Able owns 100% of ABC Corporation, which operates a restaurant. Able founds the corporation with $1,000 in capital. ABC has its own bank account, and Able does not commingle the corporation's funds with his own. ABC has never had a directors' meeting or a shareholders' meeting. ABC does not employ a bookkeeper, and its financial records are incoherent. ABC operates for six months and does not generate a profit. Shortly thereafter, a customer dies of food poisoning due to contaminated ham served by ABC. Can the customer's estate hold Able personally liable for any judgment rendered against ABC?
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- Dr. Roger Jones is a successful dentist but is experiencing recurring financial difficulties. Forexample, Dr. Jones owns his office building, which he leased to the professional corporation thathoused his dental practice. (He owns all shares in the corporation.) After the corporation’s failure to pay payroll taxes for the past 6 months, however, the Internal Revenue Service is threatening to impound the business and sell its assets. Also, the corporation has had difficulty payingits suppliers, owing one of them over $200,000 plus interest. In the past, Dr. Jones had borrowedmoney on the equity in either his personal residence or his office building, but he has grownweary of these recurring problems and has hired a local consultant for advice.According to the consultant, the financial difficulties facing Dr. Jones have been caused bythe absence of proper planning and control. Budgetary control is sorely needed. The followingfinancial information is available for a typical month:…Bernie Ebbers, the CEO of WorldCom, a major telecommunications company, was having personal financial troubles. Ebbers pledged a large stake of his WorldCom stock as security for some personal loans. As the price of WorldCom stock sank, Ebbers’s bankers threatened to sell his stock in order to protect their loans. To avoid having his stock sold, Ebbersasked the board of directors of WorldCom to loan him nearly $400 million of corporate assets at 2.5% interest to pay off his bankers. The board agreed to lend him the money.Comment on the decision of the board of directors in this situation.John is president of a small corporation. At the end of the year, his accountant calculates the following costs attributable to the business. Payroll for wages and salaries: $100,000 Interest paid to banks: $40,000 Depreciation on equipment: $80,000 Supplies, utilities: $50,000 The equity of the corporation, a measure of the value of its assets less debt, is estimated to be $200,000. John forgoes a return of 10% per year by keeping the equity in the corporation. The normal profit for the corporation this year is Select one: O a. zero. O b. $24,000. O c. $50,000. O d. $20,000.
- Bruce buys $9,000 of Sketchy Corporation stock. Unfortunately, a major newspaper reveals the very next day that the company is being investigated for accounting fraud, and the stock price falls by 62%. What is the percentage increase now required for the value of Bruce's stock to get back to what he paid for it?Kimball, a partner in a one-office firm, inherits 15 shares of Spotless Housekeeping Services stock. The stock has a market value of $25 per share; there is a ready market for them; and there are 300,000 shares outstanding. Spotless is an audit client of the firm, and Kimball does no work or consulting for Spotless engagements. Which of the following is CORRECT regarding Kimball receiving this stock and maintaining the firm's independence with Spotless? As long as Kimball does not work on the engagements for Spotless, nothing need be done. If he works on the engagements for Spotless, then the shares must be promptly sold to preserve the firm's independence. Since the shares are worth only $375 and they were inherited, nothing need be done. If Kimball transfers the shares to a blind trust where he is the beneficiary, independence with Spotless will not be impaired. The shares must be sold within 30 days of their receipt.Glen,Dale,and Al are partners who own Fizz.Glen made a capital contribution of $5000,Dale's was $15 000,and Al's was $10 000.Glen is a general partner and he oversees the management of the Fizz business.The partnership borrowed $30 000 from the bank.The partners have no agreement relating to the sharing of profits and losses.Fizz became insolvent and unable to repay the loan.The bank sued Dale personally and recovered the full $30 000 from him.Dale then sued Glen.When Dale's lawyer provided him with advice,what amount did she likely indicate he would be able to legally recover from Glen? A) $5000 B) $10 000 C) $15 000 D) $20 000
- Adams, by fraudulent representations, induced Barton to purchase one hundred shares of the capital stock of the Evermore Oil Company. The shares were worthless. Barton executed and delivered to Adams a negotiable promissory note for $5,000, dated May 5, in full payment for the shares, due six months after date. On May 20, Adams indorsed and sold the note to Cooper for $4,800. On October 21, Barton, having learned that Cooper now held the note, notified Cooper of the fraud and stated he would not pay the note. On December 1, Cooper negotiated the note to Davis who, while not a party, had full knowledge of the fraud perpetrated on Barton. Upon refusal of Barton to pay the note, Davis sues Barton for $5,000. Is Davis a holder in due course or, if not, does he have the rights of a holder in due course? Explain.Trevorson Electronics is a small company privately owned by Jon Trevorson, an electrician who installs wiring in new homes. Because the company's financial statements are prepared only for tax purposes, Jon uses the direct write-off method. During 2018, its first year of operations, Trevorson Electronics sold $28,400 of services on account. The company collected $25,200 of these receivables during the year, and Jon believed that the remaining $3,200 was fully collectible. In 2019, Jon discovered that none of the $3,200 would be collected, so he wrote off the entire amount. To make matters worse, Jon sold only $5,100 of services during the year. Required: 1. Prepare journal entries to record the transactions in 2018 and 2019. 2-a. Using only the information provided (ignore other operating expenses), prepare comparative income statements for 2018 and 2019. 2-b. Was 2018 really as profitable as indicated by its income statement? 2-c. Was 2019 quite as bad as indicated by its income…Trevorson Electronics is a small company privately owned by Jon Trevorson, an electrician who installs wiring in new homes. Because the company's financial statements are prepared only for tax purposes, Jon uses the direct write-off method. During 2018, its first year of operations, Trevorson Electronics sold $28,400 of services on account. The company collected $25,200 of these receivables during the year, and Jon believed that the remaining $3,200 was fully collectible. In 2019, Jon discovered that none of the $3,200 would be collected, so he wrote off the entire amount. To make matters worse, Jon sold only $5,100 of services during the year. Required: 1. Prepare journal entries to record the transactions in 2018 and 2019. 2-a. Using only the information provided (ignore other operating expenses), prepare comparative income statements for 2018 and 2019. 2-b. Was 2018 really as profitable as indicated by its income statement? 2-c. Was 2019 quite as bad as indicated by its income…
- Ned Naïve operated several franchise stores for a large company, and, at the home office’s suggestion, consolidated its payroll and accounting functions with Andy the Accountant. Andy is not a CPA. Last year, Andy began embezzling the taxpayer’s escrowed payroll tax withholdings and failed to remit required amounts for the four quarters. The IRS assessed penalties on Ned for failing to make the proper withholding deposits during the year. What are factual issues, legal issues and primary research questions on this case?Dr. Smith is the CEO of the Get-Well Corp. He is a leader in biotechnology science, and is revered by his peers. He owns 10 % of the company's outstanding shares. He would like to borrow $500,000 from the Get-Well Corp. His CFO, Ms. Daily is directed to prepare a corporate check for $500,000 which he deposits in his personal account. At year end, the independent auditor sees this transaction in the cash disbursements journal. You have learned that Dr. Smith intends to submit the audited report to a firm considering a merger with Get-Well Corp. How would you advise the auditor to handle this transaction?Joe Rezzo, a college student majoring in accounting, helped finance his education with a part-time job maintaining all accounting records for a small business, White Company, located near the campus. Upon graduation, Rezzo passed the CPA examination and joined the audit staff of a national CPA firm. However, he continued to perform all accounting work for White Company during his “leisure time.” Two years later, Rezzo received his CPA license and decided to give up his part-time work with White Company. He notified White that he would no longer be available after preparing the year-end financial statements. On January 7, Rezzo delivered the annual financial statements as his final act for White Company. The owner then made the following request: “Joe, I am applying for a substantial bank loan, and the bank loan officer insists upon getting audited financial statements to support my loan application. You are now a CPA, and you know everything that’s happened in this company and…