QUESTION ONE

Describe the underlying event(s) which resulted in the following journal entries:

1. Accumulated Depreciation 45,000      

Cash 10,000

Gain 10,000

Equipment 45,000

2. Painting Expense 7,500

Liability to ABC Painting 7,500

3.  Capital Stock 95,000

Treasury Stock 95,000 

QUESTION TWO

Your supervisor has asked you to determine the "profit" a particular program generates. The program is a substantial part of your employer's business: it comprises about 10% of the operations.  You generally know that program revenues are $2,000,000.  Several employees spend a substantial, but far less than all of their time, working in the program/division.  They spend the remainder of their time working for other unrelated projects of divisions.  You estimate their average program time is 40% and their total salary and benefits "cost" $1,500,000.  The business owns the building in which all work is performed, as well as the surrounding land and parking area.  You are unclear what to do, but this is all the information you have.  You need to answer your supervisor's question.  You are allowed to ask questions.  What questions would you ask and how would you approach your analysis in response to the answers you receive?  You may anticipate realistic answers to your questions.  I am particularly interested in the questions you would ask your supervisor and how they would affect your answer, as well as why you would ask those questions.

QUESTION THREE

Describe a situation in which the use of the cash method of accounting would be a proper and fair measure of income in a tort or family law matter.  Your situation must involve a person who is reporting at least $100,000 annually in income under the cash method. 

QUESTION FOUR

List five reasons why a US income tax return is often a poor measure of income in a tort or family law matter.

1.

2.

3.

4.

5.

QUESTION FIVE

Former Husband invested $500,000 in a 10-year certificate of deposit.   He purchased the CD on January 2, 2015.   It earns 2% nominal annual interest compounded monthly. Determine the 2015 dollar amount of gross income he has for child support purposes under the following alternativescenarios.  

You should assume the applicable statute provides: "Income for child support calculations includes interest, dividends, annuity payments, and gains on property received during the year."

1. He leaves all the money in the CD account, which pays him nothing during the year.
$__________________

2.  He sells the CD for $500,000 plus accumulated interest on December 31, 2015. 
$__________________

3. He withdraws the interest earned each year at the end of the year.
$__________________

4.  He has the money in a money market account, paying the same rate (assume this is realistic) and he withdraws $65,000 at the end of the year.
$__________________

5.  He invested the money in a 10-year annuity paying the same rate and his 2015 annuity receipts were a bit over $65,000.
$__________________

6.  He invested the $500,000 in stocks on January 2, 2015.  The stocks are worth $600,000 at the end of the year.  He has sold none of them.
$___________________

7.  He invested the $500,000 in undeveloped land on January 2, 2015.  He believes it is worth $700,000 at the end of the year.
$___________________

8.  He used the money to buy 999 cows and one bull on January 2, 2015.  At the end of the year he has 1500 cows, 1 bull and 499 steers. He has neither sold nor eaten any.
$___________________