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useful life is 5 years, and an estimated total use of 120,000 miles. During 2014, the truck
was driven 20,000 miles. At the end of 2014, the truck had not exceeded its total
estimated use. The units-of-activity method of depreciation is being used. Land was
purchased on September 1, 2014 for $260,000. Because the land is located on a
decommissioned military base, and is contaminated with chemicals and pollution, its
estimated use life is only 20 years. Chasen Company would use the straight-line method
of depreciation, if applicable. A building was purchased on January 1, 1984, for
$3,000,000. It was estimated to have a $60,000 salvage value at the end of its 30-year
useful life. The straight-line method of depreciation is being used. Manufacturing
equipment was purchased on April 1, 2014, for $220,000. It was estimated to have a
$24,000 salvage value. It is estimated to have a useful life of 8 years, and an estimated
total use of 100,000 units. During 2014, the manufacturing equipment produced 12,000
units. At the end of 2011, the manufacturing equipment had not exceeded its total
estimated use. The double-declining balance method of depreciation is being used.
Accumulated depreciation as of January 1, 2014 is as follows: Delivery truck: $41,400
Land: $0 (because it was only purchased on September 1, 2014) Building: $2,058,000
Manufacturing equipment: $0 (because it was purchased on April 1, 2014) Questions:
For each asset, what is depreciation expense for the year ending December 31, 2014?
(Make sure to list each asset separately.) (1 point per asset.) What is the net book value
of each fixed asset as of December 31, 2014? (Remember, net book value equals cost
minus accumulated depreciation.) (Make sure to list each asset separately.) (1 point per
asset.) SPECIFIC INSTRUCTIONS: Round all answers to the nearest dollar. You must
show all of your work for each question of this quiz. If you do not show your work, you
will not receive any points for this quiz, even if you have the correct answer. (Note: we
will be closing examining your work to check for similarities with other students work,
so dont even think about trying to commit academic dishonesty.)
to the privileged communications rule. Subsequently, however, Marshall and Wyatt did
relinquish the subpoenaed working papers.
Upon receiving the subpoena, Wyatt called Dunkirk, the chairman of Interstates board
of directors, and asked him about the IRS investigation. Dunkirk responded, Im sure
the IRS people are on a fishing expedition and that they will not find any material
deficiencies.
A few days later, Dunkirk received a written memorandum from the IRS stating that it
was contending Interstate had underpaid its taxes during the period under review. The
memorandum revealed that Interstate was being assessed $800,000, including penalties
and interest for the three years. Dunkirk forwarded a copy of this memorandum to
Marshall and Wyatt. This $800,000 assessment was material relative to the financial
statements as of December 31, 20X6. The amount for each year individually, exclusive of
penalty and interest, was not material relative to each respective year.
a. In general terms, discuss the extent to which a CPA firms potential liability to third
parties is increased in an audit of financial statements that is included in an SEC
registration.
b. Discuss the implications of the IRS investigation, if any, relative to Marshall and
Wyatts examination of Interstates 20X6 financial statements. Discuss any additional
investigative procedures that the auditors should undertake or any audit judgments that
should be made as a result of this investigation.
c. Could Marshall and Wyatt validly refuse to surrender the subpoenaed working
papers to the IRS? Explain.
4 3,800
5 3,700
a) Forecast the mileage for next year using a 2-year moving average.
b) Find the MAD based on the 2-year moving average forecast in part (a).(Hint: You
will have only 3 years of matched data.)c) Use a weighted 2-year moving average with
weights of .4 and .6 to forecast next years mileage. (The weight of .6 is for the most
recent year.) What MAD results from using this approach to forecasting? (Hint: You
will have only 3 years of matched data.)d) Compute the forecast for year 6 using
exponential smoothing, an initial forecast for year 1 of 3,000 miles, and = .5.
Problems: 4.9: Dell uses the CR5 chip in some of its laptop computers. The prices for
the chip during the past 12 months were as follows:
Month Price per Chip ($)
January 1.8
February 1.67
March 1.7
April 1.85
May 1.9
June 1.87
July 1.8
August 1.83
September 1.7
October 1.65
November 1.7
December 1.75
a) Use a 2-month moving average on all the data and plot the averages and) Compute
the forecasts for each month using exponential smoothing, with an initial forecast for
January of $1.80. Use = .1, then = .3, and finally = .5. Using MAD, which is the
best?d the prices.
b) Use a 3-month moving average and add the 3-month plot to the graph created in part
(a).
c) Which is better (using the mean absolute deviation): the 2-month average or the 3month average?
d) Compute the forecasts for each month using exponential smoothing, with an initial
forecast for January of $1.80. Use = .1, then = .3, and finally = .5. Using MAD,
which is the best?
Problems: 4.11
Data collected on the yearly registrations for a Six Sigma seminar at the Quality College
are shown in the following table:
a) Use exponential smoothing with a smoothing constant of 0.3 to forecast the
registrations at the seminar given in Problem 4.10. To begin the procedure, assume that
the forecast for year 1 was 5,000 people signing up.
