Question: Explain the use of the mid-quarter

> Barrington Fertilizers, Inc., exports its specialized lawn care products to Canada. It made a sale worth C$1,150,000, with the payment due in 90 days. Barrington’s banker gave it a forward quote of $0.9021/C$. By using the forward rate, the firm gained a

> Covington Industries just sold equipment to a Mexican firm. Payment of 11,315,000 pesos will be due to Covington in 30 days. Covington has the option of selling the pesos today at a 30-day forward rate of $0.05139/peso. If it waits 30 days to sell the pe

> Tricolor Industries has purchased equipment from a Brazilian firm for a total cost of 272,500 Brazilian reals. The firm has to pay in 30 days. Citibank has given the firm a 30-day forward quote of $0.2715/real. Assume that on the day the payment is due,

> Alcor Pharma just received revenues of $3,165,300 in Australian dollars (A$). Management has the following exchange rates: A$1.08010/£ and $1.5906/£. What is the U.S. dollar value of the company’s revenues?

> What is the operating cycle, and how is it related to the cash conversion cycle?

> Banco Santiago wants to make a bid-ask spread of 0.65 percent on its foreign exchange transactions. If the ask rate on the Mexican peso (MP) is MP18.3092/$, what does the bid rate have to be?

> The foreign exchange department of Bank of America has a bid quote on Canadian dollars (C$) of C$1.0800/$. If the bank typically tries to make a bid-ask spread of 0.5 percent on these foreign exchange transactions, what will the ask rate have to be?

> The spot rate of the Australian dollar (A$) is A$1.1667/$. The Australian dollar is quoted at a 30-day forward premium of 4.90 percent against the U.S. dollar. What is the 30-day forward quote?

> The foreign exchange department at Tokyo’s Daiwa Bank quoted the spot rate on the euro at €0.007269/¥. The 90-day forward rate is quoted at a premium of 5.42 percent on the euro. What is the 90-day forward rate?

> How is transaction exposure different from operating exposure?

> Ford Motor Company maintains production facilities in many different countries including Brazil, Taiwan, and the United States. Given the data in Exhibit 21.6, which production plant is likely to face the greatest country risk? How does country risk affe

> Use the data in Exhibit 21.5 to answer these questions: a. What is the six-month forward rate (in U.S. dollars) for Swiss francs? Is the Swiss franc selling for a premium or a discount? b. What is the six-month forward rate (in U.S. dollars) for the Jap

> Like owners of stock, owners of options can lose no more than the amount they invested. They are far more likely to lose that full amount, but they cannot lose more. Do sellers of options have the same limitation on their losses?

> What is the value of a call option if the stock price is zero? What if the stock price is extremely high (relative to the strike price)?

> What does the seller of a put option hope will happen?

> What are some of the trade-offs required in the management of working capital accounts?

> Husky Motors has two debt issues outstanding, both of which mature in five years. The senior debt issue, which has a face value of $10 million, must be paid in full before any of the principal for the junior debt issue is paid. The junior debt issue also

> Two call options have been written on the same underlying stock. Call #1 has a strike price of $42, and call #2 has a strike price of $52. Call #1 is selling for $5.00, and call #2 is selling for $6.00. What arbitrage opportunity do these prices present

> The price of a stock that does not pay dividends is currently $35, and the risk-free rate is 4 percent. A European call option on the stock, with a strike price of $35 and which expires in six months, sells for $3.04. A European put option on the same st

> What is the payoff for a call option with a strike price of $50 if the stock price at expiration is $40? What if the stock price is $65?

> SpinTheWheel Co. has assets currently worth $10 million in the form of one-year risk-free bonds that will return 10 percent. The company has debt with a face value of $5.5 million due in one year. (No interest payments will be made.) The stockholders dec

> What costs would a firm following a flexible current asset management strategy consider, and why?

> List some of the working capital management practices you would expect to see in a manufacturing company following just-in-time inventory practices?

> What factors must a financial manager consider when making decisions about accounts receivable?

> Stardust, Inc., is an exporter of plumbing fixtures. About 30 percent of its sales are made in Canada. The sales department just found out that the Canadian dollar is at a premium against the U.S. dollar based on the 90-day forward rate, while the 180-da

> A Canadian cooperative of wheat farmers sold wheat to a grain company in Russia. Under what circumstances will the Canadian farmers be exposed to foreign exchange risk? When will the Russian importer be facing foreign exchange risk?

