ACC 405 Final Project Two

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ACC 405 Final Project Two Guidelines and Rubric

Overview

In the role of the accountant, decisions are not always made based on what the numbers show. There are often ethical considerations in addition to financial considerations. While the rules and guidelines of the Generally Accepted Accounting Principles (GAAP) are set firmly in place, it is up to the accountant to interpret them. For Final Project Two, you will create a memo to help three partners in a business fairly decide how to split the profits from the first year of their business. While one of the partners has infused the most cash into the business, the others have brought value in unique ways—including attracting customers and overseeing the day-to-day activities. The final product will be submitted in Module Seven. In this assignment, you will demonstrate your mastery of the following course competencies:

ď‚· ACC-405-01: Analyze economic activity of complex or unique business situations.

ď‚· ACC-405-03: Explore the impact of emerging domestic, global, and technological factors that could affect financial reporting.

Prompt

Compose a memo addressing the allocation of profits to three partners of a new business: Alan, Bob, and Carol. It is your responsibility to address the potential ways in which the first-year profits can be divided among these partners, including whether the partners should be taking a salary, how the partners’ capital accounts may be affected by various decisions, and the most ethical way that the profits could be divided. Your memo should answer the following prompt: A new business client comes to your office. There are three owners of the business. The three individuals, Alan, Bob, and Carol, are thinking about forming a partnership. Alan is only investing $1 million in cash. He will not have anything to do with the daily activities of the business. Bob has had some experience in the business and will be responsible for the day-to-day operations of the business. Carol has a great deal of experience and many contacts within the business. She will be responsible for attracting new clients. Neither Bob nor Carol are investing cash into the partnership. During the first year of operation, the partnership generated a profit of $150,000. None of the partners received distributions during the year.

 

 

 

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Specifically, the following critical elements must be addressed:

I. Allocation of Profits A. Explain how allocating the profits evenly between the partners would work. Consider the fairness to each of the partners in your response.

[ACC-405-03] B. What would be the value of each partner’s capital account at the end of the year, given that the profits were allocated evenly among the three?

Support your answer with quantitative data and an explanation of how you came to this conclusion. [ACC-405-01] C. Explain an alternative method of allocating the profits if 80% of the profits was given to the cash investor and the remaining amount was split

evenly between the other two partners. [ACC-405-03] D. What would be the value of each partner’s capital account at the end of the year, given this alternative allocation method? Support your

answer with quantitative data and an explanation of how you came to this conclusion. [ACC-405-01]

II. Payment of Salary A. Should the two partners who are working in the business receive a salary? Why or why not? Be sure to support your decision with research and

quantitative data. [ACC-405-03] B. If the two non-investors did receive a salary, how would their capital account be affected? How would this impact a potential future liquidation

or buyout? Be sure to thoroughly explain and support your answer. [ACC-405-03] C. Should the cash investor receive a higher share of the profits or other sharing options? Why or why not? Support your opinions with research

and quantitative data. [ACC-405-03] D. If the cash investor did receive a salary, how would his capital account be affected? How would this impact a potential future liquidation or

buyout? Be sure to thoroughly explain and support your answer. [ACC-405-01] E. How do the payment of salary and the allocation of profit affect entries and the financial bottom line? Be sure to support your explanation with

concrete examples. [ACC-405-01] F. How could the payment of salary and allocation of profit be a more effective method of splitting the company’s profits for the three partners?

Explain a scenario in which the three partners would all be compensated fairly, and support your answer with logical reasoning. [ACC-405-03] G. What would be the value of each partner’s capital account at the end of the year, given your proposed fair allocation method? Support your

answer with quantitative data and an explanation of how you came to this conclusion. [ACC-405-01]

Deliverable

Final Submission: Partnership Accounting Memo In Module Seven, you will submit your final project. It should be a complete, polished artifact containing all of the critical elements of the final product. This submission will be graded with the Final Project Two Rubric.

 

 

 

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Final Project Two Rubric

Guidelines for Submission: The memo should be about 2–3 pages in length and should use double spacing, 12-point Times New Roman font, one-inch margins, and citations in APA style.