1. Carrie is a licensed hairstylist and operates her own business. Located at 480 Laurel
Street, Allentown, PA 18105, the business is conducted under the name of Carries
Coiffures. Carries business activity code is 812112. In addition to 10 workstations (i.e.,
stylist chairs) and a small reception area, the shop has display and storage areas for the
products Carrie sells (see item 2 below). During the year, Carrie leased nine of the
stations to other hairstylists. As is common practice in similar businesses in the area, the
other stylists are considered to be self-employed. In fact, the IRS sanctioned the selfemployment classification for the stylists in an audit of one of Carries prior tax returns.
Each stylist pays Carrie a fixed rent for the use of a workstation, resulting in
$68,000 of rents received during 2012. From her own station, Carrie earned $44,000
(including tips of $12,000) for the styling services she provided to her own clients.
2. Carries Coiffures is the local distributor for several beauty products (e.g.,
conditioners,
shampoos) that cannot be purchased anywhere else. Carrie buys these items from the
manufacturers and sells them to regular patrons, walk-in customers, and other
beauticians (including those who lease chairs from her). Carries Coiffures is also
known for the selection and quality of its hairpieces (i.e., wigs, toupees). Through the
shop, Carrie made the following sales during the year:
Hairpieces and wigs $69,000
Beauty products 48,000
3. Although Carrie operates her business on a cash basis, she maintains inventory
accounts for the items she sells as required by law. Relevant information about the
inventories (based on lower of cost or market) is summarized below.
4.
12/31/11 12/31/12
Hairpieces and wigs $10,700 $12,600
Beauty products 11,400 9,900
5. Carries purchases for 2012 were $30,500 of hairpieces and wigs and $26,100 of
beauty
products.
6. Carries Coiffures had the following operating expenses for 2012:
Utilities (i.e., gas, electric, telephone) $12,900
Ad valorem property taxes:
On realty (e.g., shop building and land) $4,200
On personalty (e.g., equipment, inventory) 1,800 6,000
Styling supplies (e.g., rinses, dyes, gels, hair spray) 5,700
Fire and casualty insurance 4,100
Liability insurance 4,000
Accounting services 3,800
Janitorial services 2,400
Sewer service, garbage pickup $ 2,300
Water 2,200
Occupation licenses (city and state) 1,500
Waiting room supplies (e.g., magazines, coffee) 1,300
bankruptcy and was awaiting trial on felony theft charges. Carrie never received
payment from Joan, nor did she receive any interest on the loan.
14. At Christmas, Carrie gave each of her 35 best customers a large bottle of body
lotion.
Each bottle had a wholesale cost to Carrie of $12 but a retail price of $24. Carrie also
spent $3 to have each bottle gift wrapped. (Note: The lotion was special order
merchandise and was not part of the businesss inventory or purchases for the yearsee
item 2 above.) She also gave each of the nine stylists who leased chairs from her a
basket of fruit that cost $30 (not including $5 delivery cost).
15. In March 2012, the Pennsylvania Department of Revenue audited Carries state
income
tax returns for 2009 and 2010. She was assessed additional state income tax of $340
for these years. Surprisingly, no interest was included in the assessment. Carrie paid
the back taxes promptly.
16. On a morning walk in November 2011, Carrie was injured when she was sideswiped
by
a delivery truck. Carrie was hospitalized for several days, and the driver of the truck
was ticketed and charged with DUI. The owner of the truck, a national parcel delivery
service, was concerned that further adverse publicity might result if the matter went to
court. Consequently, the owner offered Carrie a settlement if she would sign a release.
Under the settlement, her medical expenses were paid and she would receive a cash
award of $200,000. The award specified that the entire amount was for physical pain
and suffering. Because she suffered no permanent injury as a result of the mishap, she
signed the release in April 2012 and received the $200,000 settlement.
17. In January 2012, Carrie was contacted by the state of Pennsylvania regarding a
tract of
land she owned in York County. The state intended to convert the property into a
district headquarters, barracks, and training center for its highway patrol. Carrie had
inherited the property from her father when he died on August 11, 2011. The property
had a value of $140,000 on that date and had been purchased by her father on March
3, 1980, for $30,000. On July 25, 2012, after considerable negotiation and after the
state threatened to initiate condemnation proceedings, she sold the tract to the state
for $158,000. Since Carrie is not comfortable with real estate investments, she does not
plan to reinvest any of the proceeds received in another piece of realty.
18. When her father died in 2011, Carrie did not know that he had an insurance policy
on
his life (maturity value of $50,000) in which she was named as the beneficiary. When
her mother told her about the policy in July 2012, Carrie filed a claim with the carrier,
Falcon Life Insurance Company. In August 2012, she received a check from Falcon for
$51,500 (including $1,500 interest).
19. Upon the advice of a client who is a respected broker, Carrie purchased 1,000 shares
of
common stock in Grosbeak Exploration for $40,000 on March 4, 2012. In the months
following her purchase, the share value of Grosbeak plummeted. Disgusted with the
unexpected erosion in the value of her investment, Carrie sold the stock for $28,000 on
December 23, 2012.