> What types of conflicts arise with leases and why?

> In the United States, managers are asked to focus on maximizing stockholder value. Is this consistent with the goals of managers in Germany and Japan?

> International economic integration and technological changes in the last couple of decades have dramatically increased globalization across many industries. Explain how a biotech firm or a medical firm (for example, a hospital) can take advantage of thes

> Give examples of U.S. banks facing different risks in international lending?

> Royal Dutch Shell, an oil company, has headquarters in both the Netherlands and the United Kingdom. What type of firm is it?

> You own ABC Corp. bonds. Using option pricing theory, explain what agency concerns you would have if ABC were in danger of bankruptcy?

> Corporations frequently include employee stock options as a part of the compensation for their managers and sometimes for all of their employees. These options allow the holder to buy the stock of the company for a preset price like any other option, but

> Future Enterprises is considering building a factory that will include an option to expand operations in three years. If things go well, the anticipated expansion will have a value of $10 million and will cost $2 million to undertake. Otherwise, the anti

> Explain why, in the binomial pricing theory, the probabilities of an upward move versus a downward move are not important?

> An American option will never be worth less than a European option. Evaluate this statement?

> A bond covenant is a part of a bond contract that restricts the behavior of the firm, barring it from taking certain actions. Using the terminology of options, explain why a bond contract might include a covenant preventing the firm from making large div

> What is a lease? What are the two types of leases?

> What are some benefits of using debt financing?

> 1. Bob employs a maid to clean his house. He pays her $1,040 during the current year. What is the proper tax treatment of the Social Security and Medicare tax for the maid? a. Bob is not required to pay or withhold Social Security and Medicare taxes on t

> 1. Which of the following amounts paid by an employer to an employee is not subject to withholding? a. Salary b. Bonus c. Commissions d. Reimbursement of expenses under an accountable plan e. All of the above are subject to withholding 2. Abbe, age 56,

> 1. In 2016, Mary sells for $14,000 a machine used in her business. The property was purchased on May 1, 2014, at a cost of $13,000. Mary has claimed depreciation on the machine of $8,000. What is the amount and nature of Mary’s gain as a result of the sa

> 1. All of the following assets are capital assets, except: a. A personal automobile b. IBM stock c. A child’s bicycle d. Personal furniture e. Used car inventory held by a car dealer 2. Which of the following is a capital asset? a. Account receivable b.

> 1. Kevin purchased a house 20 years ago for $100,000 and he has always lived in the house. Three years ago Kevin married Karen, and she has lived in the house since their marriage. If they sell Kevin’s house in December 2016 for $425,000, what is their t

> 1. Assume that a taxpayer purchases a computer in 2016 that has an estimated useful life of 10 years. If the computer is used 100 percent for business and no election to expense was made, what is the MACRS recovery period that must be used for cost recov

> 1. E Corporation is a subchapter S corporation owned by three individuals with calendar year-ends. The corporation sells a sports drink as its principal product and has similar sales each month. What options does E Corporation have in choosing a tax year

> Indicate whether the following statements are true or false: ______Decreasing one’s tax liability through legal methods is called tax avoidance, while illegally reducing taxes is called tax evasion. ______In a “closed” transaction, all tax-significant ev

> For each of the following situations, indicate the amount of the penalty that could be imposed on the tax return preparer: a. A tax return preparer understates the taxpayer’s tax liability with a frivolous position and does not disclose the position. b.

> Indicate the date that the statute of limitations would run out on each of the following individual tax returns: a. A fraudulent 2016 tax return that was filed April 15, 2017. b. A 2016 tax return that was filed May 19, 2017. c. A 2016 tax return that wa

> 7. Indicate whether the following statements are true or false: ________The tax law includes a penalty for writing a “bad” check in payment of the taxpayer’s tax liability. ________The statute of limitations for a tax return is normally 4 years. ________

> For each of the following situations, indicate the nature and amount of the penalty that could be imposed. Description of the Penalty Penalty Amount a. Larry is a tax protester and files his tax return in the name of“Mickey Mouse." b. Anne writes a

> Linda underpaid her taxes for the current year by $4,000 due to negligence. a. Calculate Linda’s accuracy-related penalty for negligence. b. Assume that the underpayment of taxes by Linda was determined to be fraudulent, and calculate the total amount of

> In the 2016 tax year, Michelle paid the following amounts relating to her 2014 tax return: Tax deficiency…………………………………………………$5,000 Negligence penalty…………………………………………...1,000 Interest………………………………………………………………500 Underpayment of estimated tax penalty…………..

