Selma operates a contractor's supply store. She maintains her books using the cash method. Selma wants to know whether the accrual basis of accounting would be preferable for her business. At the end of the year, Selma's accountant con1putes her accrual basis income that is used on her tax return. For 2018, Selma reported cash receipts of $1.4 n1illion, which included $200,000 collected on accounts receivable from 2017 sales. It also included the proceeds of a $100,000 bank loan. At the end of 2018, she held $250,000 in accounts receivable from custon1ers, all from 2018 sales. a. Compute Selma's accrual basis gross receipts for 2018. b. Selma paid cash for all of the purchases. The total amount paid for merchandise in 2018 was $1.3 million. At the end of 2017, she had merchandise on hand with a cost of $150,000. At the end of 2018, the cost of merchandise on hand was $300,000. Compute Selma's gross income from merchandise sales for 2018.
> Olaf lives in the state of Minnesota. A tornado hit the area and damaged his home and automobile. Applicable information is as follows: Because of the extensive damage caused by the tornado, the President designated the area a disaster area. Olaf and h
> Abby, a single taxpayer, purchased 10,000 shares of§ 1244 stock several years ago at a cost of $20 per share. In November of the current year, Abby receives an offer to sell the stock for $12 per share. She has the option of either selling all of the sto
> Jake and Mary Snow, are residents of the state of New York. They are cash basis taxpayers and file a joint return for the calendar year. Jake is a licensed master plumber. Two years ago, Jake entered into a contract with New York City to perform plumbing
> Robin Corporation is owned as follows: Robin is on the accrual basis, and Isabelle and Peter are on the cash basis. Isabelle and Peter each loaned Robin Corporation $40,000 out of their separate funds. On December 31, 2018, Robin accrued interest at 7%
> Which of the following are related parties under§ 267' Father Brother Niece Uncle Cousin Grandson Corporation and a 45% shareholder Corporation and a 55% shareholder
> Duck, an accrual basis corporation, sponsored a rock concert on December 29, 2018. Gross receipts were $300,000. The following expenses were incurred and paid as indicated: Because the coliseum was not scheduled to be used again until January 15, the c
> Olga is the proprietor of a small business. In 2018, the business's income, before consideration of any cost recovery or§ 179 deduction, is $250,000. Olga spend5 $620,000 on new 7-year class assets and elects to take the § 179 deduction on them. She does
> Janice acquired an apartment building on June 4, 2018, for $1.6 million. The value of the land is $300,000. Janice sold the apartment building on November 29, 2024. a. Determine Janice's cost recovery deduction for 2018. b. Determine Janice's cost recove
> Juan, a sole proprietor, acquires a new 5-year class asset on March 14, 2018, for $200,000. This is the only asset Juan acquired during the year. He does not elect immediate expensing under § 179. Juan does nor claim any available additional first-year d
> Find a website, other than the IRS website, that discusses the taxation of short sales of securities.
> Joseph Thompson is president and sole shareholder of Jay Corporation. In December 2018, Joe asks your advice regarding a charitable contribution he plans to have the corporation make to the University of Maine, a qualified public charity. Joe is consider
> Dan Simms is the president and sole shareholder of Simms Corporation, 1121 Madison Street, Seattle, WA 98121. Dan plans for the corporation to make a charitable contribution to the University of Washington, a qualified public charity. He will have the co
> Alva received dividends on her stocks as follows. a. Alva purchased the Grape stock three years ago, and she purchased the Amur stock two years ago. She purchased the Blaze stock 18 days before it was ex dividend and sold it 20 days later at a $5,000 l
> Phillips, Inc., a cash basis C corporation, completes $100,000 in sales for year 1, but only $75,000 of this amount is collected during year 1. The remaining $25,000 from these sales is collected promptly during the first quarter of year 2. The applicabl
> Drake Appliance Company, an accrual basis taxpayer, sells home appliances and service contracts. Determine the effects of each of the following transactions on the company's 2018 gross income assuming that the company uses any available options to defer
> LawnCo and TreeCo operate in the same industry, and both report a 300% Communications effective tax rate (Federal, state, and global). Their book income and current, deferred, and total tax expense are reported below. ShrubCo is a competitor of both of
> Angelo, an agent for Waxwing Corporation, which is an airline manufacturer, is negotiating a sale with a representative of the U.S. government and with a representative of a developing country. Waxwing has sufficient capacity to handle only one of the or
> Broadbill Corporation, a calendar year C corporation, has two unrelated cash method shareholders: Marcia owns 51% of the stock, and Zack owns the ren1aining 49"A. Each shareholder is employed by the corporation at an annual salary of $240,000. During 201
> Lupe, a cash basis taxpayer, owns 55% of the stock of Jasper Corporation, a calendar year accrual basis C corporation. On December 31, 2018,Jasper accrues a performance bonus of $100,000 to Lupe that it pays to him on January 15, 2019. In which year can
> Determine the taxpayer's gross income for tax purposes in each of the following situations. a. Deb, a cash basis taxpayer, traded a corporate bond with accrued interest of $300 for corporate stock with a fair market value of $12,000 at the time of the ex
> Ted and Marvin Brown purchased an apartment building in 2007 as equal tenants in common. After a hectic decade of co-ownership, the brothers decided that their business association should be terminated. This led to the sale of the apartment building and
> KellerCo reports $5 million of U.S. taxable income, the same as its book income, as there are no temporary book-tax differences this year. KellerCo is subject to a 21% Federal income tax rate. Its book-tax differences include the following. Construct K
> Identify whether each of the following items typically constitutes positive or negative evidence when a manufacturing entity assesses whether a valuation allowance is required or should be adjusted for its net operating losses. a. Product orders are inc
> Does the taxpayer's effective tax rate increase or decrease when: a. It creates a valuation allowance against the deferred tax asset for a net operating loss. b. It releases a valuation allowance against the deferred tax asset for a net operating loss?
