Concept explainers
Paul wholly owns and operates an office supplies business and a printing/shipping business through separate entities. The office supplies business and printing/shipping business share centralized purchasing to obtain volume discounts and share a centralized accounting office that performs all necessary accounting for both businesses (including preparing financial statements, paying bills, collecting receivables, and preparing payrolls for both businesses). Paul maintains a website that promotes both businesses. The businesses operate in separate spaces in the same building (next to each other), but share an office and a shipping/receiving space at the rear of the building and an opening in the shared inside wall that allows customers to move between the businesses without going outside. Each business owns its own equipment and employs its own staff. May Paul aggregate these businesses for purposes of the QBI deduction? Explain.
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Individual Income Taxes
- Hepworth Credit Corporation is a wholly owned subsidiary of a large manufacturer of computers. Hepworth is in the business of financing computers, software, and other services that the parent corporation sells. Hepworth has two departments that are involved in financing services: the Credit Department and the Business Practices Department. The Credit Department receives requests for financing from field sales representatives, records customer information on a preprinted form, and then enters the information into the computer system to check the creditworthiness of the customer. (Other actions may be taken if the customer is not in the database.) Once creditworthiness information is known, a printout is produced with this information plus other customer-specific information. The completed form is transferred to the Business Practices Department. The Business Practices Department modifies the standard loan covenant as needed (in response to customer request or customer risk profile). When this activity is completed, the loan is priced. This is done by keying information from the partially processed form into a personal computer spreadsheet program. The program provides a recommended interest rate for the loan. Finally, a form specifying the loan terms is attached to the transferred-in document. A copy of the loan-term form is sent to the sales representative and serves as the quote letter. The following cost and service activity data for the Business Practices Department are provided for the month of May: All materials and supplies are used at the end of the process Required: 1. How would you define the output of the Business Practices Department? 2. Using the FIFO method, prepare the following for the Business Practices Department: a. A physical flow schedule b. An equivalent units schedule c. Calculation of unit costs d. Cost of ending work in process and cost of units transferred out e. A cost reconciliationarrow_forwardRandall, Inc. is a private company that manufactures heavy machinery. The company has an active audit committee and board of directors. The audit committee consists of two outside directors and Howard Kress, the company chief financial officer. The audit committee meets quarterly to provide oversight of financial reporting, including reviewing new accounting policies and unusual transactions. Howard Kress personally reviews and approves any related party transactions. Internal audit of operating units are performed by the internal auditor, who reports directly to Laura Howe, the chief operating officer. The company has written code of conduct and employees agree to adhere to the code when they are hired. The company also has a hotline for confidential reporting of unethical behavior that is staffed by the corporate controller. The audit committee reviews summaries of all incidents and investigations performed. Required: Identify the weaknesses in Randall’s system of corporate…arrow_forwardYozamba Technology has two divisions, Consumer and Commercial, and two corporate service departments, Tech Support and Purchasing. The corporate expenses for the year ended December 31, 20Y7, are as follows: Tech Support Department $567,000 Purchasing Department 96,900 Other corporate administrative expenses 590,000 Total corporate expense $1,253,900 The other corporate administrative expenses include officers’ salaries and other expenses required by the corporation. The Tech Support Department charges the divisions for services rendered, based on the number of computers in the department, and the Purchasing Department charges divisions for services, based on the number of purchase orders for each department. The usage of service by the two divisions is as follows: Tech Support Purchasing Consumer Division 360 computers 1,990 purchase orders Commercial Division 270 3,710 Total 630 computers 5,700 purchase orders The service department charges of…arrow_forward
- Listed below are definitions, examples, or descriptions related to business entities.1. Owned by one person2. Can make and sell goods (manufacturing)3. Owned by more than one person4. Can sell goods (merchandising)5. Can provide and sell services6. Legally, a separate entity from theowner(s)7. A law firm owned by some of theemployees who are each liable for thefinancial obligations of the entity8. The Coca-Cola CompanyRequired:1. For each of the three types of business entities (sole proprietorship, partnership, and corporation),select as many of the definitions, examples, or descriptions as apply to that type ofentity.2. CONCEPTUAL CONNECTION Explain the advantages and disadvantages of each type ofbusiness entity.arrow_forwardKoch Corporation is in the process of preparing its annual financial statements for the fiscal year ended April 30, 2021. Because all of Koch's shares are traded intrastate, the company does not have to file any reports with the Securities and Exchange Commission. The company manufactures plastic, glass, and paper containers for sale to food and drink manufacturers and distributors. Koch Corporation maintains separate control accounts for its raw materials, work in process, and finished goods inventories for each of the three types of containers. The inventories are valued at the lower-of-cost-or-market. The company's property, plant, and equipment are classified in the following major categories: land, office buildings, furniture and fixtures, manufacturing facilities, manufacturing equipment, and leasehold improvements. All fixed assets are carried