Identify the reason for why the controller wants to defer the revenue but accrue the expenses and if it is ethical or not.

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Chapter 16, Problem 54P

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Identify the reason for why the controller wants to defer the revenue but accrue the expenses and if it is ethical or not.

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JH, Inc., is a calendar year, accrual basis corporation with Joe as its sole shareholder (basis in his stock is $90,000). On January 1 of the current year, JH Corporation has accumulated E & P of $200,000. Before considering the effect of the distribution described below, the corporation’s current E & P is $50,000. On November 1, JH distributes an office building to Joe. The office building has an adjusted basis of $80,000 (fair market value of $100,000) and is subject to a mortgage of $110,000. Assume that the building has been depreciated using the ADS method for both income tax and E & P purposes. What are the tax consequences of the distribution to JH and to Joe? (In your answer, be sure to describe the effects on taxable income for both JH and Joe, the impact of the distribution on JH’s E & P, and Joe’s basis in the building.)

Joe is the sole shareholder of JH Corporation. Joe sold his stock to Ethan on October 31 for $150,000. Joe’s basis in JH stock was $50,000 at the start of the year. JH distributed land to Joe immediately before the sale. JH’s basis in the land was $20,000 (fair market value of $25,000). On December 31, Ethan received a $75,000 cash distribution from JH. During the year, JH has $20,000 of current E & P and its accumulated E & P balance on January 1 is $10,000. Which of the following statements is true? a. Joe recognizes a $110,000 gain on the sale of his stock. b. Joe recognizes a $100,000 gain on the sale of his stock. c. Ethan receives $5,000 of dividend income.d. Joe receives $20,000 of dividend income. e. None of the above.

Answer 2

Question

Chapter 16, Problem 54P

To determine

Identify the reason for why the controller wants to defer the revenue but accrue the expenses and if it is ethical or not.

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Answer 3

Question

Chapter 16, Problem 54P

To determine

Identify the reason for why the controller wants to defer the revenue but accrue the expenses and if it is ethical or not.

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Answer 4

Question

Chapter 16, Problem 54P

To determine

Identify the reason for why the controller wants to defer the revenue but accrue the expenses and if it is ethical or not.

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Answer 5

Chapter 16, Problem 54P

To determine

Identify the reason for why the controller wants to defer the revenue but accrue the expenses and if it is ethical or not.

Answer 6

Chapter 16, Problem 54P

To determine

Identify the reason for why the controller wants to defer the revenue but accrue the expenses and if it is ethical or not.

Answer 7

Chapter 16, Problem 54P

To determine

Identify the reason for why the controller wants to defer the revenue but accrue the expenses and if it is ethical or not.

Answer 8

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Answer 9

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Answer 11

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Identify the reason for why the controller wants to defer the revenue but accrue the expenses and if it is ethical or not.

Solution Summary: The author explains that the controller's practice of deferring revenue and accruing expenses is unethical. The controller tries to dodge the budgeted profit in order to receive a high bonus under different incentive schemes.

Identify the reason for why the controller wants to defer the revenue but accrue the expenses and if it is ethical or not.

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Chapter 16 Solutions