1) Computer equipment was acquired at the beginning of the year at a cost of $53,900. It had an estimated residual value of $4,300 and an estimated useful life of 5 years.

a. Determine the depreciable cost.

b. Determine the straight-line rate.

c. Determine the annual straight-line depreciation.

2) A machine costing $45,000 with a 5-year life and $2,700 residual value was purchased January 2. Compute depreciation for each of the five years, using the double-declining-balance method.

A storage tank acquired at the beginning of the fiscal year at a cost of $104,400 has an estimated residual value of $6,400 and an estimated useful life of four years.

a. Determine the amount of annual depreciation by the straight-line method.
$fill in the blank 1

b. Determine the amount of depreciation for the first and second years computed by the double-declining-balance method. Do not round the double-declining balance rate. If required, round your answers to the nearest dollar.

14,       A residential property is acquired on the first day of the tax year for a purchase price of $300,000 plus acquisition costs of $15,000. The property is held for five years and sold on the last day of the tax year.

a. What is the cost-recovery deduction for each full year of acquisition?                                      

b. What is the annual cost-recovery deduction for each full year of ownership?                           

c. What is the cost-recovery deduction for the year of disposition?                                               

d. What is the total cost recovery taken during the recovery period?                     

A team specializing in the clinical care, was acquired for $300,000 and is expected to generate savings of $111,837.50 per year, while in operation. Applying an interest rate of 12% per annum, determine what the period of investment recovery would be considering the value of the money over time ("discounted payback period"). Round up your answer to the next integer.

Select one:
a. 3
b. No correct answer is provided.
c. 4
d. 6
e. 7

Tax Case 4

Goodwill Acquired in an Acquisition – Is it Deductible?

As the CFO of General Dynamo, you are very excited as you have just completed the negotiations related to the purchase of Apex Systems, a complimentary business to General Dynamo. The sole shareholder of Apex has agreed to either of the following purchase offers:

               A: General Dynamo will pay $10,000,000 for 100% of the outstanding stock of Apex

                                                            OR

B: General Dynamo will pay $11,000,000 for 100% of the “net assets” of Apex, which includes all tangible and intangible assets as well as all recorded liabilities.

The fair value of the acquired assets and liabilities is as follows:

Current Assets (Tangible)                             $2,500,000

Long Term Assets (Tangible)                       $4,000,000

Liabilities                                                          $3,500,000

Net Tangible Assets Acquired                      $3,000,000

Based solely on the “net after-tax” cost of the acquisition, which purchase offer should you choose: A or B? Why?

Why does the seller require a higher price to be paid for acquiring “net assets” versus “stock”? What internal revenue service code section addresses how sales of assets versus sales of stock are taxed? What are the significant differences? What period may the goodwill be deducted for tax purposes? Why do you think the Internal Revenue Service treats these two purchase offers differently?

A machine was acquired on January 1, 2015, at a cost of $80,000. The machine was originally estimated to have a residual value of $5,000 and an estimated life of 5 years. The machine is expected to produce a total of 100,000 components during its life, as follows: 15,000 in 2015, 20,000 in 2016, 20,000 in 2017, 30,000 in 2018, and 15,000 in 2019.

Instructions
(a)   Calculate the amount of depreciation to be charged each year, using each of the following methods:
   1.   Straight-line method
   2.   Units-of-production
   3.   Double diminishing-balance
(b)   Which method results in the highest depreciation expense during the first two years? Over all five years?

Please read the following article: What's the Dollar Value of Online Patient Chatter?

On the Internet, people talk about everything, even their illnesses. Treato, an Israeli data-mining company, monitors conversations on Facebook, Twitter, and patient forums for information on drug side effects and prescription patterns. It then sends weekly or monthly analyses of the chatter to hedge funds and money managers that invest in pharma stocks. Ofir Levi, head of life-science research at Israel's Adamas Healthcare Fund, turned to Treato with a hunch. The prostate cancer drug Xtandi, co-developed by Astellas Pharma and Medivation, is approved in the U.S. only for patients who've already had chemotherapy. Levi suspected physicians might be prescribing it offlabel for use before chemo. "By looking at patient discussions, we figured that pre-chemo patients were also getting this drug," he says. That appeared to confirm Levi's guess that the market for Xtandi was probably larger than the approved patient population. His hedge fund bet on Medivation and was rewarded when the company reported better-than-expected first-quarter sales of the drug on May 8 and its shares gained as much as 8 percent in trading that day. "For the first time, investors don't have to listen to the CFO" to find out how a drug is doing, says Ido Hadari, chief executive officer of six-year-old Treato.