Critical Elements Exemplary (100%) Proficient (85%) Needs Improvement (55%) Not Evident (0%) Value

Allocation of Profits: Allocating the Profits

[ACC-405-03]

Meets “Proficient” criteria and expertly balances brevity with detail

Explains a fair allocation of profits to each partner, and response is clear and free of errors

Explains a fair allocation of profits to each partner, but response is unclear or contains inaccuracies

Does not explain a fair allocation of profits to each partner

7.92

Allocation of Profits: Value of Capital Account

[ACC-405-01]

Meets “Proficient” criteria, demonstrates a complex grasp of capital accounts, and supports answer with strong qualitative data

Provides value of each partner’s capital account and supports answer with qualitative data

Provides value of each partner’s capital account but does not support answer with qualitative data

Does not provide value of each partner’s capital account

9.50

Allocation of Profits: Alternative Method

[ACC-405-03]

Meets “Proficient” criteria and illustrates a sophisticated explanation of alternative methods for allocating profits

Explains an alternative method for allocating profits

Explains an alternative method for allocating profits, but response contains errors or is illogical

Does not explain an alternative method for allocating profits

7.92

Allocation of Profits: Value of Capital Account

with Alternative Allocation Method

[ACC-405-03]

Meets “Proficient” criteria and provides keen insight into capital accounts given the alternative method

Calculates the value of each partner’s capital account given the alternative method

Calculates the value of each partner’s capital account but doesn’t consider the alternative method, or response contains errors or is illogical

Does not calculate the value of each partner’s capital account using the alternative method

7.92

Payment of Salary: Salary Distribution [ACC-405-03]

Meets “Proficient” criteria and demonstrates a sophisticated awareness of salary distributions

Determines whether or not the two partners should receive a salary and explains why or why not

Determines whether or not the two partners should receive a salary but does not explain why or why not

Does not determine whether or not the two partners should receive a salary

7.92

Payment of Salary: Non- Investor Capital Accounts

[ACC-405-03]

Meets “Proficient” criteria and makes cogent connections between salary and capital accounts

Considers if the non-investors received a salary, how their capital account would be affected; thoroughly explains and supports response

Considers if the non-investors received a salary, how their capital account would be affected, but does not explain or support response

Does not consider if the non- investors received a salary, how their capital account would be affected

7.92

 

 

 

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Critical Elements Exemplary (100%) Proficient (85%) Needs Improvement (55%) Not Evident (0%) Value

Payment of Salary: Cash Investor

[ACC-405-03]

Meets “Proficient” criteria and cites specific, relevant examples and data to establish a robust context for analysis

Determines why or why not the cash investor should receive a higher share of the profits and supports opinions with research and quantitative data

Determines why or why not the cash investor should receive a higher share of the profits but does not support response with research or quantitative data

Does not determine why or why not the cash investor should receive a higher share of the profits

7.92

Payment of Salary: Cash Investor Capital Account

[ACC-405-01]

Meets “Proficient” criteria and uses industry-specific language to establish expertise

Thoroughly explains how the cash investor’s capital account would be affected if the investor took a salary

Explains how the cash investor’s capital account would be affected if the investor took a salary, but response is not cohesive or contains errors

Does not explain how the cash investor’s capital account would be affected if the investor took a salary

9.50

Payment of Salary: Financial Bottom Line

[ACC-405-01]

Meets “Proficient” criteria and draws a connection between payment of salary and the bottom line of the company that demonstrates expertise

Explains how the payment of salary could impact the financial bottom line of the company and supports argument with examples

Explains how the payment of salary could impact the financial bottom line of the company but does not support argument with examples

Does not explain how the payment of salary could impact the financial bottom line of the company

9.50

Payment of Salary: Splitting the Company’s

Profits [ACC-405-03]

Meets “Proficient” criteria and demonstrates a sophisticated awareness of splitting company profits

Explains a scenario in which the payment of salary and allocation of profit could be a more effective method of splitting the company’s profits

Explains a scenario for the payment of salary and allocation of profit, but it is not more effective, or response contains errors or is illogical

Does not explain a scenario in which the payment of salary and allocation of profit could be a more effective method of splitting the company’s profits

7.92

Payment of Salary: Value of Each Partner’s Capital

Account [ACC-405-01]

Meets “Proficient” criteria and demonstrates a complex grasp of capital accounts

Accurately calculates the value of each partner’s capital account at the end of the year and supports answer with quantitative data and thorough explanation

Calculates the value of each partner’s capital account at the end of the year, but does not support answer with quantitative data or thorough explanation, or response contains errors or is inaccurate

Does not accurately calculate the value of each partner’s capital account at the end of the year

9.50

Articulation of Response Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy to read format

Submission has no major errors related to citations, grammar, spelling, syntax, or organization

Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas

Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas

6.56

Total 100%

 
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Personal Finance

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Write a 700- to 1,050-word personal finance mission statement that describes where you want to be financially and how you can get there.

