INTERMEDIATE ACCOUNTING II/ Intermediate Accounting, Spiceland/Sepe/Nelson Re: Judgment Case 18-5 Requirement 1. The two alternatives Alcoa has for accounting for the repurchase of it’s shares are: 1) The shares can be formally retired. 2) The shares can be named treasury stock Either way, total shareholders’ equity remains the same. Cash is used to repurchase common stock so the effect is to reduce both cash and shareholders’ equity. This choice does, however, affect how individual shareholders’ accounts are reported in the balance sheet.
1. From a tax perspective, and disregarding other issues such as limited liability, does it always make sense to operate businesses in a separate business entity? When might it be better to be a sole proprietor? The issue here is if it always makes sense to operate businesses in a separate business entity and when might it be better to be a sole proprietor. According to Smith, Harmelink & Hasselback.
Without Section 351, a sole proprietorship or a partnership would have difficulty adopting the corporate form of organization for legal and/or tax purposes because the transfer of appreciated property would constitute a taxable transaction in a recognized gain. The deferral of gain or loss under Section 351 can be justified because the assets have merely been transferred to a corporation that is controlled by the transferors. Section 351 also prevents the recognition of losses on transfers of property that has declined in value. Question 14-20 What tax years are available to corporations? How do the options differ from other forms of business organizations?
Disclosure in notes to financial statements only IV. Choice: A V. Justification: Equity: Stockholder’s equity represents ownership in a company or a company’s net financial assets (assets less liabilities). Stock options represent the privilege to purchase ownership in the company. Option (B) shows this right to ownership in the notes to the financial statements but does not portray how it truly affects the company’s equity. Option (A) provides a clearer picture on how the stock options affect the company’s equity through the balance sheet.
Conglomerate Merger: Conglomerate merger is a kind of venture in which two or more companies belonging to different industrial sectors combine their operations. All the merged companies are no way related to their kind of business and product line rather their
Merger or acquisition of Smithon by Johnson Services a) If the two companies are merged then Smithon could use Johnson Company’s NOL carry forward. The amount of the taxable income of any new loss corporation for any post-change year which may be offset by pre-change losses shall not exceed the section 382 limitation for such year. As in IRC sec 382 limitations are except as otherwise provided in this section, the section 382 limitation for any post-change year is an amount equal to— (A) the value of the old loss corporation, multiplied by (B) the long-term tax-exempt
A C Corporation is considered an entirely separate entity and those that make up the company such as officers, directors, managers, and shareholders are not personally liable for the acts of the company. This is the main advantage of a C Corporation. A disadvantage is that profits of the corporation are taxed at two different levels. One at the corporate level and then another on the dividends of the shareholders. · Liability-A C Corporation has limited liability in that it is seen as a separate entity from the owners, which in turn protects their personal assets from being taken to pay for the company’s debt or liability losses.
Additionally, if the quantity or quality of the assets productivity is increased capitalize cost of improvements or replacement to the asset account. It is also important to consider whether the item being repaired is already capitalized and being depreciated and whether it is being separately tracked or considered part of a larger asset. If the item is capitalized and being separately tracked, dispose of this asset on the books and capitalize the repair and maintenance addition. This avoids having the same asset on the books twice with both being depreciated. Moreover, Small Fries Inc. should not report the repairs and maintenance in their balance sheet as aggregate cost but instead designated the expense to each facility as each expense is incurred.
If no service contract exists, those fees are recognized over the average customer relationship period. Associated expenses are deferred only to the extent of such deferred revenue. For contracts that involve the bundling of services, revenue is allocated to the services based on their relative fair value. AT&T Inc. records the sale of equipment to customers as gross revenue when AT&T Inc. is the primary obligor in the arrangement, when title is passed and when the products are accepted by customers. For agreements involving the resale of third-party services in which AT&T Inc. is not considered the primary obligor of the arrangement, AT&T Inc. records the revenue net of the associated costs incurred.
Lehman Brothers file bankruptcy, Merrill Lynch was bought out by Bank of America, and AIG, an insurance company that sold insurance to investment banks to cover the downturn of investments, was on the brink of financial distress along with so many other failing financial institutions. Paulson, knowing that something had to be done to stop the fall of the economy, along with Bernanke & Geithner basically went to Congress and asked for 700 billion to bail out banks. This was the creation of TARP (Troubled Asset Relief Project). Paulson was asking Congress to approve a program the size of the entire federal budget (which took around 15 months to prepare) in just a couple of week’s time. All of the big banks participated in TARP.