So-called expert network companies, such as Gerson Lehrman Group and MedaCorp, have thrived by putting investors in touch with doctors, researchers, and other health professionals. Treato's selling point is big data. Its software reviews "tens of thousands" of patient forums and informal discussions daily, Hadari says. Individuals aren't identified; instead, the company seeks to find trends in how drugs are used and what problems consumers are experiencing. Companies such as Saama Technologies and Signals Intelligence Group pitch what they call social listening services to drugmakers and health insurers. But closely held Treato is one of the few also putting its algorithms to work for the investment community, according to Brigham Hyde, vice president for data science at Decision Resources Group, a health-care consulting firm. "If it's proven you can actually make better investment decisions by using this, investors will flock to it," says Les Funtledyer, portfolio manager for Esquared Asset Management, which isn't a Treato client. The patient conversations monitored by Treato range from broad to granular. "I recently stopped using singular as I had a severe episode of depression," a patient wrote on Medications.com, in a thread the company's software dredged up even though the name of Merck asthma drug Singulair had been misspelled. Treato's archive on Pfizer cholesterol drug Lipitor includes more than 40,000 discussions, including one on Bodybuilding.com about cholesterol content in protein shakes and whether they're suitable for someone on Lipitor. Representatives for Pfizer and Merck declined to comment on the conversations Treato had gathered on their drugs.

While hedge funds now subscribe to its reports, Treato's main customers are pharma companies. Hadari says he counts nine major drugmakers as clients-he won't name them, saying he's bound by confidentiality contracts-and a "handful" of finance companies. He also declined to discuss pricing. According to the director for analytics at one pharma company who asked not to be identified for competitive reasons, the appeal of Treato's service is that it can deliver answers to such questions as why patients switch from one drug to another. Treato could face greater competition from patient forums. When Ed Sikov, a writer in New York, was diagnosed with Parkinson's disease in 2008, he joined PatientsLikeMe, a website that hosts forums on 2,000 conditions and has more than 250,000 members. "I'm not comfortable with investors making bets on what people are experiencing without the people themselves knowing they're being monitored," Sikov says. But he's all right with PatientsLikeMe, which clearly states that it sells the data it gathers to drugmakers listed on its site, including Abbott Laboratories and Bristol-Myers Squibb. Co-founder Ben Heywood hasn't ruled out selling information to health investors. The site's privacy policy says names, e-mails, and dates of birth aren't distributed.

Hyde, of Decision Resources, who has no firsthand experience with Treato, has yet to be convinced about the value of using social listening tools for investing. Patients may discuss a drug's side effects online, he says, but the issues they raise would affect a drugmaker's stock only if they attract the attention of the U.S. Food and Drug Administration and lead to restrictions on a drug's use. Says Hyde: "Data hasn't proven yet that signals lead to distinctive change in outcomes."

Please answer the following questions:

How much of an advantage will access to big data have for larger investors over smaller investors?

Will smaller investors likely have access to big data?

How should reports that accompany financial statements acknowledge some of the findings of data mining that a corporation might have uncovered?

Please read the following article: What's the Dollar Value of Online Patient Chatter?

On the Internet, people talk about everything, even their illnesses. Treato, an Israeli data-mining company, monitors conversations on Facebook, Twitter, and patient forums for information on drug side effects and prescription patterns. It then sends weekly or monthly analyses of the chatter to hedge funds and money managers that invest in pharma stocks. Ofir Levi, head of life-science research at Israel's Adamas Healthcare Fund, turned to Treato with a hunch. The prostate cancer drug Xtandi, co-developed by Astellas Pharma and Medivation, is approved in the U.S. only for patients who've already had chemotherapy. Levi suspected physicians might be prescribing it offlabel for use before chemo. "By looking at patient discussions, we figured that pre-chemo patients were also getting this drug," he says. That appeared to confirm Levi's guess that the market for Xtandi was probably larger than the approved patient population. His hedge fund bet on Medivation and was rewarded when the company reported better-than-expected first-quarter sales of the drug on May 8 and its shares gained as much as 8 percent in trading that day. "For the first time, investors don't have to listen to the CFO" to find out how a drug is doing, says Ido Hadari, chief executive officer of six-year-old Treato.

