Your client, Raptor Corporation, declares a dividend permitting its common shareholders to elect to receive 9 shares of cumulative preferred stock or 3 additional shares of Raptor common stock for every 10 shares of common stock held. Raptor has only common stock outstanding (fair market value of $45 per share). One shareholder elects to receive preferred stock, while the remaining shareholders choose the common stock. Raptor asks you whether the shareholders recognize any taxable income on the receipt of the stock. Prepare a letter to Raptor or a memo for the tax research file regarding this matter. Raptor’s address is 1812 S. Camino Seco, Tucson, AZ 85710.
> Project 1 requires an original investment of $55,000. The project will yield cash flows of $15,000 per year for seven years. Project 2 has a calculated net present value of $5,000 over a four-year life. Project 1 could be sold at the end of four years fo
> If you are not familiar with Priceline.com Inc. , go to its website. Assume that an individual “names a price” of $85 on Priceline.com for a room in Nashville, Tennessee, on August 22. Assume that August 22 is a Saturd
> A manager of Varden Sporting Goods Company is considering accepting an order from an overseas customer. This customer has requested an order for 20,000 dozen golf balls at a price of $22 per dozen. The variable cost to manufacture a dozen golf balls is $
> The following conversation took place between Juanita Jackson, vice president of marketing, and Les Miles, controller of Diamond Computer Company: Juanita: I am really excited about our new computer coming out. I think it will be a real market success.
> Peachtree Beverage Company manufactures soft drinks. Information about two products is as follows: It is known that both products have the same direct materials and direct labor costs per case. Peachtree Beverage allocates factory overhead to products
> One item is omitted from each of the following computations of the return on investment: Determine the missing items, identifying each by the appropriate letter. Return on Investment = Profit Marglin x Imwestment Turnover 13.2% 696 (a) = b) 10%% 1.
> Somerset Inc. has finished a new video game, Snowboard Challenge. Management is now considering its marketing strategies. The following information is available: Two managers, James Hamilton and Thomas Seymour, had the following discussion of ways to i
> Based on the data in Exercise 24-10, assume that management has established a 9% minimum acceptable return for invested assets. a. Determine the residual income for each division. b. Which division has the most residual income?
> A chemical company has commodity-grade and premium-grade products. Why might the company elect to process the commodity-grade product further to the premium-grade product?
> Briggs Excavation Company is planning an investment of $132,000 for a bulldozer. The bulldozer is expected to operate for 1,500 hours per year for five years. Customers will be charged $110 per hour for bulldozer work. The bulldozer operator costs $28 pe
> Why should the production requirements set forth in the production budget be carefully coordinated with the sales budget?
> On August 4, Rothchild Company purchased on account 12,000 units of raw materials at $14 per unit. During August, raw materials were requisitioned for production as follows: 5,000 units for Job 40 at $8 per unit and 6,200 units for Job 42 at $14 per u
> Give an example of how the capital expenditures budget affects other operating budgets.
> a. Discuss the purpose of the cash budget. b. If the cash for the first quarter of the fiscal year indicates excess cash at the end of each of the first two months, how might the excess cash be used?
> Why should the timing of direct materials purchases be closely coordinated with the production budget?
> How do computerized budgeting systems aid firms in the budgeting process?
> What behavioral problems are associated with establishing conflicting goals within the budget?
> What behavioral problems are associated with setting a budget too loosely?
> Briefly describe the type of human behavior problems that might arise if budget goals are set too tightly.
> On May 7, Bergan Company purchased on account 10,000 units of raw materials at $8 per unit. During May, raw materials were requisitioned for production as follows: 7,500 units for Job 200 at $8 per unit and 1,480 units for Job 305 at $5 per unit. Journal
> Three phases of the management process are planning, directing, and controlling. Match the following descriptions to the proper phase: Phase of management process Planning Directing Description a. Developing long-range courses of action to achieve
> What are the three major objectives of budgeting?
