Concept explainers
Financial vs. tax
The following is an excerpt from a conversation between two employees of WXT Technologies, Nolan Sears and Stacy Mays. Nolan is the accounts payable clerk, and Stacy is the cashier.
Nolan: Stacy, could I get your opinion on something?
Stacy. Sure, Nolan.
Nolan: Do you know Rita, the fixed assets clerk?
Stacy. I know who she is, but I don't know her real well Why?
Nolan: Well I was talking to her at lunch last Monday about how she liked her job, etc You know, the usual... and she mentioned something about having to keep two sets of books... one for taxes and one for the financial statements. That can be good accounting, can it? What do you think?
Stacy: Two sets of books? It doesn't sound right.
Nolan: It doesn't seem right to me either. I was always taught that you had to use generally accepted accounting principles. How can there be two sets of books? What can be the difference between the two?
How would you respond to Nolan and Stacy if you were Rita?
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Financial & Managerial Accounting
- CASE 1 You are a Tax Director of Global Accounting & Tax Services. Tamika Red is a new trainee and has sought your advice on the following: a) A client of the firm has enquired about how to treat the income of Oliver Martin and Erica Ferguson who both provide services to AGL Limited. The client indicates that she is unsure of the type of employment and how to account for the income tax for each person. The client provided Tamika with the following information: Oliver Martin Oliver Martin provides accounting services for the company. AGL Limited provides him with a computer. He works from Monday to Wednesday only. He is paid at the end of each month. To obtain his payment he must provide the company with an invoice detailing the days worked. He is paid a daily rate of $7,000 for 8 hours of work. Should he need to work overtime approval is required. He is paid an agreed rate for overtime work. Tasks are assigned to Oliver by the Head of Reporting & Finance. He reports…arrow_forwardYou are conducting an accounting research project for your manager. Your manager has asked you to determine the appropriate U.S. GAAP that specifies how your company should recognize and value a newly purchased piece of equipment on the company's balance sheet. Your manager also wants you to determine the GAAP guidance for how the equipment should be depreciated. Your manager has a lot of knowledge and experience in accounting, and has heard about, but has never used. Directions Use the FASB Accounting Standards Codification system to conduct the research your manager has assigned to you. Use the Codification to determine how to recognize, value, and depreciate a piece of equipment. Be prepared to show your manager the specific FASB ASC references that provide the appropriate guidance Also prepare a brief memo explaining to your manager the different levels of the Codification and how to use the Codification system.arrow_forwardYou are a Tax Director in the following situations:a) A client of the firm has enquired about how to treat the income of Oliver Martin and Erica Ferguson who both provide services to AGL Limited. The client indicates that she is unsure of the type of employment and how to account for the income tax for each person. The client provided Tamika with the following information: Oliver Martin Oliver Martin provides accounting services for the company. He uses his own computer. He works from the company’s premises Monday to Wednesday only. He is paid at the end of each month. To obtain his payment he must provide the company with an invoice detailing the days worked. He is paid a daily rate of $30,000 for 8 hours of work. He determines his own time of work. Tasks are assigned to Oliver by the Head of Reporting & Finance. He reports directly to the Head of Reporting & Finance. Oliver is not entitled to vacation leave, sick leave, and he does not a participate in the company’s pension…arrow_forward
- 6 Becky and Carl work for a marketing firm. The two accountants discuss the organization’s financial performance. Carl asks Becky, “What’s the bottom line?” Becky reviews a financial report that shows the firm’s profitability over the last quarter. The document Becky reviews is called the Multiple Choice tax return. ledger. audit. income statement. 7 Diedre works at Sally’s Autobody Workshop. Her main job responsibility is to record the routine, day-to-day business transactions of the firm. Based on this information, Diedre is a Multiple Choice tax accountant. forensic accountant. bookkeeper. CMA. 8 A new fitness company called Jump Athletics receives a trademark for its brand name. The trademark received by Jump Athletics is a Multiple Choice return on asset. current asset. liquid asset. fixed asset. 9 Rowena, a senior manager at Top of the Line Publishing, wants a quick snapshot of the company’s financial position before she goes to a manager’s meeting. In this case, which of the…arrow_forwardRequired information [The following information applies to the questions displayed below.] Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Incorporated (BLI). As part of their discussions with the sole shareholder of the corporation, Ernesto Young, they examined the company's tax accounting balance sheet. The relevant information is summarized as follows: (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Cash Receivables Building Land Total Payables Mortgage* Total FMV $ 8,000 16,000 100,000 215,000 $ 339,000 $ 20,000 111,000 $ 131,000 Gain or loss recognized Adjusted Tax Basis. $ 8,000 16,000 50,000 115,000 $ 189,000 $ 20,000 111,000 $ 131,000 Appreciation 50,000 100,000 $ 150,000 *The mortgage is attached to the building and land. Ernesto was asking for $460,000 for the company. His tax basis in the BLI stock was $140,000. Included in the sales price was an unrecognized customer list…arrow_forwardWhen reviewing a Form 4562, what information will a lender learn about the business? The amount of any capital gains tax payments The amount of proceeds received from used equipment sales The amount of proceeds from securities sales The amount of any fixed asset purchasesarrow_forward
- c. Intuit Inc. develops tax preparation software that it sells to its customers for a flat fee. No further Explain when each of the following businesses fulfills the performance obligations implicit in the sales b. Oracle Corp. develops general ledger and other business application software that it sells to its E5-34. a. RealMoney.Com, a division of TheStreet Inc., provides investment advice to customers for an up front fee. It provides these customers with password-protected access to its website, where they 01 Assessing Revenue Recognition Timing and Income Measurem contract and recognizes revenue. Identify any revenue measurement ISsues that could arise can download investment reports. RealMoney has an obligation to provide updates on its they customers. The customer pays an up-front fee for the right to use the software and a monthly its support services. payment is required, and the software cannot be returned, only exchanged if defective. d. Electronic Arts develops and sells…arrow_forward[The following information applies to the questions displayed below.] Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Incorporated (BLI). As part of their discussions with the sole shareholder of the corporation, Ernesto Young, they examined the company's tax accounting balance sheet. The relevant information is summarized as follows: (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Cash Receivables Building Land Total FMV 19,000 24,000 71,000 155,000 $ 269,000 Payables Mortgage* Adjusted Tax Basis $ 19,000 24,000 35,500 50,000 $ 128,500 $ 27,000 89,000 $ 116,000 Total * The mortgage is attached to the building and land. $ 27,000 89,000 $ 116,000 Appreciation 35,500 105,000 $ 140,500 Ernesto was asking for $420,000 for the company. His tax basis in the BLI stock was $180,000. Included in the sales price was an unrecognized customer list valued at $180,000. The unallocated portion of the…arrow_forwardREQUIRED: You are required to prepare a reflection paper that incorporates your answers to the following questions: 1. Why are financial statements important? What problems can you foresee if a business manager does not have a basic knowledge of financial statements? Adapted from: Price, J., Haddock, M., & Farina, M., (2021). College Accounting, 16th edition. McGraw-Hill Education. 2. Your friend is thinking of ways to lower tax by lowering the net income using the following means: Do not adjust for accrued revenue for any earned revenues, cash is not collected anyway. Adjust the full amount of prepaid expense as expenses even if not yet used. Explain to your friend the accounting implications and ethical considerations of her idea. ● ●arrow_forward
- A close friend of yours, who is a history major and who has not had any college courses or any experience in business, is receiving the financial statements from companies in which he has minor investments (acquired for him by his now-deceased grandfather). He asks you what he needs to know to interpret and to evaluate the financial statement data that he is receiving. What would you tell him?arrow_forwardA close friend of yours, who is a history major and who has not had any college courses or any experience in business, is receiving the financial statements from companies in which he has minor investments (acquired for him by his now-deceased father). He asks you what he needs to know to interpret and to evaluate the financial statement data that he is receiving. What would you tell him?arrow_forwardYou are a Tax Director of Global Accounting & Tax Services. Tamika Red is a new trainee and has sought your advice on the following: a) A client of the firm has enquired about how to treat the income of Oliver Martin and Erica Ferguson who both provide services to AGL Limited. The client indicates that she is unsure of the type of employment and how to account for the income tax for each person. The client provided Tamika with the following information: Oliver Martin Oliver Martin provides accounting services for the company. AGL Limited provides him with a computer. He works from Monday to Wednesday only. He is paid at the end of each month. To obtain his payment he must provide the company with an invoice detailing the days worked. He is paid a daily rate of $7,000 for 8 hours of work. Should he need to work overtime approval is required. He is paid an agreed rate for overtime work. Tasks are assigned to Oliver by the Head of Reporting & Finance. He reports directly to…arrow_forward
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning