Question 1
1.We learned this semester that not only do we have to determine the amount of income that a taxpayer must recognize for tax purposes, but we also need to determine the type or character of income that is recognized. As we know, this may depend on the type of transaction that generated the income at issue. Explain the general types or categories of income that exist under the Code (e.g., ordinary), and how the amount of each type of income is calculated and taxed under the Code, including what rates may apply. 2. This semester, we learned that Congress designed the Code to include various deductions from income. (NOTE: We are not discussing the deductions that may arise from losses.) There are two deductions that are particularly important to corporations: (1) the Section 162 deduction for business expenses and (2) the dividend-received deduction. How does the IRS generally interpret deductions (i.e., broadly or narrowly)? How do we determine whether a taxpayer is entitled to each of these two deductions? What is the purpose of each of these deductions? How is each calculated, and are there any limits on the deduction? Finally, what generally governs when a taxpayer may take each of these two deductions? 3. As a tax practitioner, you often get people asking questions concerning the tax effect of property transactions. This year is no exception. You've had individual clients ask you the following questions this year: 1. I inherited property from my grandfather, and I received a gift of property from another family member. How do I determine the basis in each piece of property? 2. I bought a piece of property that is used in a trade or business. Are there any tax deductions associated with this purchase of property? If so, how do I determine the amount of those deductions? 4. One of your corporate clients has approached you about whether or not its employees are required to include certain benefits provided by the corporation in their income. In particular, the corporation has inquired whether the following benefits provided by the corporation to employees would be included in an employee's taxable income: 1. The employer would like to provide a holiday present to each employee at the end of December. It envisions providing gift cards, including a gift card for dinner at a local restaurant and a gift card for an electronics store. It also plans on providing each employee a $150.00 holiday "bonus" in a separate check. 2. The employer, which is in the business of providing commercial repair services (such as plumbing, painting, and remodeling), would like to give each employee a $500.00 "credit" each year that the employee can use toward any services or goods provided by the employer. For example, they could use the credit to have interior walls painted, plumbing work completed, or to purchase a new window and have it installed. Explain to your client the general rules surrounding whether an employee must include benefits provided by the employer in income. Then, for the two proposed benefits mentioned above, explain whether the employee would have to include the amount in income or what provision or exception might apply to make the proposed benefit nontaxable. If the employer would have to make changes to the proposed benefit to render it nontaxable, explain what changes(s) would have to be made. Finally, explain what the resulting benefit would be to the employee and how much, if any, of the benefit the employee could exclude from income. Make sure to detail any significant exceptions or rules that apply to the benefit exception at issue. 5. One of your best individual clients is thinking about starting up a new business, and he is seeking your advice on which business form he should select. In particular, he's trying to decide whether to operate the business as a sole proprietorship or a C corporation. Explain to him the significant tax and non-tax issues that will arise from choosing each of these entities as compared to the other, including how income will be treated by the entity, the overall tax burden, and the effect of distributions of property or earnings from the entity to your client. (Note: Do not spend time addressing other types of business entities. 6. You are chief counsel to the Chairman of Joint Committee on Taxation, the body primarily responsible for identifying taxation issues and their consequences as Congress seeks to implement a comprehensive and coherent tax policy. Currently, the United States is in a bit of an economic slump. Corporate earnings reports are relatively weak; the stock market is about 25% off of its five-year highs, and tax revenues are down. Largely as a result of the last issue, the government finds itself operating under an annual deficit, and the national debt hovers around $7,000,000,000. Interest rates, however, remain at historic lows. The President has suggested a multiple-pronged attack to "revitalize" the economy. First, he has proposed permanently abolishing all capital gains taxes. Second, he has proposed permanently cutting the marginal income tax rates from 1% on the lowest taxpayers to 2?3% on the "middle class" and 7% on the highest marginal rates of income. To partially offset these reductions, however, he has proposed permanently halving the child-care and earned income credits. The Chairman has asked you for your analysis of these provisions. Please prepare a memorandum outlining your thoughts as to each, including, but not necessarily limited to: ?(1) the effect of each recommendation on revenues and deficits, both in the short and long run; ?(2) the effect of each recommendation on the economy; ?(3) the relative effects of each recommendation on different socio-economic groups of taxpayers; ?(4) the relative "fairness" of each recommended change; and ?(5) your conclusion as to whether any or all should be adopted. 7. As a newly minted CPA, you obtain your first significant position as a tax professional: Senior Tax Accountant for one of the offices of a regional accounting firm. Of course, the firm runs a notice of your hiring in the local newspaper. A few days later, the editor of the newspaper calls you and asks if you might be interested in writing a monthly column for the newspaper on tax issues. Figuring that it would be a good way to get your name out in the community as an expert in the field (and a little free advertising to boot!), you tell him that you would be more than happy to do so. "Great! " he says. "By the way, I have already blocked out space for this column in the next edition of the paper. Is there any way that you can get me your article by the end of the day today?" After you commit to doing so, he also proceeds to tell you that you will not be paid for these articles. "I figure that it is just a sort of public service that you could offer to the community. I am sure you understand." (And so it begins.... Get used to a lot of this.) You spend the next 10 minutes thinking about what you could discuss in your first article. You would like to shake people up a little bit, and perhaps challenge their opinions about some issues of tax law. That way, you could perhaps build up some interest in your column, which, as you know, will be difficult to achieve under the best of circumstances! (After all, who wants to read newspaper articles about taxes?) Finally, you decide on a topic: You will argue to the readers that the federal income tax should be abolished and replaced with a national sales tax. Required: Write an article arguing this position. You may or may not agree with this proposition.