> a. Under what conditions is the use of the straight- line depreciation method most appropriate? b. Under what conditions is the use of the units-of-activity depreciation method most ap- propriate? c. Under what conditions is the use of the dou
> The budget director of Gold Medal Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for March: a. Estimated sales fo
> The budget director of Royal Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for February is summarized as follows
> Sentinel Systems Inc. prepared the following sales budget for 20Y8: At the end of December 20Y8, the following unit sales data were reported for the year: For the year ending December 31, 20Y9, unit sales are expected to follow the pat- terns establishe
> a. Why is a high inventory turnover considered to be a positive indicator? b. Is it possible to have a high inventory turnover and a high number of days’ sales in inventory? Why?
> a. How does the return on total assets differ from the return on stockholders’ equity? b. Which ratio is normally higher? Why?
> The following information is available for the first month of operations of Bahadir Company, a manufacturer of mechanical pencils: Sales……………………………………………………..$792,000 Gross profit…………………………………………….462,000 Cost of goods manufactured………………………396,000 Indir
> At the end of August, Rothchild Company had completed Jobs 40 and 42. Job 40 is for 10,000 units, and Job 42 is for 11,000 units. Using the data from Practice Exercises 19 1B, 19 2B, and 19 4B, determine (a) the balance on the job cost sheets for
> Assume in Problem 34 that Julio has a capital loss carryover of $50,000 in the current tax year. Julio has no other capital gain transactions during the year. What amount of the capital loss may Julio deduct in the current year in the following situation
> How would your answer to Problem 34 differ if Julio were a corporate shareholder (in the 34% tax bracket) rather than an individual shareholder and the stock ownership in Gray Corporation represented a 25% interest?
> Joseph and Erica, husband and wife, jointly own all of the stock in Velvet Corporation. The two are currently involved in divorce proceedings, and pursuant to those negotiations, they have agreed that only one of them will remain a shareholder in Velvet
> Jacob Corcoran bought 10,000 shares of Grebe Corporation stock two years ago for $24,000. Last year, Jacob received a nontaxable stock dividend of 2,000 shares in Grebe. In the current tax year, Jacob sold all of the stock received as a dividend for $18,
> Denim Corporation declares a nontaxable dividend payable in rights to sub- scribe to common stock. One right and $60 entitle the holder to subscribe to one share of stock. One right is issued for every two shares of stock owned. At the date of distributi
> Ken purchased 10,000 shares of Gold Corporation common stock six years ago for $160,000. In the current year, Ken received a preferred stock dividend of 800 shares, while the other holders of common stock received a common stock dividend. The preferred s
> Robin Corporation would like to transfer excess cash to its sole shareholder, Adam, who is also an employee. Adam is in the 28% tax bracket, and Robin is in the 34% bracket. Because Adam’s contribution to Robin’s profit is substantial, Robin believes tha
> Parrot Corporation is a closely held company with accumulated E & P of $300,000 and current E & P of $350,000. Tom and Jerry are brothers; each owns a 50% share in Parrot, and they share management responsibilities equally. What are the tax consequences
> Petrel Corporation has accumulated E & P of $85,000 at the beginning of the year. Its current-year taxable income is $320,000. On December 31, Petrel distributed business property (worth $140,000, adjusted basis of $290,000) to Juan, its sole shareholder
> Siena Industries (a sole proprietorship) sold three § 1231 assets on October 10, 2015. Data on these property dispositions are as follows. a. Determine the amount and the character of the recognized gain or loss from the disposition of each
> Cerulean Corporation has two equal shareholders, Eloise and Olivia. Eloise acquired her Cerulean stock three years ago by transferring property worth $700,000, basis of $300,000, for 70 shares of the stock. Olivia acquired 70 shares in Cerulean Corporati
> Raven Corporation owns three machines that it uses in its business. It no longer needs two of these machines and is considering distributing them to its two shareholders as a property dividend. The machines have a fair market value of $20,000 each. The b
> Lime Corporation, with E & P of $500,000, distributes land (worth $300,000, adjusted basis of $350,000) to Harry, its sole shareholder. The land is subject to a liability of $120,000, which Harry assumes. What are the tax consequences to Lime and to Harr
> Heather, an individual, owns all of the outstanding stock in Silver Corporation. Heather purchased her stock in Silver nine years ago, and her basis is $56,000. At the beginning of this year, the corporation has $76,000 of accumulated E & P and no curren
> Black Corporation and Tom each own 50% of Tan Corporation’s common stock. On January 1, Tan holds a deficit in accumulated E & P of $200,000. Its current E & P is $90,000. During the year, Tan makes cash distributions of $40,000 each to Black and Tom. a.