Include the following:

o An analysis of your personal values as related to finances.

o An analysis of your specific financial goals and future vision.

o Formulate one simple action to take to meet goals and vision.

Formulate one complex action to take to meet your goals and vision.

Assignment Content

1.

Top of Form

Write a 700- to 1,050-word personal finance mission statement that describes where you want to be financially and how you can get there.

 

Include the following:

· An analysis of your personal values as related to finances.

· An analysis of your specific financial goals and future vision.

· Formulate one simple action to take to meet goals and vision.

 

Formulate one complex action to take to meet your goals and vision.

Bottom of Form

Assignment Content

1.

Top of Form

Write a 700- to 1,050-word personal finance mission statement that describes where you want to be financially and how you can get there.

 

Include the following:

· An analysis of your personal values as related to finances.

· An analysis of your specific financial goals and future vision.

· Formulate one simple action to take to meet goals and vision.

 

Formulate one complex action to take to meet your goals and vision.

Bottom of Form

 
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Case: Effect of Management Evaluation on EOQ model (Quantitative)

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Case: Effect of Management Evaluation on EOQ model (Quantitative)

In Chapter 20 of your textbook, complete the Effect of Management evaluation on EOQ model, Problem 20-28, for Computer Depot.

Write a paper that answers the four questions included at the end of the case and provides your solution. Include your description of the approach to the solutions and your interpretation of the effects of management behavior. Your paper should meet the following requirements:

· 4-5 pages in length.

· Formatted according to CSU-Global Guide to Writing and APA Requirements.

· Include at least three outside sources in addition to your textbook. The CSU-Global Library is a good place to locate these sources.

 
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ACC 315

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Problem 17-51 (LO. 4, 7)

Sasha and Tara are married, filing jointly. Their correctly determined 2016 taxable income is $127,000. This taxable income includes a $5,000 § 1231 gain from the sale of business land that was part of their $22,000 of net long-term capital gain. None of the net long-term capital gain was from collectibles.

Click here to access the tax rate schedules.

If an amount is zero, enter”0″. If required, round your answer to the nearest dollar.

a.  In addition to their Form 1040, the couple would include   in their income tax return, because they have a § 1231 gain that became part of their net long-term capital gain.

b.  Is any of the § 1231 gain unrecaptured § 1250 gain and subject to the 25% tax rate?
Because business land was sold, $[removed] of the § 1231 gain is unrecaptured § 1250 gain subject to the 25% tax rate.

c.  Compute the couple’s tax on taxable income by using the alternative tax on net capital gain method.
The tax on ordinary taxable income is $[removed] and the tax on the capital gain is $[removed] for a total tax of $[removed] .

 

 

Problem 17-41 (LO. 2, 3, 4)

On May 2, 1987, Hannah acquired residential rental real estate for $450,000. Of the cost, $100,000 was allocated to the land and $350,000 to the building. On August 20, 2016, the building, which then had an adjusted basis of $0, was sold for $545,000 and the land for $200,000.

If an amount is zero, enter “0”.

a.  Determine the amount and character of the recognized gain from the sale of the building.

There is a gain of $[removed] from the sale of the building, of which $[removed] is ordinary loss  due to
§ 1250 recapture.

b.  Determine the amount and character of the recognized gain from the sale of the land.

The   from the sale of the land is $[removed], of which $[removed] is not subject to recapture.

 

 

Problem 17-45 (LO. 2, 3, 5)

Anna received tangible personal property with a fair market value of $65,000 as a gift in 2014. The donor had purchased the property for $77,000 and had taken $77,000 of depreciation. Anna used the property in her business. Anna sells the property for $23,000 in 2016.

a.   Indicate whether the following statements are “True” or “False” regrading the tax status when Anna sells the property.

