 67 French Lick, IN 47432 Our auditors, Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND COMPARE THEM TO YOUR RECORDS OF YOUR ACCOUNT WITH US. IF THE INFORMATION IS NOT IN AGREEMENT WITH YOUR RECORDS, PLEASE STATE ANY DIFFERENCES BELOW AND RETURN DIRECTLY TO OUR AUDITORS IN THE RETURN ENVELOPE PROVIDED. IF THE INFORMATION IS CORRECT, NO REPLY IS NECESSARY. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carboy ______________________ Samuel Carboy, Controller The balance due Apollo Shoes as of December 31, 2007, is $1,388.75 Purchases from Apollo Shoes during the year 2007 totaled $3,091,017.74 This balance is correct except as noted below: We were told in November that our account had already been credited for the amount listed above for a return of 5 pairs of defective shoes. Total purchases agree with our records though. Date: __1/18/08 By: __Shoeless Joe Johanson____ Title: _President, Tread Shoes___ Apollo Shoes, Inc. Shoetown, ME Paul Bunion Footwear Attn: Accounts Payable Dept. Lone Mountain Trail P.O. Box 10558 Big Sky, MT 59717 Our auditors, Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND EITHER CONFIRM ITS ACCURACY OR REPORT ANY DIFFERENCES DIRECTLY TO OUR AUDITORS USING THE ENCLOSED REPLY ENVELOPE. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carboy ______________________ Samuel Carboy, Controller The balance due Apollo Shoes as of December 31, 2007, is $10,458,847.58 Purchases from Apollo Shoes during the year 2007 totaled $29,270,632.63 This balance is correct except as noted below: No problems noted. Date: 1/25/08 By: __Kevin Bunion_______________________ Title: _VP-Finance, PBS ______________ Apollo Shoes, Inc. Shoetown, ME Sassy Shoes Attn: Accounts Payable Dept. 440 W. 53rd Street New York, NY 10018 Our auditors, Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND EITHER CONFIRM ITS ACCURACY OR REPORT ANY DIFFERENCES DIRECTLY TO OUR AUDITORS USING THE ENCLOSED REPLY ENVELOPE. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carboy ______________________ Samuel Carboy, Controller The balance due Apollo Shoes as of December 31, 2007, is $5,765,081.85 Purchases from Apollo Shoes during the year 2007 totaled $15,178,041.85 This balance is correct except as noted below: Yes, we owed it. This is the third letter that we?ve received from you people!!! Our sales are just running a little slowly this year, but we paid on the tenth, so quit hassling us! Date: __1/26/08_______________ By: __Sassy Spinelli______________ Title: _Founder, Sassy Shoes_?______ Apollo Shoes, Inc. Shoetown, ME International Soccer Federation Attn: Accounts Payable Dept. Birmingham Road Stratford-upon-Avon Warwickshire CV34 6LT England Our auditors, Anderson, Olds, and Watershed, are making their regular audit of our financial statements. Part of this audit includes direct verification of customer balances. PLEASE EXAMINE THE DATA BELOW CAREFULLY AND EITHER CONFIRM ITS ACCURACY OR REPORT ANY DIFFERENCES DIRECTLY TO OUR AUDITORS USING THE ENCLOSED REPLY ENVELOPE. This is not a request for payment. Please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. Samuel Carboy ______________________ Samuel Carboy, Controller The balance due Apollo Shoes as of December 31, 2007, is $1,222,359.56 Purchases from Apollo Shoes during the year 2007 totaled $3,228,779.92 This balance is correct except as noted below: The amounts are correct as stated. I don?t think we are going to buy any more though. The sirens keep going off prematurely and it?s causing our fans to riot. Date: 1/25/08 By: __Foots McKinney____________________ Title: _Equipment Manager, ISF _____________
Question 2
"REQUIREMENTS Reference financial statement information for Coca-Cola and PepsiCo through the following links: Coca-Cola: http://www.thecoca-colacompany.com/investors/annual_other_reports.html PepsiCo: http://phx.corporate-ir.net/phoenix.zhtml?c=78265&p=irol-reportsannual For the years 2009 and 2010: ? Construct common-size income statements and balance sheets for each company; ? Compute financial ratios indicated below for each company; ? Perform computations within the same EXCEL spreadsheet file (you may use separate tabs within the same workbook if you choose, but submit only one file). ? Provide a written summary and conclusions about comparative financial performance or position. I. Financial Statement Computations A. Comparative financial ratio analysis - 1. Current ratio 2. Acid-test ratio 3. Current cash debt coverage ratio 4. Receivable turnover 5. Inventory turnover 6. Asset turnover 7. Profit margin on sales 8. Rate of return on assets 9. Rate of return on common stock equity 10. Earnings per share 11. Price-earnings ratio 12. Dividend payout ratio 13. Debt to total assets 14. Times interest earned 15. Cash debt coverage ratio 16. Book value per share B. Common-size analysis (vertical percentage) financial statements - Income statement and balance sheet only II. Summary and Conclusions Briefly evaluate the relative financial strengths and weaknesses of each company with respect to the ratio and commons-size analysis. Your summary should not exceed 2 pages
