Saving for the Future

Did you know that roughly 50 percent of employees have no retirement savings at all?  In an effort to increase the number of Americans who are saving for retirement, a bill known as the Automatic IRA Act of 2010 has been introduced in the Senate by Sen. Jeff Bingaman (D-NM) and in the House by Rep. Richard Neal (D-MA). The bill establishes IRA accounts for all employees and sets up automatic payroll deductions. The rationale for the legislation is based on the success of the automatic enrollment in 401(k) plans of a few years ago. When these accounts were established by law, there was a dramatic increase in participation, by about 90 percent of eligible employees. The belief is that, by establishing automatic IRA accounts, tens of millions of workers will be eligible for these plans, and an expected $15 billion will be added to savings annually.

 

Questions:

1.  According to the article, will there be any exemptions for the new Act, if passed?

2. According to the article, will there be any incentives for businesses to promote this?  Do you see this as a weak or a robust plan? Explain.

3. Based on the article, what types of journal entries will accountants have to make with respect to the features of this legislation, if passed?

 

Source:

 

Staff (2010) Democrats seek to legislate retirement savings, AccountingWeb, August 31.

(Retrievable at http://www.accountingweb.com/topic/accounting-auditing/democrats-seek-legislate-retirement-savings)

New Revenue Recognition Standards on the Way for Contractors

Contractors should be educating themselves on the impact of the new proposed revenue recognition standards and the recently published (June 24, 2010) exposure draft pertaining to revenue from contracts with customers. Public comments are due October 22, 2010, and it is expected the standards will be finalized in 2011.

Questions:

1. What are some of the significant changes in this standard that will affect contractors?

2. How will the proposed standard define the economic unit of measure?

3. Explain what the new cost of capitalization rules will mean for contractors.

 

Source:

Henderson, J. (2010). Proposed Revenue Recognition Rules Would Significantly Affect Contractors, BKD Alerts, June (Retrievable online at http://www.bkd.com/industry/Construction-RealEstate/Insights/2010/2010-06alertsCRE-1.htm)

Donated Inventory

Over the next five years, Wal-Mart plans to donate about 1.1 billion pounds of food to food banks and provide $250 million to help them buy refrigerated trucks, improve storage and develop better logistics.

The plan to contribute $2 billion in cash and food to the nation’s food banks is considered to be one of the largest corporate gifts on record.

Wal-Mart began taking on hunger as a cause in 2005, when it distributed 9.9 million pounds of food to food banks; last year, it provided 116.1 million pounds of food. The company also has donated the services of its staff to help food banks improve lighting and refrigeration, and develop ways to increase the amount of fresh food on their shelves.

Questions:

1.According to Robert Midler, when are merchandisers eligible for enhanced deductions for a charitable contribution of inventory under the U.S. tax code?  Would Wal-Mart’s effort qualify?

2. Using the video, can you identify which accounts of a merchandiser would be affected when making the journal entries for donated inventory? 

3. Assuming that Wal-Mart’s revenue on the donated food would be $1.5 Billion, its cost would be $0.875 Billion, $250 million was donated for trucks and $250 million was donated through services of Wal-Mart staff, create the journal entries for the cash merchandise and service donation for the financial statements.

Source:

Midler, Robert (1993). Tax benefits of donating inventory – some donations may also qualify for enhanced deduction.The Tax Adviser, January 1 (Retrievable online at http://www.allbusiness.com/accounting-reporting/corporate-taxes/351023-1.html)

Strom, Stephanie (2010). Wal-Mart donates $2 billion to food banks, New York Times, May 13. (Retrievable online at http://www.postbulletin.com/newsmanager/templates/localnews_story.asp?z=7&a=452224)

Nerdenterprises.  (2010). “Accounting For Donated Inventory In QuickBooks video,” May 4 (Retrievable online at http://www.youtube.com/watch?v=B9-N2ZmUMhs)

A New Twist for Job Seekers

Unemployed Individuals can increase their attractiveness to prospective employers by knowing about  certain tax breaks that employers can secure by hiring them. One group , National Tax Credit Group, LLC, is promoting this advantage by creating a “Tax Credit Card” which they issue to prospective employees after screening them for hiring credit eligibility. This article presents information on how employees can highlight the applicable hiring credit on their resume, as well as work the issue into an interview to improve their chances of being hired.

Questions:

1.  According to the article, which states have the most attractive state-level tax credits for hiring qualified employees?

2. What is the range of tax credits per employee hired?

3.  From a financial accounting standpoint, which journal entries will be impacted by the tax credits? Explain.

Source:

Christian, Blake. (2010). “Unemployed can use tax laws to secure a job,” Education and Careers: Accounting WEB, May 21 (Retrievable online at http://www.accountingweb.com/topic/education-careers/unemployed-can-use-tax-laws-secure-job)

What If You Can’t Pay Payroll Taxes?