So-called expert network companies, such as Gerson Lehrman Group and MedaCorp, have thrived by putting investors in touch with doctors, researchers, and other health professionals. Treato's selling point is big data. Its software reviews "tens of thousands" of patient forums and informal discussions daily, Hadari says. Individuals aren't identified; instead, the company seeks to find trends in how drugs are used and what problems consumers are experiencing. Companies such as Saama Technologies and Signals Intelligence Group pitch what they call social listening services to drugmakers and health insurers. But closely held Treato is one of the few also putting its algorithms to work for the investment community, according to Brigham Hyde, vice president for data science at Decision Resources Group, a health-care consulting firm. "If it's proven you can actually make better investment decisions by using this, investors will flock to it," says Les Funtledyer, portfolio manager for Esquared Asset Management, which isn't a Treato client. The patient conversations monitored by Treato range from broad to granular. "I recently stopped using singular as I had a severe episode of depression," a patient wrote on Medications.com, in a thread the company's software dredged up even though the name of Merck asthma drug Singulair had been misspelled. Treato's archive on Pfizer cholesterol drug Lipitor includes more than 40,000 discussions, including one on Bodybuilding.com about cholesterol content in protein shakes and whether they're suitable for someone on Lipitor. Representatives for Pfizer and Merck declined to comment on the conversations Treato had gathered on their drugs.

While hedge funds now subscribe to its reports, Treato's main customers are pharma companies. Hadari says he counts nine major drugmakers as clients-he won't name them, saying he's bound by confidentiality contracts-and a "handful" of finance companies. He also declined to discuss pricing. According to the director for analytics at one pharma company who asked not to be identified for competitive reasons, the appeal of Treato's service is that it can deliver answers to such questions as why patients switch from one drug to another. Treato could face greater competition from patient forums. When Ed Sikov, a writer in New York, was diagnosed with Parkinson's disease in 2008, he joined PatientsLikeMe, a website that hosts forums on 2,000 conditions and has more than 250,000 members. "I'm not comfortable with investors making bets on what people are experiencing without the people themselves knowing they're being monitored," Sikov says. But he's all right with PatientsLikeMe, which clearly states that it sells the data it gathers to drugmakers listed on its site, including Abbott Laboratories and Bristol-Myers Squibb. Co-founder Ben Heywood hasn't ruled out selling information to health investors. The site's privacy policy says names, e-mails, and dates of birth aren't distributed.

Hyde, of Decision Resources, who has no firsthand experience with Treato, has yet to be convinced about the value of using social listening tools for investing. Patients may discuss a drug's side effects online, he says, but the issues they raise would affect a drugmaker's stock only if they attract the attention of the U.S. Food and Drug Administration and lead to restrictions on a drug's use. Says Hyde: "Data hasn't proven yet that signals lead to distinctive change in outcomes."

Please answer the following questions:

How much of an advantage will access to big data have for larger investors over smaller investors?

Will smaller investors likely have access to big data?

How should reports that accompany financial statements acknowledge some of the findings of data mining that a corporation might have uncovered?

In February 2020, Cullumber Construction signed a contract and commenced construction on a parking garage. The total contract price was $89.4 million and was expected to be completed in July 2024 at a total estimated cost of $82.1 million. Payment by the customer was to be made in several stages, based on significant events and dates throughout the construction timeline. The customer was to have control over the parking garage and was able to make major changes to the project during the construction process. Cullumber’s year-end was September 30.
By the end of September, 2020, Cullumber had incurred $20,525,000 in costs and had invoiced $10,000,000 in progress billings. $7,700,000 of the progress billings had been collected.

By September 30, 2021, Cullumber had incurred $35,190,000 in total costs and had invoiced $45,900,000 in progress billings, including the progress billings in 2020. Of the total billings, $30,700,000 in total had been collected. Also, Cullumber reviewed its cost estimates on the project, and now believed the parking garage would cost $78.2 million in total to complete.

Prepare all journal entries required for the year ended September 30, 2020. Use Materials, Cash, Payables for costs incurred to date. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Prepare all journal entries required for the year ended September 30, 2021. Use Materials, Cash, Payables for costs incurred to date. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Bramble Manufacturing Ltd. has signed a lease agreement with LPN Leasing Inc. to lease some specialized manufacturing equipment. The terms of the lease are as follows:

Click here to view the factor table PRESENT VALUE OF 1.
Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.

From Bramble Manufacturing’s perspective, is this a capital or operating lease?

Prepare a lease amortization schedule for this lease. (Round answers to 0 decimal places, e.g. 5,275.)

Prepare the journal entries on Bramble Manufacturing’s books on January 1, 2020.

(To record lease payment.)(To record inception of lease.)

Prepare the journal entries on LPN Leasing’s books on January 1, 2020.

(To record inception of lease
and cost of goods sold.)

(Collection of lease payment.)

Prepare the journal entries for Bramble Manufacturing on December 31, 2020.

(To record interest.)

(To record depreciation expense.)

Prepare the journal entry on LPN Leasing’s books on December 31, 2020.

(To record interest.)