• The property is a § 1231 asset for Anna.
• Anna’s carryover basis was $65,000.
• The property has § 1245 depreciation recapture potential of $77,000.

b.   When she sells the property for $23,000, how much of the gain, if any, is § 1245 depreciation recapture? $[removed]

 

 

Problem 17-52 (LO. 7)

On August 10, 2014, Jasper purchased business equipment for $40,000. On his 2014 tax return, $40,000 of § 179 immediate expense was taken on the equipment. On July 14, 2015, Jasper sold the equipment for $12,000. What is the nature of disposition gain or loss? Where is it reported on the 2015 Form 4797?

Refer to Form 4797.

 

The property was  a § 1231 asset. Therefore, the gain of $[removed] is treated as ordinary income . As such it is reported on the 2015 Form 4797,  .

 

 

Discussion Question 18-3 (LO. 1)

A law practice was incorporated on January 1, 2016, and expects to earn $25,000 per month before deducting the lawyer’s salary. The lawyer owns 100% of the stock. The corporation (a personal service corporation) and the lawyer both use the cash method of accounting. The corporation does not need to retain any of the earnings in the business; thus, the salary of the lawyer (a calendar year taxpayer) will equal the corporation’s net income before salary expense.

Complete the statement below in response to the following question: “If the corporation could choose any tax year and pay the lawyer’s salary at a time that would be most tax efficient (but at least once every 12 months), what tax year should the corporation choose and when should the salary be paid each year?”

The ideal tax year would end on  , and the salary would be paid each  . By using a   year, the lawyer will always have $[removed] of deferred income.

 

 

Discussion Question 18-7 (LO. 2)

In December 2016, Nell, Inc., an accrual basis taxpayer, paid $12,000 for insurance premiums for her business for the 2017 calendar year.

Nell Inc., can deduct $[removed] of insurance premiums in 2016.

 

 

Discussion Question 18-10 (LO. 2)

Based on the following events, complete the statements regarding cash and accrual methods of accounting:

a.  Purchased new equipment, paying $50,000 cash and giving a note payable for $30,000 due next year.

must capitalize the cost of the equipment, $[removed], and recover the cost through depreciation over the class life of the asset.

b.  Paid $3,600 for a three-year service contract on the new equipment.

must capitalize the prepaid expense and recover its cost through a three-year amortization.

c.  Paid $1,800 for services to be provided over the current and following years. Assume that the accrual basis taxpayer has not adopted Rev. Proc. 2004–34.

will report $1,800 in the year of receipt.

d.  Received a $3,000 note from a customer for services provided in the current year. The market value of the note was only $2,400.

includes the $3,000 in gross income in the year the services are performed.   will include the $2,400 in income when the note is received.

 

 

Problem 18-43 (LO. 1)

In 2015, Juan entered into a contract to write a book. The publisher advanced Juan $50,000, which was to be repaid out of future royalties. If the book was not completed by the end of 2016, however, Juan would be required to repay the publisher for the advance. Juan did not complete the book in 2016, and in accordance with the agreement, he repaid the $50,000 to the publisher in 2017. Juan is a cash basis taxpayer.

a.  Indicate whether the following statements are “Correct” or “Incorrect”. Assume Juan’s marginal tax rate is 15% in 2015 and 35% in 2017.

• Juan would be required to include in 2015 gross income the $50,000.
• In 2015, he would be allowed a deduction for the repayment.
• In 2017, he would be allowed a deduction for the repayment.
• The deduction in 2017 would reduce his 2017 tax by $17,500.

b.  What if Juan’s marginal tax rate was 35% in 2015 and 15% in 2017?

The repayment in 2017 would usually reduce his taxes by $[removed] . However, § 1341 permits the repayment of the income received under a claim of right to reduce his taxes in 2017 by $[removed].

 

 

Problem 18-46 (LO. 2, 5)

Select the accounting method that the taxpayers are allowed to use in the following businesses.

a. A gift shop with average annual gross receipts of $900,000.
b. An accounting partnership with annual gross receipts of $12 million.
c.  A drywall subcontractor who works on residences and has annual gross receipts of $3 million.
d. An incorporated insurance agency with annual gross receipts of $6 million.  