Question 3
Problem A - I ? Multiple Choice (24 x 3 = 72 points) Chose the best answer. 1. Indigo Company acquires a new machine (ten-year property) on January 15, 2008, at a cost of $100,000. Indigo also acquires another new machine (seven-year property) on November 5, 2008, at a cost of $20,000. No election is made to use the straight-line method. The company does not make the ? 179 election. Indigo does elect not to take additional first-year depreciation. Determine the total deductions in calculating taxable income related to the machines for 2008. a. $12,000. b. $12,858. c. $51,000. d. $66,429. e. None of the above. 2. Sierra purchased a new factory building on February 15, 2008, for $1,000,000. Determine the cost recovery deduction for 2009. a. $25,640. b. $22,470. c. $36,360. d. $90,000. e. None of the above. 3. Glory Company acquires a new machine (seven-year property) on January 10, 2008, at a cost of $340,000. Glory makes the election to expense the maximum amount under ? 179. No election is made to use the straight-line method. Determine the total deductions in calculating taxable income related to the machine for 2008 assuming Glory has taxable income of $500,000. a. $48,586. b. $250,000. c. $262,861. d. $301,431. e. None of the above. 4. Douglas works as an auditor for a major CPA firm. During the months of August and September of each year, he is permanently assigned to the team auditing Coyote Corporation. As a result, every day he drives from his home to Coyote and returns home after work. Mileage is as follows: Miles Home to office 12 Home to Coyote 32 Office to Coyote 8 For the period of August and September, Douglas?s deductible mileage for each workday is: a. 8. b. 12. c. 52. d. 64. e. None of the above. 5. During the year, Darcy went from Chicago to Miami, Florida. After five days of business meetings, he took four days of vacation to go sightseeing. Darcy?s expenses for the trip are as follows: Air fare $ 400 Lodging (9 days X $80) 720 Meals (9 days X $70) 630 Airport limo 60 Darcy?s deduction is: a. $927. b. $1,035. c. $1,750. d. $1,810. e. None of the above. 6. Becky, who holds a bachelor of education degree, is a middle school teacher in Billings, Montana. The school board recently changed its minimum education requirement by prescribing five years of college training. Existing teachers, such as Becky, are allowed 5 years in which to acquire the additional year of education. Pursuant to this requirement, Becky spends her 2008 summer break attending University of Montana taking education courses. Her expenses are as follows: Books and tuition $6,500 Meals 800 Lodging 900 Laundry while in travel status 350 Transportation 950 Her education expense deduction is: a. $9,500. b. $9,100 c. $8,750. d. $6,500. e. None of the above. 7. Lulu made the following gifts during the year: To Joan, a key client ($10 of the amount listed was for gift wrapping) $40 To Demitria, Lulu's secretary, on Demitria?s birthday 50 To Francoise, Lulu's boss, at Christmas 60 Presuming proper substantiation, Lulu's deduction is: a. $60. b. $85. c. $90. d. $150. e. None of the above. 8. Danny and Lilly are married and together have AGI of $50,000. They have two dependents and file a joint return. Each pays $1,200 for hospitalization insurance. During the year, they paid the following amounts for medical care: $5,000 in doctor and dentist bills and hospital expenses, and $1,700 for prescribed medicine and drugs. In December, they received an insurance reimbursement of $1,700 for hospitalization. Determine the deduction allowable for medical expenses paid during the year. a. $9,100. b. $7,400. c. $5,350. d. $3,650. e. None of the above. 10 Christopher owned stock in Thyme Corporation that he donated to a university (a qualified charitable organization) on December 30, 2008. What is the amount of Christopher?s deduction assuming that he had purchased the stock for $22,000 on January 3, 2008, and the stock had a fair market value of $58,000 when he made the donation? Christopher?s AGI is $400,000. a. $0. b. $22,000. c. $40,000. d. $58,000. e. None of the above. 11. Which of the following items would be a miscellaneous itemized deduction on Schedule A of Form 1040 subject to the 2 percent of AGI floor? a. Safe deposit box rental. b. Job-hunting costs. c. Hobby losses. d. Professional dues. e. All of the above. 12. Carl owns five activities. He elects not to group them together as a single activity under the "appropriate economic unit" standard. He participates for 100 hours in Activity A, 140 hours in Activity B, 240 hours in Activity C, 99 hours in Activity D, and 125 hours in Activity E. Which of the following statements is correct? a. Activities A, B, C and D are all significant participation activities. b. Carl is a material participant with respect to Activities A, B, C, D, and E. c. Carl is a material participant with respect to Activities B, C, and E only. d. Activities A, B, C, D and E are all significant participation activities. e. None of the above. 