> Based on the facts and results of Problems 38-44, provide the incon1e tax footnote rate reconciliation for Kantner. Data from Problem 38: Kantner, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of
> Based on the facts and results of Problems 38-43, calculate Kantner's total provision for income tax expense reported on its financial staten1ent and its book net income after tax. Data from Problem 38: Kantner, Inc., is a domestic corporation with the
> Provide the journal entry to record Kantner's current tax expense as determined in Problem 42. Data from Problem 42: In addition to the temporary differences identified in Problems 38-41, Kantner reported two permanent book-tax differences. It earned $
> In addition to the temporary differences identified in Problems 38-41, Kantner reported two permanent book-tax differences. It earned $7,800 in tax-exempt municipal bond interest, and it reported $850 in nondeductible business meals expense. Kantner's bo
> Based on the facts and results of Problems 38-40, determine Kantner's change in net deferred tax asset or net deferred tax liability for the current year. Provide the journal entry to record this amount. Data from Problem 38: Kantner, Inc., is a domest
> Based on the facts and results of Problem 38 and the beginning-of the-year book-tax basis differences listed below, determine the change in Kantner's deferred tax liabilities for the current year. Data from Problem 38: Kantner, Inc., is a domestic cor
> Based on the facts and results of Problem 38 and the beginning-of-the-year book-tax basis difference listed below, determine the change in Kantner's deferred tax assets for the current year. Data from Problem 38: Kantner, Inc., is a domestic corporati
> Ali owns 100 shares of Brown Corporation stock. He purchased the stock at five different times and at five different prices per share as indicated. On April 28, 2018, Ali will sell 40 shares of Brown stock for $40 per share. All of Ali's shares are hel
> Kantner, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Based on this information, determine Kantner's net deferred tax asset or net deferred tax liability at year-end. Assume a 21% Fede
> Based on the facts and results of Problems 30-36, provide the income tax footnote rate reconciliation for Relix. Data from Problem 30: Relix, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the y
> Based on the facts and results of Problems 30-35, calculate Relix's total provision for income tax reported in its financial statements, and determine its book net income after tax. Data from Problem 30: Relix, Inc., is a domestic corporation with the
> Provide the journal entry to record Relix's current tax expense as determined in Problem 34. Data from Problem 34: In addition to the temporary differences identified in Problems 30-33, Relix reported two permanent differences between book and taxable
> In addition to the temporary differences identified in Problems 30-33, Relix reported two permanent differences between book and taxable income. It earned $2,375 in tax-exempt municipal bond interest, and it incurred $780 in nondeductible business meals
> Apply the imputed interest rules in the following situations. a. Mike loaned his sister Shonda $90,000 to buy a new home. Mike did not charge interest on the loan. The Federal rate was 4%. Shonda earned $900 of investn1ent incon1e for the year. b. Sande
> Ridge is a generous individual. During the year, she made interest-free loans to various family members when the Federal interest rate was 3%. What are the Federal tax consequences of the following loans by Ridge? a. On June 30, Ridge loaned $12,000 to a
> How does the tax benefit rule apply in the following cases? a. In 2016, the Orange Furniture Store, an accrual method taxpayer, sold furniture on credit for $1,000 to Sammy. Orange's cost of the furniture was $600. In 2017, Orange took a bad debt deducti
> Vic, who was experiencing financial difficulties, adjusted his debts as follows. Determine the Federal income tax consequences from these events. a. Vic is an attorney. Vic owned his uncle $25,000. The uncle told Vic that if he serves as the executor of
> Laura recently was diagnosed with cancer and has begun chemotherapy treat. A cancer specialist has given Laura less than one year to live. She has incurred sizable medical bills and other general living expenses and is in need of cash. Therefore, Laura i
> Clyde had worked for many years as the chief executive of Red Industries, Inc., and had been a major shareholder. Clyde and the company had a falling out, and Clyde was terminated. Clyde and Red executed a document under which Clyde's stock in Red would
> Willingham, Inc., an accn1al basis C corporation, reports pretax book income of $1.6 million. At the beginning of the tax year, Willingham reported no deferred tax accounts on iL5 balance sheet. It is subject to a 21% U.S. income tax rate in the current
> Continue with the results of Problem 26. a. Determine Rubio's income tax expense and GAAP income for the year. b. Express your computations as Microsoft Excel commands. Data from Problem 26: Rubio, Inc., an accrual basis C corporation, reports tl1e fo
> Determine Hazel's Federal gross income from the following receipts for the year. Gain on sale of Augusta County bonds $800 Interest on U.S. government savings bonds 400 Interest on state income tax refund 200 Interest on Augusta County bonds 700
> Roy decides to buy a personal residence, and he goes to the bank for a Decision Making $150,000 loan. The bank tells Roy that he can borrow the funds at 4% if his father will guarantee the debt. Roy's father, Hal, owns a $150,000 CD currently yielding 3.