at cost. The depreciation methods employed depend on the type of asset (its classification) and when it was acquired. Koch Corporation…arrow_forwardThe following article appeared in the Wall Street Journal. Washington—The Securities and Exchange Commission staff issued guidelines for companies grappling with the problem of dividing up their business into industry segments for their annual reports. An industry segment is defined by the Financial Accounting Standards Board as a part of an enterprise engaged in providing a product or service or a group of related products or services primarily to unaffiliated customers for a profit. Although conceding that the process is a “subjective task” that “to a considerable extent, depends on the judgment of management,” the SEC staff said companies should consider … various factors … to determine whether products and services should be grouped together or reported as segments. Instructions What does financial reporting for segments of a business enterprise involve? Identify the reasons for requiring financial data to be reported by segments. Identify the possible disadvantages of requiring…arrow_forward
- Power Sports Company has two divisions, Wholesale and Retail, and two corporate service departments, Tech Support and Accounts Payable. The corporate expenses for the year ended December 31, 20Y7, are as follows: Tech Support Department $1,146,600 Accounts Payable Department 522,000 Other corporate administrative expenses 717,000 Total corporate expense $2,385,600 The other corporate administrative expenses include officers' salaries and other expenses required by the corporation. The Tech Support Department charges the divisions for services rendered, based on the number of computers in the department, and the Accounts Payable Department charges divisions for services, based on the number of checks issued. The usage of service by the two divisions is as follows: Tech Support Accounts Payable Wholesale Division 480 computers 6,100 checks Retail Division 300 11,300 Total 780 computers 17,400 checks The service department charges of the Tech Support…arrow_forwardWhen operating as a proprietary business, which of the following is true? Select one: a. All debt in the business may or may not be the responsibility of the owner which will depend on accounting policies b. All the business debt is not the responsibility of the owner because they are separate entities c. It is common practice to keep the business and personal records together because the owner and the business are considered as one d. All the business debt is considered as the owners debtarrow_forwardJohn Young is the lead partner in a local accounting firm whose practice consists of tax consulting and compliance. The firm also serves clients by providing write-up and payroll processing services. As his firm has grown, John has developed various ways to build its business prospects. John and his wife, Jena, created JJ Partnership to purchase an office building where John moved his practice. Because the building is larger than the practice currently needs, space is rented to other tax practitioners. In addition to providing office space, the partnership offers professional and administrative services on an exclusive basis to the tenants. These services include secretarial support, telephone answering service, tax professionals available for special projects, access to an online tax research library, computer hardware technology, and miscellaneous administrative support. JJ Partnership considers its primary activity to be providing professional and administrative services to its…arrow_forward
- Relco Industries recently purchased Arbeck, Inc., a manufacturer of electrical components that the construction industry uses. Roland Ford has been appointed as chief financial officer of Arbeck, and the president of Relco, Martha Sanderson, has asked him to prepare an organizational chart for his department at Arbeck. The chart that Ford has prepared is shown in the figure. Ford believes that the treasurer’s department should include the following employees: assistant treasurer, manager of accounts receivable and four subordinates, manager of investments and three subordinates, and manager of stockholder relations and two subordinates—a total of 13 employees besides the treasurer.The controller’s department should consist of an assistant controller, a manager of general accounting and four subordinates, a manager of fixed asset control and three subordinates, and a manager of cost accounting with four subordinates—a total of 15 employees besides the controller.When Ford presented his…arrow_forwardFreddy is a director of Ace Finance Ltd. The board of directors for Ace Finance Ltd have unanimously agreed to have a marketing campaign to attract new clients to their financial business. Freddy's nephew – Frank – is a marketing executive who runs his own business. Freddy informs his nephew of the possibility of obtaining the marketing contract with Ace Finance Ltd. Freddy also discloses to Frank the price range that the company will consider. Freddy attends the board meeting where they consider who will get the marketing contract, but he does not disclose his connection with his nephew. After looking at all the potential candidates, the board of directors have selected Frank's business to do the marketing campaign for Ace Finance Ltd. Has Freddy breached his statutory obligations under the Corporations Act (Cth) 2001?arrow_forwardMel Snow is the manager of a firm, Taxation Matters, which specialises in the preparationof income tax returns. The firm offers two basic products: the preparation of income tax returnsfor wage and salary earners, and the preparation of income tax returns for small businesses.Any clients requiring more complex services are referred to Snow’s brother Roger, who is apartner in a large firm of chartered accountants.The processing of wage and salary tax returns is quite straightforward, and the firm uses asoftware package to process data and print the return. A software package is also used toprepare returns for small businesses, although more information is required, particularly aboutbusiness expenses.Snow has only recently joined Taxation Matters and he is concerned about the firm’s pricingpolicy, which sets flat fees of $60 per return for wage and salary clients and $300 for smallbusinesses. He decides to use activity-based costing to estimate the costs of providing each ofthese…arrow_forward
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