> Green Corporation (a calendar year taxpayer) had a deficit in accumulated E & P of $250,000 at the beginning of the current year. Its net profit for the period January 1 through July 30 was $300,000, but its E & P for the entire taxable year was only $40
> At the beginning of the year, Teal Corporation held accumulated E & P of $225,000. On March 30, Teal sold an asset at a loss of $225,000. For the calendar year, Teal incurred a deficit in current E & P of $305,000, which includes the $225,000 loss on the
> Penguin Corporation (a cash basis, calendar year taxpayer) recorded the following income and expenses in the current year. Income from services …………………………………………………………………………..$400,000 Salaries paid to employees ………………………………………………………………………70,000 Tax-exemp
> In each of the following independent situations, indicate the effect on tax- able income and E & P, stating the amount of any increase (or decrease) in each as a result of the transaction. Assume that E & P has already been increased by taxable i
> Larry, the sole shareholder of Brown Corporation, sold his stock to Ed on July 30 for $270,000. Larry’s basis in the stock was $200,000 at the beginning of the year. Brown had accumulated E & P of $120,000 on January 1 and cur- rent E & P of $240,000. Du
> Delphinium Company owns two parcels of land (§ 1231 assets). One parcel can be sold at a loss of $60,000, and the other parcel can be sold at a gain of $70,000. The company has no nonrecaptured § 1231 losses from prior years. The parcels could be sold at
> Complete the following schedule for each case. Unless otherwise indicated, assume that the shareholders have ample basis in the stock investment. All taxpayers use a calendar tax year. Accumulated Cash E&P Distributions (All on Last Day Dividend of
> Sparrow Corporation is a calendar year taxpayer. At the beginning of the current year, Sparrow holds accumulated E & P of $33,000. The corporation incurs a deficit in current E & P of $46,000 that accrues ratably throughout the year. On June 30, Sparrow
> In determining Blue Corporation’s current E & P for this tax year, how should taxable income be adjusted as a result of the following transactions? a. A capital loss carryover from two years ago, fully used this year. b. Nondeductible meal expenses. c. I
> On September 30, Silver Corporation, a calendar year taxpayer, sold a parcel of land (basis of $400,000) for a $1 million note. The note is pay- able in five installments, with the first payment due next year. Because Silver did not elect out of the inst
> Compute current E & P for Sparrow Corporation (a calendar year, accrual basis taxpayer). Sparrow reported the following transactions during 2015, its second year of operation. Taxable income ………………………………………………………………………………………………….$330,000 Federal income t
> Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from municipal bonds. (The municipality used the proceeds from the
> At the start of the current year, Blue Corporation (a calendar year taxpayer) holds accumulated E & P of $100,000. Blue’s current E & P is $60,000. At the end of the year, it distributes $200,000 ($100,000 each) to its equal shareholders, Pam and Jon. Th
> Pink Corporation has several employees. Their names and salaries are listed below. Judy…………………………………………………………. $470,000 Holly (Judy’s daughter) …………………………………. 100,000 Terry (Judy’s son) …………………………………………. 100,000 John (an unrelated third party) ………………………
> In each of the following independent situations, determine the amount of FICA (Social Security and Medicare) the employer should withhold from the employee’s 2015 salary. a. Harry earns a $50,000 salary, files a joint return, and claims four withholding
> Harvey is a self-employed accountant with earned income from the business of $120,000 (after the deduction for one-half of his self-employment tax). He has a profit sharing plan (e.g., defined contribution Keogh plan). What is the maxi- mum amount Harvey
> Geranium, Inc., has the following net § 1231 results for each of the years shown. What is the nature of the net gain in 2014 and 2015? Таx Year Net 5 1231 Loss Net 5 1231 Gain 2010 $18,000 2011 33,000 2012 42,000 2013 $41,000 2014 30,000
> Dana, age 54, has a traditional deductible IRA with an account balance of $107,600, of which $77,300 represents contributions and $30,300 represents earnings. In 2015, she converts her traditional IRA into a Roth IRA. What amount must Dana include in her
> Belinda spent the last 60 days of 2015 in a nursing home. The cost of the services provided to her was $18,000 ($300 per day). Medicare paid $8,500 to- ward the cost of her stay. Belinda also received $5,500 of benefits under a long-term care insurance p
> Rex, age 55, is an officer of Blue Company, which provides him with the following nondiscriminatory fringe benefits in 2015: • Hospitalization insurance premiums for Rex and his dependents. The cost of the coverage for Rex is $2,900 per year, and the ad
> Mason performs services for Isabella. In determining whether Mason is an employee or an independent contractor, comment on the relevance of each of the factors listed below. a. Mason performs services only for Isabella and does not work for anyone else.
