Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 6C
1.
To determine
Describe the approach that the auditor would take and the information that auditor would need to provide advice to the court for the resolution of the given differences.
2.
To determine
Describe whether the valuation issues would generate ethical issues.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
In 1975, a trial was held to settle a tax dispute between the owners of the Atlanta Falcons, a National Football League franchise, and the Internal Revenue Service. In 1966, the owners had paid $8.5 million to purchase the franchise. They considered $50,000 to be the cost of the franchise (which is not depreciable for income tax reporting), $727,000 was deferred interest, and the remaining $7.7 million was claimed to be the cost of the players’ contracts and options. The dispute centered on several variables:
• How much of the purchase price was assign-able to television rights?
• Can the value assignable to television rights be amortized? If so, what is the expected life?
• How much of the purchase price was assign-able to player contracts and options?
• Over what life should the value assigned to the players be amortized?
• What is the value of the franchise?
As an independent accountant, explain the approach you would take and the information you would need to provide advice to the…
Company X incurred the following transactions in the current year. For each transaction, explain whether each transaction is tax deductible under the ITAA.
Depreciation on the buildings
The company incurred legal expenses opposing an application by its competitor to extend its patent on a brand of mower. If the patent was not extended, then Company X could produce a similar mower.
The company borrowed money to cover the purchase of a new plant. The loan is repayable in 10 years.
Because of a shortage of working capital, the company was forced to sell off some land. The land had originally been bought in October 1995
The company also purchased a new car for the managing director
Watanabe Corporation is selling one of its assets for $1,700. The asset originally cost $10,000. It has been depreciated under MACRS using a five-year recovery period, and it has been depreciated for four full years. Assume that the tax rate is 40 percent on both ordinary income and capital gains. What are the tax effects of this transaction?
Jellibean Corporation will replace one of its existing assets with a newer type. The existing asset was purchased two years ago at a cost of $30,000 and was being depreciated under MACRS using a five-year recovery period. This existing asset can be sold for $25,000. The new asset that they plan to buy will cost $75,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on both ordinary income and capital gains, the initial investment will be equal to what amount after adjusting for taxes?
Calculate the initial purchase price for an asset that has a book value of $34,800 and has…
Chapter 12 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 12 - Prob. 1GICh. 12 - Prob. 2GICh. 12 - Prob. 3GICh. 12 - Prob. 4GICh. 12 - Prob. 5GICh. 12 - Prob. 6GICh. 12 - Prob. 7GICh. 12 - What activities are included in RD? Which are...Ch. 12 - What elements of RD activities does a company...Ch. 12 - How does a company record a patent worth 100,000...
Ch. 12 - Prob. 11GICh. 12 - Prob. 12GICh. 12 - Over how many years are patents amortized?...Ch. 12 - Prob. 14GICh. 12 - Prob. 15GICh. 12 - Prob. 16GICh. 12 - Prob. 17GICh. 12 - Prob. 18GICh. 12 - Prob. 19GICh. 12 - Prob. 20GICh. 12 - What is the proper time or time period over which...Ch. 12 - Prob. 2MCCh. 12 - Prob. 3MCCh. 12 - Which of the following assets typically are...Ch. 12 - Prob. 5MCCh. 12 - Prob. 6MCCh. 12 - Prob. 7MCCh. 12 - Prob. 8MCCh. 12 - Prob. 9MCCh. 12 - Prob. 10MCCh. 12 - Steel Magnolia Incorporated purchased a trademark...Ch. 12 - Match the following items with correct accounting...Ch. 12 - Notting Hill Company incurred the following costs...Ch. 12 - Hook Corp. incurred the following start-up costs,...Ch. 12 - Mystic Pizza Company purchased a patent from Prime...Ch. 12 - Mystic Pizza Company purchases a franchise from NY...Ch. 12 - Prob. 7RECh. 12 - Prob. 8RECh. 12 - Prob. 9RECh. 12 - Prob. 10RECh. 12 - Prob. 1ECh. 12 - On January 4, 2019, Franc Company purchased for...Ch. 12 - On January 11, 2019, Hughes Company applied for a...Ch. 12 - Gansac Publishing Company signed a contract with...Ch. 12 - Prob. 5ECh. 12 - Prob. 6ECh. 12 - KLK Clothing Company manufactures professional...Ch. 12 - Cressman Company incurred RD costs for various...Ch. 12 - In 2019, Lalli Corporation incurred RD costs as...Ch. 12 - Kling Company was organized in late 2019 and began...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Company is considering purchasing EKC Company....Ch. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Halpern Companys controller prepared the following...Ch. 12 - Prob. 5PCh. 12 - Prob. 6PCh. 12 - Hamilton Companys balance sheet on January 1,...Ch. 12 - Prob. 8PCh. 12 - Lee Manufacturing Corporation was incorporated on...Ch. 12 - Information concerning Tully Corporations...Ch. 12 - Prob. 11PCh. 12 - In examining Samson Manufacturing Companys books,...Ch. 12 - Prob. 2CCh. 12 - Prob. 3CCh. 12 - Prob. 4CCh. 12 - On June 30, 2019, your client, Sprauge...Ch. 12 - Prob. 6CCh. 12 - NBC paid 401 million for the rights to televise...Ch. 12 - Prob. 8C
