Are these items deductible or not deductible?

a. Deductible

b. Not deductible

____state income taxes

____Interest on a 2018 mortgage loan of $750,000

____Real estate taxes

____$67 in credit card interest

____$ 576 interest on a bank loan

____FICA withheld by employer

____federal gasoline tax

____federal excise tax

____loan fee for appraisal

____local income tax

____$500 to family physician (disregard limits)

____$2000 for long term care (disregard limits)

____$400 for eye glasses (disregard limits)

____$300 for maternity clothes

____$50 donation to your public library

____$250 donation to your church or mosque or synagogue

____$200 to a political party

____Personal property tax based on value of your property

____property tax you paid on your parent's property

____real estate taxes paid on your own property

Brief Exercise 18-11 b (Essay)

The following data are taken from the financial statements of Colby Company.

(b)

What conclusions about the management of accounts receivable can be drawn from the accounts receivable turnover and the average collections period.

LUSAKA Plc has two divisions, GAMMA and OMEGA, whose respective performances are under review. Division GAMMA is currently earning a profit of K35,000 and has net assets of K150,000. Division OMEGA currently earns a profit of K70,000 with net assets of K325,000.

LUSAKA Plc has a current cost of capital of 15%.

Required:

(a) Explain the difference between a profit centre and an investment centre of an organisation. [3 Marks]

(b) Using the information above, calculate the return on investment and residual income figures for the two divisions under review and comment on your results. [5 Marks]

(c) Explain which method of performance evaluation (i.e. return on investment or residual income) is more useful when comparing divisional performance. [2 Marks]

Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $108,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $8,000. The company reports on a calendar year basis.

Required:
a-1. Prepare a complete depreciation schedule, beginning with the current year, using the straight-line method. (Assume that the half-year convention is used).

a-2. Prepare a complete depreciation schedule, beginning with the current year, using the 200 percent declining-balance method. (Assume that the half-year convention is used).

a-3. Prepare a complete depreciation schedule, beginning with the current year, using the 150 percent declining-balance, switching to straight-line when that maximizes the expense. (Assume that the half-year convention is used).

b. Which of the three methods computed in part a is most common for financial reporting purposes?

c. Assume that Swanson & Hiller sells the machine on December 31 of the fourth year for $29,000 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a.

Explain why certain long-lived assets are capatilized and recovered over time rather than immediately expensed. Please explain in depth and provide example.

Assignment #1: Budgeting for Movies (Worth 20 pts.)

Movies are expensive to produce and market. According to IMDb, the most expensive film on record is Pirates of the Caribbean: At World’s End, with a total budget of $336 million. This movie and its budget were widely publicized prior to the premiere of the film, and moviegoers were eager to see the results of this massive movie budget.

Like other large projects, movies have budgets. Potential financiers look at the budget, the script, and other factors to decide whether to invest in the movie. Several categories of costs will be in a movie’s budget, including:

• Story rights
• Screenplay
• Producers and directors
• Cast
• Production costs
• Special effects
• Music

The typical file budget you read about in the press includes only expenses. The movie budgets released to the general public do not include estimated box office receipts or other revenue streams. In addition, movie budgets do not usually include marketing costs, which can be another 50% or more of the film’s publicized budget.

Producers and directors will frequently release budget figures for upcoming movies, and these budget figures will be reported in several news outlets. However, Los Angeles Times writer Patrick Goldstein states that “everyone” lies about their movie budgets. For example it was reported initially that The Avengers, a Marvel Studios file, had an overall budget of $170 million. Another source indicated that the budget for The Avengers was $260 million. Which one of these figures was the “correct” budget figure? No one outside of the management of the movie really knows.

Questions: (Each question is worth 5 pts.)

1. Budgeting for a movie can be challenging. Frequently, budget items change as the movie production progresses. If budgeting for a movie is difficult, why prepare a movie budget at all?

2. What reasons can a movie director have for misrepresenting the overall budget for a particular movie? Is misrepresenting a movie budget unethical? Do you think misrepresenting a movie’s total budgeted expenditures to the public harms anyone? Why or why not?

3. “If a Hollywood movie’s box office number exceeds its production budget, then that movie makes a profit.” From reading the information given in the case, do you agree with this statement? Why or why not?

4. Sometimes actors, directors, and producers are asked to take a lower salary up front and instead receive a percentage of the film’s overall gross profits (from box office receipts, DVD sales, and similar revenue streams). Why might the film company propose this arrangement? Why might the actors, directors, and producers accept this arrangement? Would this type of arrangement (lower salary up front with a percentage of the film’s gross profits later) make the budgeting process easier or more challenging? Why?

Assignment #2: Identify Ethical Standards Violated (Worth 10 pts.)

Requirement: Each ethical situation is worth 2 pts.

For each of the situations listed, identify and state the primary (competence, confidentiality, integrity, or credibility) and secondary standard (1 – 3 or 4 from the list beneath each primary standard) from the IMA Statement of Ethical Professional Practice that is violated. Refer to Exhibit P-6 on page 10 of your text for the complete standard.

1. When out with friends, Louise complains loudly about the budgeting process at her company. She feels the budgeting process is overly precise. She illustrates her point with specific numbers from the budget.

2. Allan is caught on video as he brags about illegally downloading software that he feels is overpriced. The video is uploaded to YouTube.