13. Several years ago, Miller purchased a structure for $200,000 that was originally placed in service in 1929. In the current year, he incurred qualifying rehabilitation expenditures of $250,000. The amount of the tax credit for rehabilitation expenditures, and the amount by which the building?s basis for cost recovery would increase as a result of the rehabilitation expenditures are the following amounts: a. $25,000 credit, $225,000 basis. b. $25,000 credit, $250,000 basis. c. $25,000 credit, $450,000 basis. d. $50,000 credit, $220,000 basis. e. None of the above. 14. Annie gives her son stock with a basis in her hands of $52,000 and a fair market value of $48,000. No gift tax is paid. Son subsequently sells the stock for $49,000. What is his recognized gain or loss? a. $0. b. ($3,000). c. ($1,000). d. $1,000. e. None of the above. 15. Bianca and Dion exchange real estate in a like-kind exchange. Bianca's basis in the real estate, subject to a $100,000 mortgage, is $250,000 and the fair market value is $300,000. She receives real estate with a fair market value of $200,000 and Dion assumes the mortgage. What is Bianca?s recognized gain and adjusted basis for the real estate received? a. $0, $150,000. b. $50,000, $200,000. c. $50,000, $300,000. d. $100,000, $300,000. e. None of the above. 16 Taxpayer receives stock as a gift from his uncle. The adjusted basis of the stock is $20,000 and the fair market value is $37,000. Taxpayer trades the stock for bonds with a fair market value of $35,000 and $2,000 cash. What is his recognized gain and the basis for the bonds? a. $2,000, $22,000. b. $0, $20,000. c. $2,000, $20,000. d. $17,000, $35,000. e. None of the above. 17. In 2008, Marcus, the sole proprietor of a video rental store, pays a $4,000 premium for medical insurance for himself and his family. Cleo, one of Marcus?s employees, pays a $3,000 premium for a medical insurance policy for herself. Which of the following statements is true? a. Marcus may deduct $4,000 as a deduction from AGI. b. Marcus may deduct $4,000 as a deduction for AGI. c. Cleo may deduct $2,400 as a deduction for AGI. d. Cleo may deduct $3,000 as a deduction for AGI. e. None of the above. 18. During 2008, Molly paid the following taxes: Taxes on residence (for the period from March 1 through August 31, 2008) $7,155 State motor vehicle tax (based on the value of the personal use automobile) 220 Molly sold her personal residence on May 30, 2008, under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for 2008 for Molly? a. $7,375. b. $7,155. c. $3,720. d. $3,500. e. None of the above 19. Aaron and Hazel, married taxpayers, took out a mortgage on their home for $350,000 in 2002. In May of 2008, when the home had a fair market value of $375,000 and they owed $300,000 on the mortgage, they took out a home equity loan for $220,000. They used the funds to purchase a single engine airplane to be used for recreational travel purposes. What is the maximum amount of debt on which they can deduct home equity interest? a. $75,000. b. $100,000. c. $220,000. d. $375,000. e. None of the above. 20. Which of the following is not deductible as a charitable contribution? a. Donations to a veterans? organization. b. Donations to a cemetery company. c. Donations to a state or possession of the United States. d. Donations to a homeowners association. e. All of the above. . 21. In 2008, Bryant pays $3,000 to become a charter member of Rosemary University?s Athletic Council. The membership ensures that Bryant will receive choice seating at all of Rosemary?s home football games. Also in 2008, Bryant pays $500 (the regular retail price) for season tickets for himself and his wife. For these items, how much qualifies as a charitable contribution? a. $0. b. $500. c. $2,400. d. $3,000. e. None of the above. 21. Christopher owned stock in Thyme Corporation that he donated to a university (a qualified charitable organization) on December 30, 2008. What is the amount of Christopher?s deduction assuming that he had purchased the stock for $22,000 on January 3, 2008, and the stock had a fair market value of $58,000 when he made the donation? Christopher?s AGI is $400,000. a. $0. b. $22,000. c. $40,000. d. $58,000. e. None of the above. 22. Which of the following items would be a miscellaneous itemized deduction on Schedule A of Form 1040 subject to the 2 percent of AGI floor? a. Safe deposit box rental. b. Job-hunting costs. c. Hobby losses. d. Professional dues. e. All of the above. 23. On June 1, 2008, Carolyn places in service a new automobile that cost $25,000. The car is used 70% for business and 30% for personal use. (Assume this percentage is maintained for the life of the car.) She does elect not to take additional first-year depreciation. Determine the cost recovery deduction for 2009. a. $3,060. b. $3,430. c. $5,600. d. $8,000. e. None of the above. 24. During the past two years, through extensive advertising and improved customer relations, Extreme Corporation estimated that it had developed customer goodwill worth $400,000. For the current year, 2008, determine the amount of goodwill Extreme Corporation may amortize. a. $13,336. b. $20,000. c. $26,667. d. $80,000. e. None of the above.