 

 

 

Problem 18-47 (LO. 2)

Blue Company, an architectural firm, has a bookkeeper who maintains a cash receipts and disbursements journal. At the end of the year (2016), the company hires you to convert the cash receipts and disbursements into accrual basis revenues and expenses. The total cash receipts are summarized as follows:

Cash sales $150,000
Collections on accounts receivable 350,000
Bank loan 90,000
Total cash receipts $590,000

The accounts receivable from customers at the end of the year are $120,000. You note that the accounts receivable at the beginning of the year were $190,000. The cash sales included $30,000 of prepayments for services to be provided over the period January 1, 2016, through December 31, 2018.

Do not round intermediate computations. If required, round your final answers to the nearest dollar.

a.  Of the adjustments below, classify as either “Yes” (those that will be made) or “No” (not made) regarding the $590,000 of cash receipts to be converted to the accrual method.

• The ending accounts receivable are added to the cash receipts.
• The beginning accounts receivable are added to the cash receipts.
• The loan proceeds are deducted from the cash receipts.
• The entire amount of the prepayment for services is deducted from the cash receipts.

The company’s accrual basis gross income for 2016 is $[removed].

b.  Which method should be recommended for Blue to use, the cash method or the accrual method?

c.  The company does not maintain an allowance for uncollectible accounts. Would you recommend that such an allowance be established for tax purposes?
 

 

 

Problem 18-59 (LO. 5)

Rust Company is a real estate construction company with average annual gross receipts of $4,000,000. Rust uses the completed contract method, and the contracts require 18 months to complete.

a.  Which of the following costs would be allocated to construction in progress by Rust? Classify the following costs as either one that should be “Capitalized” or one that should be “Expensed”.

• The payroll taxes on direct labor.
• The current services pension costs for employees whose wages are included in direct labor.
• Accelerated depreciation (for financial statement purposes) on equipment used for the contracts.
• Freight charges on materials assigned to contracts.
• The past service costs for employees whose wages are included in direct labor.
• Bidding expenses for contracts awarded.

 

b.  Assume that Rust generally builds commercial buildings under contracts with the owners and reports the income using the completed contract method. The company is considering building a series of similar stores for a retail chain. The gross profit margin would be a low percentage, but the company’s gross receipts would triple.

Complete a letter to your client, Rust Company, explaining the tax accounting implications of entering into these contracts.

Hoffman, Young, Raabe, Maloney, & Nellen, CPAs
5191 Natorp Boulevard
Mason, OH 45040
September 18, 2016
Rust Company
P. O. Box 1000
Harrisonburg, VA 22807
To the Board of Directors of Rust Company:
You asked me to summarize the tax accounting implications upon entering into the proposed line of high-volume and low-gross-profit-rate contracts. The new contracts would generally cause   of your tax liabilities.
With the increased volume, gross receipts would exceed $[removed] a year, and the company   be required to use the percentage of completion method. Under your present method of accounting, the completed contract method, the   on a contract is recognized   the contract is completed, which is generally the year following the year when the contract is started or the second year after the contract is started. Under the percentage of completion method,   of the profit on a contract is included in the income each year.
As a result of exceeding $[removed] in gross receipts, these contracts   subject to the percentage of completion method—and not just the new type of contract you are considering. Therefore, in deciding whether to enter these contracts, or the contract terms, you should take into account the added interest   caused by   payments of income taxes.
Please contact me if you would like to ask any questions, or if you would like me to calculate the actual effects of changing to the percentage of completion method.
Sincerely,
Stuart Day, CPA
Partner

 

 

Problem 18-63 (LO. 6)

Grouse Company is a furniture retailer whose average annual gross receipts for the three preceding years exceeded $10,000,000. In the current tax year, the company purchased merchandise with an invoice price of $15,000,000, less a 2% discount for early payment. However, the company had to borrow on a bank line of credit and paid $150,000 interest to take advantage of the discount for early payment.

Freight on the merchandise purchased totaled $360,000. For September, Grouse agreed to pay the customer’s freight on goods sold. The total cost of this freight-out was $70,000. The company has three stores and operates a warehouse where it stores goods. The cost of operating the warehouse was $240,000. The $240,000 includes labor, depreciation, taxes, and insurance on the building. The cost of the purchasing operations totaled $420,000.

The jurisdiction where the company operates imposes a tax on inventories on hand as of January 1. The inventory tax for this year is $24,000. The invoice cost of goods on hand at the end of the year is $3,000,000.

a.   Grouse’s total cost of goods purchased is $[removed].

b.   Grouse’s total cost of ending inventory using the FIFO method is $[removed].

 

 
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