Question 2
Situation 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. Course Project Team The project is to be done in teams to be assigned by the instructor during week 1 of the course. The team will work together in private threaded discussion assigned by the instructor. The private threads are located in Letter designated (A. B. ?) areas included in the Team Caf? link just below Week 8. There are three threads in each letter group that correspond to the three required milestones. ? Milestone 1 - Required 1. & 2. ? Milestone 2 - Required 3. ? Milestone 3 - Required 4. & 5. The team will choose a leader to be responsible for posting their document(s) to that person?s Dropbox for the appropriate week. In addition to the private threaded discussion areas, teams have private Doc Sharing to facilitate project activities. Required 1. Support your statements with appropriate work papers and journal entries. (Here's the second question which i have separated as you have asked),Let me know what you think
Question 3
Help!!!! This is due in 30 minutes and I can't figure it out. Steve and Linda Hom live in Bartlesville, Oklahoma. Two yearsago, they visited Thailand. Linda, a professional chef, wasimpressed with the cooking methods and the spices used in the Thaifood. Bartlesville does not have a Thai restaurant, and the Homsare contemplating opening one. Linda would supervise the cooking,and Steve would leave his current job to be the maitre d'. Therestaurant would serve dinner Tuesday through Saturday. Steve hasnoticed a restaurant for lease. The restaurant has seven tables,each of which can seat four. Tables can be moved together for alarge party. Linda is planning two seatings per evening, and therestaurant will be open 50 weeks per year. The Homs have drawn up the following estimates: Average revenue, including beverages anddessert $45 per meal Average cost offood $15 per meal Chef's and dishwasher'ssalaries $61,200 per year Rent (premises,equipment) $4,000 per month Cleaning (linen andpremises) $800 per month Replacement of dishes, cutlery,glasses $300 per month Utilities, advertising,telephone $2,300 per month Requirements: Compute the annual breakeven number of meals and sales revenuefor the restaurant. Also compute the number of meals and the amountof sales revenue needed to earn operating income of $75,600 for theyear. How many meals must the Homs serve each night to earn theirtarget income of $75,600? Should the couple open therestaurant?,Please help me ASAP,Help please! I don't mind paying extra! I just really need to turn this in ASAP. Please keep me posted. :(
Question 4
1. (TCO A) Platypus Building Inc. won a bid for a new office building contract. Below is info from the project accountant: Total Construction Fixed Price $8,000,000 Construction Start Date March 3, 2012 Construction Complete Date December 4, 2013 As of Dec 31? 2012 2013 Actual cost incurred $2,500,000 $3,150,000 Estimated remaining costs $3,750,000 $- Billed to customer $2,400,000 $5,300,000 Received from customer $2,250,000 $5,400,000 Assuming Platypus Building Inc. uses the completed contract method, what amount of gross profit would be recognized in 2013? 1. $2,000,000 2. $2,350,000 3. $1,650,000 4. $940,000 2. (TCO A) Kerry Corp purchased a used bottling machine from Bob's Bottling Inc. on Jan 1, 2012 for $2100000. Bob accounted for the sale correctly under the installment sales method. It had a book value of $1575000. Kerry paid with $300000 cash and a note for $1800000 with an annual interest of 10%. Kerry agreed to make equal annual payments of $600000. Kerry Corp made their first payment on Jan 1, 2013 of $780000 which included interest of $180000 to date of payment. As of Dec 31, 2013 Bob has deferred gross profit of ? 1. $255,000 2. $330,000 3. $375,000 4. $300,000 3. (TCO A) Blue Suede Construction Corp used the percentage-of-completion method of revenue recognition. They were contracted to build the new amphitheater for $800000. Additional information was provided: As of Dec 31?. 2012 2013 Percentage of completion 15% 40% Estimated total expected costs $550,000 $580,000 Gross profit recognized (Cumulative) $50,000 $99,000 Contracted costs incurred during 2013 were? (Points : 5) 1. $145,000 2. $149,500 3. $151,000 4. $232,000 4. (TCO A) In industries with high rates of return (such as a magazine distribution company) an alternative method of revenue recognition would be ? record sales net of an estimate of expected future returns ? record sales in current period and returns in future periods as they occur ? do not record any sales until expiration of all return privileges have passed ? all of the above
Question 5