20. While on her way to work in 2011, Carrie was rear-ended by a hit-and-run driver.
The
damage to her Lexus was covered by her insurance company, General Casualty, except
for the $1,000 deductible she was required to pay. In 2012, the insurance company
located the driver who caused the accident and was reimbursed by his insurer.
Consequently, Carrie received a $1,000 refund check from General Casualty in May
2012 to reimburse her for her $1,000 deductible.
21. After her fathers death, Carries mother (Mildred Morgan, Social Security number
12345-6789) moved in with her. Mildreds persistent back trouble made it difficult for
her to climb the stairs to the second-floor bedrooms in Carries house. So Carrie had an
elevator installed in her personal residence at a cost of $12,000 in January 2012. A
qualified appraiser determined that the elevator increased the value of the personal
residence by $7,000. The appraisal cost $400. The operation of the elevator during
2012 increased Carries electric bill by $300.
22. As a favor to a long-time client who is a drama professor at a local state university,
Carrie spent a weekend as a stylist preparing hairdos for the key actresses in the annual
Theater Department fund-raising event. The drama professor supplied all of the
resources that Carrie needed to provide her services. Carrie estimates that she would
have charged $800 for the services she donated to this charitable event.
23. In addition to the items already mentioned, Carrie had the following receipts during
2012:
Interest income
CD at Scranton First National Bank $900
City of Lancaster general purpose bonds 490
Money market account at Allentown State Bank 340 $1,730
Qualified dividends on stock investments
General Motors $470
AT&T common 380 850
Federal income tax refund (for tax year 2011) 791
Pennsylvania state income tax refund (for tax year 2011) 205
24. Expenditures for 2012, not previously noted, are summarized below.
Contribution to pension plan $10,000
Medical
Premiums on medical insurance $4,800
Dental bills 1,400 6,200
Property taxes on personal residence 3,800
Interest on home mortgage 3,200
Professional expenses
Subscriptions to trade journals $ 180
Dues to beautician groups 140 320
25. The $10,000 contribution to the pension plan is to a 401(k) type of plan she
established in 2011. Previously, she had contributed to an H.R. 10 (Keogh) plan but
found that the 401(k) retirement arrangement provides more flexibility and is less
complex. The medical insurance policy covers Carrie and her dependents and was
issued in the name of the business (i.e., Carries Coiffures). It does not cover dental
work or capital modifications to a residence (see item 16 above).
26. During 2012, Carrie made the following total estimated tax payments with respect to
her 2012 tax returns:
Federal estimated income tax payments $20,800
Pennsylvania estimated income tax payments 2,400
Allentown City estimated income tax payments 800
Requirements
Prepare an income tax return (with appropriate schedules) for Carrie for 2012. In doing
this, use the
following guidelines:
1) Make necessary assumptions for information not given in the problem.
2) Carrie has itemized deductions ever since she became a homeowner many years ago.
3) The sales tax option was not chosen in 2011, and Carrie had no major purchases that
qualify for the sales tax deduction in 2012.
4) Carrie has substantiation (e.g., records, receipts) to support the transactions
involved.
5) If a refund results, Carrie wants it sent to her.
6) Carrie is preparing her own return (i.e., no preparer is involved).
7) Carrie does not wish to contribute to the Presidential Election Campaign Fund.
However, Karens husband recently passed away and she asked Cynthia about receiving
benefits. Cynthia has denied Karens request. Karens title, when she started, was
Human Resources Temporary, but her new title evolved into Human Resources
Consultant to be more consistent with others in the department who are doing work
similar to hers. Karen does have a contract with the utility. Karen has had other limited
clients over the years. She had one client for an approximately 40-hour project two
years ago, and she currently has another client that keeps her on a retainer basis. Since
she was denied benefits, Karen has contacted the IRS to ask them to determine her
status
Your role is to decide if Karen is an independent contractor or an employee and discuss
some of the preventative and ethical situations that are occurring in this case.
Questions:
1.Do you feel that Karen is an independent contractor or an employee? What is your
rationale for this decision?
2.What factors do you feel help contribute to Karen being an employee?
3.What factors favor her being a contractor?
4.What are some potential legal implications in the case? What should the utility do to
rectify any wrongs in this situation?
5.Draft a sample policy for limiting the use of independent contractors that will help
avoid issues like this in the future.
The answers to each question should be 100 words in length
Your Role/Assignment:
Your role is to decide if Karen is an independent contractor or an employee and discuss
some of the preventative and ethical situations that are occurring in this case.
Assume that the after-tax required rate of return for Deer Valley is 8%, the income tax
rate is 40%, and the MACRS recovery period is 10 years. Compute the after-tax NPV of
the new lift and advise the managers of Deer Valley about whether adding the lift will be
a profitable investment. Show calculations to support your answer.
What subjective factors would affect the investment decision?