What If You Can’t Pay Payroll Taxes?

In this video, Darrin T. Mish, tax attorney discusses some of the questions businesses ask about non-payment of payroll taxes.  His advice is to “get current” as soon as possible, even though the IRS may not catch the lapse for up to four years and because IRS payroll tax problems can quickly escalate, once identified.

Questions:

1.  What form is the Employer’s Quarterly Federal Tax Form?

2.  What is known as the trust fund portion of the payroll tax obligation?

3. In general, if an agreement is made with the IRS to pay back payroll taxes, over how many years is this agreement?

Source: YouTube.com. What to do if you are behind on payroll taxes, June 23, 2009. (Retrievable online at http://www.youtube.com/watch?v=HTvpHyl4WsA)

Payroll Fraud

Paul McKunes, owner of M & M Equipment Services, in Ashland, Massachussets, pleaded guilty on January 15, 2010, to falsifying payroll records at his business so he could pay less in workers’ compensation insurance and taxes.  According to records, McKunes owed the state’s Unemployment Assistance program $21,180 in unpaid assessments and failed to withhold more than $38,322 in state income taxes.  Although McKunes was sentenced to 18 months in jail, the sentence was suspended for five years with supervised probation, so that he could continue to operate his business.

QUESTIONS:

1.  Assume that McKunes’ actual annual payroll was approximately $2.0 million for the first year and increased by 3% for each for the next two years of the fraud.  If annual federal income tax withholding was 10%, state income taxes 5%, FICA and Medicare was 8.0% (rounded), Federal unemployment was 6.2% with a credit for amounts paid to the state unemployment of 3%, what actual journal entries should McKune have made for each of the three years?

2. Based on the fraud, spreading underpaid amounts evenly across the three years, what journal entries might he have fraudulently prepared?

3.  Based on your calculations in (1) and (2), what percentage of the payroll did he misappropriate?  

SOURCE:

Riley, David. (2010). “Guilty Plea in Payroll Fraud Case.” (Retrievable online at http://www.metrowestdailynews.com/news/x1685417303/Guilty-plea-in-payroll-fraud-case)

Wage and Hour Violations

On December 9, 2009, Wal-Mart disclosed that it had settled a long-running wage and hour dispute in Massachusetts for $40 million. According to the Boston Globe, this was the largest wage and hour settlement in the state of Massachusetts. Interestingly, it was just a year ago at the end of 2008 that Wal-Mart reported that it had paid $640 million to settle similar wage and hour violations in 63 federal and state lawsuits.

QUESTIONS:

1. For SEC and investor purposes, what documents does Wal-Mart release that presents information about the violations?
2. What are some of the possible wage and hour violations that a company could commit?
3. How do you think that settlements are recorded in the company’s accounting records?
4. The article also mentions disclosure of a Philadelphia lawsuit, where a judge ordered Wal-Mart to pay $188 million for a wage and hour violation. Since the case is currently under appeal, should the company accrue the litigation judgment? Explain your answer.

SOURCE:

Leder, Michelle. (2009). Wal-Mart Settles Wage and Hour Claims for $40 Million. Footnoted.org (Retrievable online at http://www.footnoted.org/buried-treasure/wal-mart-settles-wage-and-hour-claims-for-40-million/)

The Worst Footnote Disclosures of 2009

Every year, Michelle Leder at www.footnoted.org, takes a look at the worst footnote disclosures that companies try to bury in their routine SEC filings. As her website states, the financial footnotes are important for all users, including professional money managers and analysts, accountants, and individual investors. According to her article, there are a lot of candidates for this distinction, so it is hard to whittle it down to just five.

QUESTIONS:

1. Take a look at Michelle’s entrants in the BNET.com article. Then, after 12/31/09, go to her website (www.footnoted.org) to see who won reader-nominated honor of having the worst disclosure. Do you agree? Why or why not?
2. What is a retention payment?
3. How should the retention payment for Martha Stewart be recorded in journal entry (or entries) form?
4. What is a gross-up?
5. How should a gross-up for Ross Perot Jr. be recorded in journal entry form by the company granting this concession? (For a hint, see http://www.footnoted.org/buried-treasure/perot-gets-a-gross-up/)

SOURCES:
Ritholtz, B. (2009). 2009’s Worst Disclosures Buried in Footnotes, BNET.com, December 21 (Retrievable online at http://www.ritholtz.com/blog/2009/12/2009s-worst-footnote-filings-with-the-sec/)

Leder, Michelle. (2009). Voting now open for worst footnote of 2009! Footnoted.org (Retrievable online at http://www.footnoted.org/)