Knowledge Booster
Similar questions
- The finance director of Hyden Ltd is unsure about the deferred tax implications for two of the items in the company’s statement of financial position. Item 1: Hyden Ltd has a balance of $100,000 in its prepaid insurance account. The insurance is deductible when the payment to the insurance is made. Item 2: Hyden Ltd purchased an item of property, plant and equipment (PPE) 5 years ago for $1,000,000. The depreciation expense for accounting purpose is $50,000 per annum, resulting an accumulated depreciation of $250,000 for the year. The taxation office allows this type of PPE to be depreciated at $25,000 per annum. Required: (a) Calculate the deferred tax implication (deferred tax asset or deferred tax liability) for each of the above items, in accordance with IAS 12 / AASB 112 Income Taxes. Assume a tax rate of 30%. ANSWER HERE: Carrying Amount TaxBase Taxable Temp Diffs DeductibleTemp Diffs Prepaid insurance…arrow_forwardWestern Bank & Trust purchased land and a building for the lump sum of $3,000,000. To get the maximum tax deduction, Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation would have been 70% to the building and 30% to the land. Requirements Explain the tax advantage of allocating too much to the building and too little to the land. Was Western’s allocation ethical? If so, state why. If not, why not? Identify who was harmed.arrow_forwardWhich of the following expenses is least likely to be deductible under sec 8-1 of the Income Tax Assessment Act 1997?An amount of $250,000 paid for a feasibility study prior to the commencement of a business.Costs incurred on maintenance during a temporary cessation of production at a food processing plant.Costs incurred by a manufacturing business to rectify faults in products that it formerly produced, but has not produced for the past two years.Interest paid by a taxpayer on borrowings used to finance a business that was subsequently sold. The sale proceeds were insufficient to completely repay the borrowings.Costs of trading stock purchased by a retailerarrow_forward
- OMG is in a country which has a capital gains tax, conducted the following transactions:a. Purchased a building in February 2018 for $26,000,000. In March 2019, the companyspent $2,000,000 to install solar panels for electricity in the building. The building wassold for $28,500,000 in 2021. The annual maintenance cost was $500,000. The cost ofadvertising the sale of the building and the legal fees amounted to $1,500,000.b. A motor vehicle was purchased for $5 million on January 1, 2018. The vehicle was soldin 2021 for $4.5 million.c. Bought an antique painting for $3.5 million in 2019. The painting was sold in 2021 for$10 million.d. Purchased a government bond for $5,000,000 in 2018 and sold it for $7,500,000 in 2021.The company is entitled to an Annual Exemption of $500,000. Capital losses as of 1 January2021 were $1,500,000.Calculate the capital gains tax in 2021, assuming a capital gains tax of 15%.arrow_forwardO’Reilly Inc. considered the probability of its recent tax position taken related to the deductibility of certain expenses of $100,000. O’Reilly Inc. is more than 50% certain that its tax position supporting the deductibility of the $100,000 will hold if the company is audited by the taxing authorities. Based upon the information available, the company believes that it will have to settle with the taxing authorities for less than 100% of the $100,000 of tax deductions taken. As a result, O’Reilly Inc. recorded a liability of $10,000 in addition to income taxes payable of $280,000, which factored in $100,000 of deductions. O’Reilly Inc.’s tax rate is 25%. In the following year, O’Reilly Inc. was audited by the taxing authorities and based upon the settlement, O’Reilly recorded income tax expense of $7,500.What was the dollar amount of allowable deductions based upon the settlement?$40,000 $90,000 $30,000 $70,000 $60,000 None of the abovearrow_forwardMJ Limited purchased machinery for $50,000 for its operations on 1 October 2015 and has been using it for income producing activities. In the current financial year (2019-2020), the machinery broke down and it was replaced with another machinery with the cost of $70,000 which could improve the production, a feature that was not available in previous machinery. Explain in detail using relevant tax laws and cases whether this amount of $70,000 is deductible for MJ limited. Kindly use the four sections of: Facts of the scenario. Relevant laws and cases. Application of laws and cases. Conclusion.arrow_forward