> RoofCo reports total book income before taxes of $20 million and a total tax expense of $8 million. FloorCo reports book income before taxes of $30 million and a total tax expense of $12 million. The companies' breakdown between current and deferred tax
> Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis Communications taxpayer that repairs automobiles. In late December 2018, the company repaired Samuel Mosley's car and charged him $1,000. Samuel did not think the problem had
> Using the facts of Problem 12, determine the 2018 end-of-year balance in Mini's deferred tax asset and deferred tax liability balance sheet accounts. Data from Problem 12: Mini, Inc., earns pretax book net income of $750,000 in 2018. Mini deducted $20,
> Mini, Inc., earns pretax book net income of $750,000 in 2018. Mini deducted $20,000 in bad debt expense for book purposes. This expense is not yet deductible for tax purposes. Mini records no other temporary or permanent differences. Assuming that the pe
> Determine Amos's gross income in each of the following cases. a. In the current year, Amos purchased an automobile for $25,000. As part of the transaction, An1os received a $1,500 rebate from the manufacturer. b. Amos sold his business. In addition to th
> Your friend Hui is an investor in blue coin, a virtual currency. Indicate whether and how she is subject to Federal income taxation in the following circumstances. a. Earns S 1,000 in blue coin from mining. b. Purchases $1,000 in blue coin from another f
> Clint, your client, owns a life insurance policy on his own life. He has paid $6,800 in premiums, and the cash surrender value of the policy is $30,000. Clint borrowed $30,000 from the insurance company, using the cash surrender value as collateral. He i
> Describe the purchase method in accounting for acquisitions.
> Describe the empirical evidence on the actual gains or losses resulting from mergers.
> Describe the financing synergies of M&A.
> In what ways is DCF capex analysis similar to valuing common shares, and in what ways is it different?
> What is the difference between a tangible asset and an intangible asset?
> Describe the economies of scale of M&A.
> Describe horizontal M&A, vertical M&A, and conglomerate.
> Describe the possible market price change after a tender offer and the possible reasons.
> Briefly describe three common defensive tactics against a takeover and the difference between U.S. and Canadian practice on poison pills.
> Describe the process of a friendly acquisition.
> Sharon McKee has been appointed finance minister and is convinced that the leasing business is just a way to avoid paying taxes. She asked her department officials to evaluate the cash flow effects for both the lessee and the lessor in financial leases.
> The Bynum Private Equity group has just made a tender offer for, at most, 60 percent of Vendall Company. Vendall has 1,000 shares outstanding. Mr. VanDuun is a shareholder of Vendall and has tendered his shares. For each situation below, indicate the num
> List and briefly describe the two types of takeovers.
> What mistakes can occur if firms do not make the appropriate adjustments?
> How and why do we adjust the discount rate for multi-divisional firms?
> Briefly explain “the Greeks” (delta, theta, Vega, and rho) in option pricing.
> Charles Zhang, the owner of a small moving company, has decided that economic conditions are perfect for him to expand his business. Such an expansion will require him to buy five new moving trucks at a total cost of $275,000. Mr. Zhang’s company has $8,
> What are the cash flow from operations and the free cash flow implications of an operating versus a financial lease?
> Briefly describe operating LCs, revolving LCs, and term loans.
> What are risk-neutral probabilities?
> Explain how to create a risk-free portfolio from the stock and the option’s payoff.
> Expedic Utility Corp. needs to increase its electricity production capacity. It is interested in a slightly used reactor located in Ontario. It has been offered two alternatives: buy the reactor for $16 billion (and hold onto it for 20 years) or lease it
> Why is IPO underpricing less severe in Canada than it is in the United States? What causes underpricing?