3. Jake, an accountant for Snow Films Company, builds some slack into the budget for the Human Resources (HR) Department so that the targets are easier to achieve. Jake is dating the manager of the HR Department.

4. Pearl is controller for Cloudy Fork Gardens. When she prepares the budgets for the upcoming year for upper management, she realizes that her department has higher costs than any other department. She aggregates the numbers with some other departments so that it is not obvious that her department is overspending.

5. Alfredo knows that the laws concerning credit card and debit card fees have changed in the past year but does not know what the changes are specifically. He does not investigate before preparing the cash budget.

In depth, what does it mean to characterize a gain or loss? Why is characterizing a gain or loss important?

Describe the computation of the limit placed on the business interest deduction. Is the disallowed interest ever deductible. Please explain in detail.

provide a 2-3 page paper detailing types of audit reports for both issuers and nonissuers.

Morton Company’s contribution format income statement for last month is given below:

            
Sales (46,000 units × $27 per unit)   $   1,242,000     
Variable expenses      869,400     
Contribution margin      372,600     
Fixed expenses      298,080     
Net operating income   $   74,520     

The industry in which Morton Company operates is quite sensitive to cyclical movements in the economy. Thus, profits vary considerably from year to year according to general economic conditions. The company has a large amount of unused capacity and is studying ways of improving profits.

Required:
1. New equipment has come onto the market that would allow Morton Company to automate a portion of its operations. Variable expenses would be reduced by $8.10 per unit. However, fixed expenses would increase to a total of $670,680 each month. Prepare two contribution format income statements, one showing present operations and one showing how operations would appear if the new equipment is purchased.
2. Refer to the income statements in (1). For the present operations and the proposed new operations, compute (a) the degree of operating leverage, (b) the break-even point in dollar sales, and (c) the margin of safety in dollars and the margin of safety percentage.
3. Refer again to the data in (1). As a manager, what factor would be paramount in your mind in deciding whether to purchase the new equipment? (Assume that enough funds are available to make the purchase.)
4. Refer to the original data. Rather than purchase new equipment, the marketing manager argues that the company’s marketing strategy should be changed. Rather than pay sales commissions, which are currently included in variable expenses, the company would pay salespersons fixed salaries and would invest heavily in advertising. The marketing manager claims this new approach would increase unit sales by 30% without any change in selling price; the company’s new monthly fixed expenses would be $475,686; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales under the new marketing strategy.

How has the environment for product development changed in the last decade, and what does that mean to entrepreneurs starting new businesses? (Consider globalization and the ready availability of consumer reviews).

Why are different methods of allocating overhead needed? What problems would occur if all business' used one method?

Le Pete Bread Company is a national bakery-cafe concept with 1,380 Company-owned and franchise-operated bakery-cafe locations in 40 states and in Ontario, Canada. The company has grown from serving approximately 60 customers a day at its first bakery-cafe to currently serving nearly six million customers a week system-wide, becoming one of the largest food service companies in the United States. Sara Lee Corporation is a global manufacturer and marketer of high-quality, brand-name products for consumers throughout the world focused primarily on the meats, bakery and beverage categories. Selected financial information about each company follows:

Sara Lee Le Pete Bread Sales $ 10,793 million $ 1,353.5 million Net Income $ 527 million $ 86.8 million Return on Assets (ROA) 8.32 % 11.55 % Profit margin 7.05 % 6.45 % Asset turnover 1.18 % 1.79 Required:

Why is Sara Lee less profitable than Le Pete Bread? Return on assets and return on sales in the bakery industry are 4.85% and 8.16%, respectively. How do these two companies compare to their industry and what might explain any noted differences?

4-01

The Westchester Chamber of Commerce periodically sponsors public service seminars and programs. Currently, promotional plans are underway for this year’s program. Advertising alternatives include television, radio, and online. Audience estimates, costs, and maximum media usage limitations are as shown:

To ensure a balanced use of advertising media, radio advertisements must not exceed 50% of the total number of advertisements authorized. In addition, television should account for at least 10% of the total number of advertisements authorized.

1. If the promotional budget is limited to $20,700, how many commercial messages should be run on each medium to maximize total audience contact? What is the allocation of the budget among the three media? If required, round your answers to the nearest dollar.   

Let T = number of television spot advertisements
R = number of radio advertisements
O = number of online advertisements

What is the maximum total audience that would be reached? Round your answer to the nearest whole number.

2. By how much would audience contact increase if an extra $100 were allocated to the promotional budget? Round your answer to the nearest whole number.

Problem 4-03 (Algorithmic)

The employee credit union at State University is planning the allocation of funds for the coming year. The credit union makes four types of loans to its members. In addition, the credit union invests in risk-free securities to stabilize income. The various revenue-producing investments together with annual rates of return are as follows:

The credit union will have $2.4 million available for investment during the coming year. State laws and credit union policies impose the following restrictions on the composition of the loans and investments.

• Risk-free securities may not exceed 30% of the total funds available for investment.

• Signature loans may not exceed 10% of the funds invested in all loans (automobile, furniture, other secured, and signature loans).

• Furniture loans plus other secured loans may not exceed automobile loans.

• Other secured loans plus signature loans may not exceed the funds invested in risk-free securities.

How should the $2.4 million be allocated to each of the loan/investment alternatives to maximize total annual return? Round your answers to the nearest dollar.

What is the projected total annual return? Round your answer to the nearest dollar.