> At the beginning of the tax year, Barnaby’s basis in the BBB Partnership was $50,000, including his $5,000 share of partnership debt. At the end of the tax year, his share of the entity’s debt was $8,000. Barnaby’s share of BBB’s ordinary income for the
> Wozniacki and Wilcox form Jewel LLC, with each investor receiving a one- half interest in the capital and profits of the LLC. Wozniacki receives his one-half interest as compensation for tax planning services that he rendered prior to the formation of th
> Henrietta transfers cash of $75,000 and equipment with a fair market value of $25,000 (basis to her as a sole proprietor, $10,000) in exchange for a 40% profit and loss interest worth $100,000 in the XYZ Partnership. a. Compute Henrietta’s realized and r
> Candlewood LLC began its business on September 1; it uses a calendar tax and accounting year. Candlewood incurred $6,500 in legal fees for drafting the LLC’s operating agreement and $3,000 in accounting fees for tax advice of an organizational nature, fo
> Pineview Corporation placed an asset (three-year MACRS class life) costing $5,000 in service on June 1, 2015. Complete the table below by providing the AMT adjustment and indicate whether the adjustment increases or decreases taxable income. Tax Ded
> In 2015, Brennen sold a machine used in his business for $180,000. The machine was purchased eight years ago for $340,000. Depreciation up to the date of the sale for regular income tax purposes was $210,000 and $190,000 for AMT purposes. What, if any, A
> Harold, a CPA, has a new client who recently moved to town. Harold prepares the client’s current-year tax return, which shows a net § 1231 gain. Harold calls the client to request copies of the returns for the preceding five years to determine if there a
> A sculpture that Tulip & Co. held for investment was destroyed in a flood. The sculpture was insured, and Tulip had a $60,000 gain from this casualty. It also had a $17,000 loss from an uninsured antique vase that was destroyed by the flood. The vase was
> Two years ago, Harriet Company (an unincorporated entity) developed a process for preserving doughnuts that gives the doughnuts a much longer shelf life. The process is not patented or copyrighted, and only Harriet knows how it works. A conglomerate has
> Bridgette is known as the “doll lady.” She started collecting dolls as a child, always received one or more dolls as gifts on her birthday, never sold any dolls, and eventually owned 600 dolls. She is retiring and moving to a small apartment and has deci
> In 2015, Bertha Jarow (head of household with three dependents) had a $28,000 loss from the sale of a personal residence. She also purchased from an individual inventor for $7,000 (and resold in two months for $18,000) a patent on a rubber bonding proces
> The taxpayer is an antiques collector and is going to sell an antique purchased many years ago for a large gain. The facts and circumstances indicate that the taxpayer might be classified as a dealer rather than an investor in antiques. The taxpayer will
> Platinum, Inc., has determined its taxable income as $215,000 before considering the results of its capital gain or loss transactions. Platinum has a short- term capital loss of $24,000, a long-term capital loss of $38,000, and a short-term capital gain
> Sally has taxable income of $160,000 as of November 30 of this year. She wants to sell a Rodin sculpture that has appreciated $90,000 since she purchased it six years ago, but she does not want to pay more than $15,000 of additional tax on the transactio
> Elaine Case (single with no dependents) has the following transactions in 2015: AGI (exclusive of capital gains and losses) $240,000 Long-term capital gain …………………… 22,000 Long-term capital loss …………………… (8,000) Short-term capital gain …………….……. 19,000
> Thrasher Corporation sells short 100 shares of ARC stock at $20 per share on January 15, 2015. It buys 200 shares of ARC stock on April 1, 2015, at $25 per share. On May 2, 2015, Thrasher closes the short sale by delivering 100 of the shares purchased on
> Siga, Inc., a calendar year corporation, records the following gross receipts and taxable income for 2013 through 2015 Siga’s first year of operations was 2013. Is Siga exempt from AMT in 2013, 2014, or 2015? Year Gross Receipts T
> Maria held vacant land that qualified as an investment asset. She purchased the vacant land on April 10, 2011. She exchanged the vacant land for a rental house in a qualifying like-kind exchange on January 22, 2015. Maria was going to hold the house for
> Freys, Inc., sells a 12-year franchise to Red Company. The franchise contains many restrictions on how Red may operate its store. For instance, Red cannot use less than Grade 10 Idaho potatoes; must fry the potatoes at a constant 410 degrees; must dress
> Blue Corporation and Fuchsia Corporation are engaged in a contract negotiation over the use of Blue’s trademarked name, DateSiteForSeniors. For a one- time payment of $45,000, Blue licensed Fuchsia to use the name DateSiteForSeniors, and the license requ
> Mac, an inventor, obtained a patent on a chemical process to clean old aluminum siding so that it can be easily repainted. Mac has a $50,000 tax basis in the patent. Mac does not have the capital to begin manufacturing and selling this product, so he has
> Benny purchased $400,000 of Peach Corporation face value bonds for $320,000 on November 13, 2014. The bonds had been issued with $80,000 of original issue discount because Peach was in financial difficulty in 2014. On December 3, 2015, Benny sold the bon
> Eagle Partners meets all of the requirements of § 1237 (subdivided realty). In 2015, Eagle Partners begins selling lots and sells four separate lots to four different purchasers. Eagle Partners also sells two contiguous lots to another purchaser. The sal
> Hyacinth, Inc., is a dealer in securities. The firm has spotted a fast-rising company and would like to buy and hold its stock for investment. The stock is currently selling for $2 per share, and Hyacinth thinks it will climb to $40 a share within two ye
> George is the owner of numerous classic automobiles. His intention is to hold the automobiles until they increase in value and then sell them. He rents the automobiles for use in various events (e.g., antique automobile shows) while he is holding them. I
> Rennie owns a video game arcade. He buys vintage video games from estates, often at much less than the retail value of the property. He usually installs the vintage video games in a special section of his video game arcade that appeals to players of “cla
> During the year, Eugene had the four property transactions summarized below. Eugene is a collector of antique glassware and occasionally sells a piece to get funds to buy another. What are the amount and nature of the gain or loss from each of these tran
> Carlson’s general business credit for the current year is $84,000 His net income tax is $190,000, tentative minimum tax is $175,000, and net regular tax liability is $185,000. He has no other tax credits. Determine the amount of Carlson’s general busines
> Alison owns a painting that she received as a gift from her aunt 10 years ago. The aunt created the painting. Alison has displayed the painting in her home and has never attempted to sell it. Recently, a visitor noticed the painting and offered Alison $5
> An individual taxpayer sells some used assets at a garage sale. Why are none of the proceeds taxable in most situations?
> A business building on which straight-line depreciation of $13,000 was taken is sold on the installment basis for $100,000 with $20,000 down and four yearly installments of $20,000 plus interest. The adjusted basis for the building is $35,000 at the time
> Paola and Isidora are married, file a joint tax return, report modified AGI of $148,000, and have one dependent child, Dante. The couple paid $12,000 of tuition and $10,000 for room and board for Dante (a freshman). Dante is a full- time student. Determi
> Gaston Corporation distributes § 1245 property as a dividend to its share- holders. The property’s fair market value is $580,000, and the adjusted basis is $560,000. In addition, the amount of the recapture potential is $55,000. What is the amount and ch
> An apartment building was acquired in 2006. The depreciation taken on the building was $123,000, and the building was sold for a $34,000 gain. What is the maximum amount of 25% gain?