I really need help with the questions below. Please feel free to review the entire attached document. Thanks for your assistance. Part II: Inventory Management (11 points) 2. Southside restaurant uses a fixed quantity (continuous replenishment) system. Daily demand for bags of coffee is normally distributed with a mean of 36 and standard deviation of 8. The lead time is constant at 5 days. The management wants to have a 92 percent service level and the restaurant is open 365 days per year. Holding costs are $0.50 per year and the ordering costs are $2.5 per order. . a. (3 points) Determine the order quantity at which the total inventory costs would be minimized? b. (4 points) What is the reorder point and the time between orders? c. (4 points) Illustrate the order quantity, re-order point, safety stock and lead time on a diagram where the Y-axis represents the number of coffee bags and the x-axis represents the time? What is the maximum possible inventory in the system at any point of time? Part III ? Process Analysis and Queuing (35 points) You have taken a job as manager of Cupcake Heaven in Old Town Alexandria, Virginia. It is located on a busy street with lots of walk-in traffic. The owner, Sue, is thrilled at the prospect of you helping her analyze her operations. Cupcake Heaven currently operates in the following manner. The baker arrives each morning at 5 am. It takes her 30 min to mix and bake a batch of cupcakes. A batch is 50 cupcakes. While a batch bakes she is cleaning up from the first batch and therefore cannot start a second batch until the first has finished baking. The decorator, who frosts and decorates the cupcakes, arrives at 5:30 am. It takes him 40 minutes to decorate a batch. The baker finishes baking at 10 am. She then finishes cleaning up, makes coffee for customers, takes inventory, and places a replenishment order to be delivered later that day for the next day?s baking. The store opens at 10 am and remains open until 8 pm. Some days the cupcakes sell out by 2 pm, other days they have leftovers. Averaging the demand for an entire day, they have found demand to be about 40 cupcakes per hour with a standard deviation of 5. Sue wants you to answer the following questions for her. 1. (3 points) What is the current daily capacity of the baking/decorating process? Is it sufficient to meet the daily average demand? 2. (4 points) What is the maximum inventory level of cupcakes (in batches) waiting to be decorated? 3. (5 points) What is the maximum length of time for which a batch of cupcakes will wait (in inventory) to be decorated? What time is the decorator finished decorating? 4. (14 points) Now consider the customer?s service experience. Customers start arriving at 10 am. However, the weekday is really only busy at lunch time 11:30-1:30 and after school 2:30-4:30. Weekends are different, with pretty steady customer arrivals all day. Customers during the weekday busy periods tend to buy just one cupcake, while on weekends the average order is for 3 cupcakes. When you ask, Sue is not sure what the arrival process is during the weekday busy periods but knows on average she sells 150 cupcakes during each two hour busy period. It takes the cashier about 30 seconds to write up and ring up an order and accept payment, but sometimes customers don?t know what they want and other times, they pay with cash which takes longer. On average Sue estimates a cashier takes about 45 seconds to ring someone up, but it is pretty random. Sue has space inside for 5 people in line and 5 people waiting for their cupcakes. In addition, there is a line demarcated by ropes outside that can hold 5 more people. Fill out the following table based on weekday lunch time two-hour rush. Show your work and and include appropriate units. ? Average interarrival time ? Average service time Utilization S Ca Cs Lq Ls Wq Ws How much free time do(es) the server(s) have for clean up, refilling napkin holders etc. during the two hour period? Now turn to the ordering/packaging process. The packaging process though can be lengthy. A customer tells the cashier what he wants, the cashier marks it on a slip of paper, and puts it on the packaging table behind the counter. This part on average takes 30 seconds. The packaging person gets the cupcake (or cupcakes) from the correct tray (15 seconds), folds the package container (10 seconds), places the cupcake in the package and closes the package (15 seconds), then calls the customer?s name and waits for the customer to get the package (20 seconds). Ignore variability in the process and assume that there is one cashier and one packaging person. (3 points) Draw a flow chart, label each step and determine the capacity of each step. (3 points) Where is the system capacity? What is the cycle time of the process? (3 points) If the packaging person goes on break and the cashier has to do all the steps, what is the cycle time of the process?