> Carla is the CEO of Superior Sausage Company (a Canadian firm, listed on the Toronto Stock Exchange) and believes that the best way for the company to grow is through acquisitions. She has identified a likely target, Bunns & Bagels (B&B), which is also l
> A used car that currently costs $25,000 will have a market value of $8,000 in four years. As a student, you cannot afford to pay $25,000, but you want to have a car while you are going to university for the next four years. Your father agrees to lend you
> A firm has the option of borrowing $2.5 million through a 12‐year loan with monthly payments based on a 7.5-percent lending rate, or entering into a 12-year, $2.5‐ million financial lease arrangement with monthly payments based on a 7.5-percent lease rat
> Calculate the post‐merger EPS and market value of equity, assuming no synergies arise in the following acquisition settled in cash. Analyze the difference, if there is any. Further, calculate the new P/E ratio and share price for post&a
> ABC Inc. is planning to purchase DEF Inc. in one of two ways: (1) by paying $24 per share in cash; or (2) by giving DEF ’ s shareholders two shares in the new combined firm ABC‐DEF for each share of DEF. Prior to the merger, DEF had 500,000 shares outsta
> In Practice Problem 33, if the free cash flow to equity grows at 8 percent for the first two years and then grows at 5 percent indefinitely, what is the market value of the firm now? (Round your answer to the nearest dollar.)
> Calculate the market value of the firm given the following additional information: cost of equity is 8.25 percent, free cash flow to equity grows at 6 percent indefinitely; total debt outstanding = $1,000,000; increase in current assets = $400,000; incre
> Calculate the trailing and forward P/E ratios using the following assumptions: RF = 3.5 percent; β = 1.12; market risk premium = 5 percent; dividends and earnings grow at 6 percent indefinitely; and the firm maintains its current dividend payout ratio. (
> Calculate the trailing and forward P/E ratios using the price calculated in Practice Problem 30. Assume a 6‐percent earnings growth. (Round your answer to one decimal.)
> What are the changes in current assets, longterm assets, current liabilities, and long‐term liabilities at the end of the first year in Practice Problem 16?
> Java Cafe’s tax rate is 45 percent and the appropriate discount rate is 8 percent. It is considering a project. Each asset class consists only of the project asset and will be terminated at the end of the project. Java Cafe is not capital constrained. Th
> KRZ Company’s tax rate is 40 percent and the appropriate discount rate is 8 percent. It is considering a project. Each asset class is large and continues after the project terminates. KRZ is not capital constrained. There is no change in net working capi
> KRZ Company ’ s tax rate is 40 percent and the appropriate discount rate is 10 percent. It is considering a project. Each asset class is large and continues after the project terminates. KRZ is not capital constrained. There is no change in net working c
> You are considering buying a machine that will cost you $15,000. There will be a maintenance cost of $1,200 at the beginning of each year, and the machine will generate cash flows of $5,750 over the next five years. After the five years, the machine will
> GiS Inc. has the following four projects on hand: Note the cash flow in the table is accumulative. Assume that R F = 5%, ER M = 12%, firm‐beta = 1.2, after‐tax cost of debt = 6.5%. The firm is financed by 40â
> A project has an NPV of $55,000. Calculate the cost of capital of this project if it generates the following cash flows for six years after an initial investment of $200,000: Year 1: $40,000 Year 2: $60,000 Year 3: $80,000 Year 4: $70,000 Year 5: $60,000
> Westlake Corp. has a capital structure that has 60‐ percent debt at a cost of 10 percent and 40‐percent equity. Westlake’s stock has a beta of 1.6, market risk premium of 7 percent, and risk‐free rate of 3 percent. The firm has a potential project on han
> Longlife Company is considering an investment in Ponce Leon Mineral Baths. The investment has the same risk characteristics as the firm. It is assumed that all cash flows are perpetuities and that there are no taxes. Currently the firm has cash flows of
> Malcolm, a very junior reporter, has asked for your help with his first article for a major national newspaper. He has provided you with the following excerpt from his article and would like your comments: The BathGate Group, one of the few all‐equity fi
> Project X has a cost of capital of 10 percent and the following cash flows: investment of $20,000 in year 0, cash inflows of $8,500, $6,400, and $11,200 in years 1, 2, and 3. a. What is the IRR? What is the assumption of IRR on reinvesting cash? b. Suppo
> Estimate the change in NI, CFO, and CFF if the economic life of the lease described in Practice Problem 16 is seven years instead of six years.
> Assume that SK Inc. has a capital budget of $250,000. In addition, it has the following projects for evaluation. Determine which project(s) should be chosen, assuming k is 15 percent. Project Initial CF CF, CF, CF, A -120,000 90,000 90,000 B -100,000
> Redo Practice Problem 61 using the EANPV approach.