Question 4
C:11-37 Determination of Pass-Throughs and Stock Basis Adjustments. Mike and Nancy are equal shareholders in MN Corporation, an S corporation. The corporation, Mike, and Nancy are calendar year taxpayers. The corporation has been an S corporation during its entire existence and thus has no accumulated E&P. The shareholders have no loans to the corporation. The corporation incurred the following items in the current year: Sales $300,000 Cost of goods sold 140,000 Dividends on corporate investments 10,000 Tax-exempt interest income 3,000 Section 1245 gain (recapture) on equipment sale 22,000 Section 1231 gain on equipment sale 12,000 Long-term capital gain on stock sale 8,000 Long-term capital loss on stock sale 7,000 Short-term capital loss on stock sale 6,000 Depreciation 18,000 Salary to Nancy 20,000 Meals and entertainment expenses 7,800 Interest expense on loans allocable to: Business debt 32,000 Stock investments 6,400 Tax-exempt bonds 1,800 Principal payment on business loan 9,000 Charitable contributions 2,000 Distributions to shareholders ($15,000 each) 30,000 a. Compute the S corporation?s ordinary income and separately stated items. b. Show Mike?s and Nancy?s shares of the items in Part a. c. Compute Mike?s and Nancy?s ending stock bases assuming their beginning balances are $100,000 each. When making basis adjustments, apply the adjustments in the order outlined on pages C:11-24 and C:11-25 of the text.
Question 5
BSOP588 Course Project 1.Select a specific organization of interest to you and identify a quality management related problem(s) in the firm. Topic Selection 1.Select a specific organization of interest to you and identify a quality management related problem(s) in the firm. Examples may be poor quality levels, high cost of quality, poor product/service design, high level of internal/external failures, etc. Feel free to add to this list if you need to. 2.You are taking on the role as a quality management consultant and the executives of your chosen organization have asked you to submit a recommended direction to implement a quality management initiative to address the quality management related problem(s) you identified above. For example: Six Sigma, Lean Principles, TQM, SPC, Balanced Scorecard, etc. 3.You also need to identify which of the course TCOs and specific topics in the syllabus are related to the problem you identify. Research Sources 1.All papers must have a minimum of 8 scholarly sources (other than text book) cited within the text of the paper and identified in the references section. 2.Additional research sources can be attached in an appendix. 3.All sources must be in two places. They need to be identified in the reference section must also have a corresponding citation in the body of the paper and vice-versa. 4.Review the following document for instructions on how to access and use EBSCOhost for your research: EBSCOhost. Paper Format 1.All papers should be single sided, double-spaced and in12-point type font Times Roman. 2.Length of the paper to be between10 - 12 pages, excluding cover page, reference pages and appendices. 3.The first page should include the title of the work, student name, address, telephone and e-mail address, course number, date, and instructor?s name. 4.Follow APA style for general format and citations. 5.Paper sections must adhere to the guidelines below and each section must be labeled in the text. 6.Language should be clear, concise, and precise. 7.Tone should be professional, consistent, and not filled with jargon. 8.Grammar and syntax (sentence structure) must be correct. 9.Report must be free of misspellings and typos. Tables and Figures 1.All figures and tables must be referred to in your text before they appear on the page. a. Figures and tables should appear on the same page or the next page as the text that refers to them. 2.All figures and tables need captions. Captions go below figures and above tables. Quotations and Citations 1.Quotations and citations are crucial components of a research paper. 2.Failure to properly cite research sources and borrowed ideas is plagiarism. 3.Papers submitted without citations and references will be returned to the student with no grade. 4.Refer to APA style guide for assistance with properly citing quoted and/or borrowed materials and ideas.