- 1. During the year ended December 31, 2021, management of Alpha Corporation (the Company) decided to sell a piece of its idle equipment. The equipment had an original tax cost of $75,000 and as of December 31, 2020, tax depreciation of $75,000 had been taken on the equipment. The equipment was sold to an unrelated party for $95,000 cash on June 15, 2021. For the purpose of requirement 3, assume that the book cost and book depreciation have been the same as the tax cost and tax depreciation. Required: 1. Calculate the tax gain on sale of the equipment. 2. Calculate the portion of the gain that is depreciation recapture. 3. Prepare the journal entry to record sale of the equipment.arrow_forward(25) In 2021, ABC Company had pretax income of $20,000. ABC depreciated an additional $4,000 on its tax report because ABC Company used accelerated depreciation on its tax report and straight-line on its accounting records. The excess depreciation will reverse evenly over the next two years. Also included in pretax income was a $1,000 fine for polluting its waterways located near its chemical plant. The enacted tax rates are: 2021 20%, 2022 30%, and 2023 35%. Calculate taxable income for ABC Company in 2021. (26) Use the information provided in question 25. What will be the dollar difference between the company’s tax expense and tax payable in 2022?arrow_forwardDungan Corporation is evaluating a proposal to purchase a new drill press to replace a less efficient machine presently in use. The cost of the new equipment at time 0, including delivery and installation, is $260,000. If it is purchased, Dungan will incur costs of $7,400 to remove the present equipment and revamp its facilities. This $7,400 is tax deductible at time 0. Depreciation for tax purposes will be allowed as follows: year 1, $64,000; year 2, $94,000; and in each of years 3 through 5, $54,000 per year. The existing equipment has a book and tax value of $124,000 and a remaining useful life of 10 years. However, the existing equipment can be sold for only $64,000 and is being depreciated for book and tax purposes using the straight-line method over its actual life. Management has provided you with the following comparative manufacturing cost data. Present Equipment New Equipment Annual capacity (units) 424,000 424,000 Annual costs: Labor $ 60,000…arrow_forward
- Dungan Corporation is evaluating a proposal to purchase a new drill press to replace a less efficient machine presently in use. The cost of the new equipment at time 0, including delivery and Installation, is $205,000. If It is purchased, Dungan will incur costs of $5,200 to remove the present equipment and revamp its facilities. This $5,200 is tax deductible at time 0. Depreciation for tax purposes will be allowed as follows: year 1, $42,000; year 2, $72,000; and in each of years 3 through 5, $32,000 per year. The existing equipment has a book and tax value of $102,000 and a remaining useful life of 10 years. However, the existing equipment can be sold for only $42,000 and is being depreciated for book and tax purposes using the straight-line method over its actual life. Management has provided you with the following comparative manufacturing cost data. Annual capacity (units) Annual costs: Labor a. b. Depreciation Other (all cash) Total annual costs The existing equipment is expected…arrow_forwardDungan Corporation is evaluating a proposal to purchase a new drill press to replace a less efficient machine presently in use. The cost of the new equipment at time 0, including delivery and installation, is $260,000. If it is purchased, Dungan will incur costs of $7,400 to remove the present equipment and revamp its facilities. This $7,400 is tax deductible at time 0. Depreciation for tax purposes will be allowed as follows: year 1, $64,000; year 2, $94,000; and in each of years 3 through 5, $54,000 per year. The existing equipment has a book and tax value of $124,000 and a remaining useful life of 10 years. However, the existing equipment can be sold for only $64,000 and is being depreciated for book and tax purposes using the straight-line method over its actual life. Management has provided you with the following comparative manufacturing cost data. Present Equipment New Equipment Annual capacity (units) 424,000 424,000 Annual costs: Labor $ 60,000…arrow_forwardSuperlor Developers sells lots for residential development. When lots are sold, Superior recognizes income for financial reporting purposes in the year of the sale. For some lots, Superior recognizes income for tax purposes when the cash is collected. In 2023, Superior sold lots for $110 million, for which no cash was collected at the time of the sale. This cash will be collected equally over 2024 and 2025. The enacted tax rate was 40% at the time of the sale. In 2024, a new tax law was enacted, revising the tax rate from 40% 10 30% beginning in 2025. Calculate the total amount by which Superior should change its deferred tax liabllity in 2024. Note: Enter your answer in millions rounded to 2 decimal places (i. e., 5,500,000 should be entered as 5, 50).arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