> a. Wilson filed his individual tax return on the original due date, but failed to pay $700 in taxes that were due with the return. If Wilson pays the taxes exactly 2 months late, calculate the amount of his failure-to-pay penalty. b. Joan filed her indiv

> Indicate whether the following statements are true or false: _______A field audit by the IRS is an audit conducted at the IRS field office. _______A low Discriminant Function System score for a tax return increases the possibility that the return will be

> Indicate which of the following statements are true or false: _______The IRS is a division of the Treasury Department. _______The IRS has four major divisions. _______The IRS local offices process most individual tax returns. _______IRS Campus Processing

> Go to the IRS website (www.irs.gov) and print out a copy of the most recent Schedule K-1 of Form 1120S.

> Cypress Corporation has regular taxable income of $170,000 (assume annual gross receipts are greater than $7.5 million) and a regular tax liability of $49,550 for 2016. The corporation also has tax preference items amounting to $105,000. Calculate Cypres

> Grevilla Corporation is a manufacturing company. The corporation has accumulated earnings of $950,000, and it can establish reasonable needs for $400,000 of that amount. Calculate the amount of the accumulated earnings tax (if any) that Grevilla Corporat

> Give the MACRS depreciation life of the following assets: a. An automobile _____________________ b. Business furniture _____________________ c. A computer _____________________ d. Residential real estate _____________________ e. Commercial real estate __

> Karen, in forming a new corporation, transfers land to the corporation in exchange for 100 percent of the stock of the corporation. Karen’s basis in the land is $275,000, and the corporation assumes a liability on the property in the amount of $300,000.

> Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation. Guilda’s basis in her stock is $25,000. On July 31, 2016, Bill sells his stock, with a basis of $40,000, to Loraine for $50,000. For the 2016 tax year, Radiata Cor

> Cedar Corporation has an S corporation election in effect. During the 2016 calendar tax year, the corporation had ordinary taxable income of $200,000, and on January 15, 2016, the corporation paid dividends to shareholders in the amount of $120,000. How

> Mallory Corporation has a calendar year-end. The corporation has paid estimated taxes of $10,000 during 2016 but still owes an additional $5,000 for its 2016 tax year. a. When is the 2016 tax return due? b. If an automatic extension of time to file is re

> The Loquat Corporation has book net income of $50,000 for the current year. Included in this figure are the following items, which are reported on the corporation’s Schedule M-1, Reconciliation of Income (Loss) per Books with Income per Return. Federal

> Citradoria Corporation is a regular corporation that contributes $35,000 cash to qualified charitable organizations during the current tax year. The corporation has net operating income of $140,000, before deducting the contributions, and dividends brece

> Beech Corporation, an accrual basis taxpayer, was organized and began business on July 1 of the current calendar tax year. During the current year, the corporation incurred the following expenses: State fees for incorporation …………………………………………... $ 500 L

> Fisafolia Corporation has gross income from operations of $220,000 and operating expenses of $160,000 for the current year. The corporation also has $20,000 in dividends from publicly traded domestic corporations (ownership in all corporations was less t

> For its current tax year, Ilex Corporation has ordinary income of $240,000, a short-term capital loss of $60,000, and a long-term capital gain of $20,000. Calculate Ilex Corporation’s tax liability for the current year.

> Ulmus Corporation has $1,230,000 in taxable income for the current tax year. Calculate the corporation’s income tax liability for the current tax year.

> On May 8, 2016, Holly purchased a residential apartment building. The cost basis assigned to the building is $800,000. Holly also owns another residential apartment building that she purchased on October 15, 2016, with a cost basis of $500,000. a. Calcul

> Quince Corporation has taxable income of $450,000 for its calendar tax year. Calculate the corporation’s income tax liability for the year before tax credits.

> Describe one advantage and one disadvantage of doing business as an LLC.

> Van makes an investment in a partnership in 2016. Van’s capital contributions to the partnership consisted of $30,000 cash and a building with an adjusted basis of $70,000, subject to a nonrecourse liability (seller financing) of $20,000. a. Calculate th

> Louise owns 45 percent of a partnership, and her brother owns the remaining 55 percent interest. During the current tax year, Louise sold a building to the partnership for $160,000 to be used for the partnership’s office. She had held the building for 3

> Quince Interests is a partnership with a tax year that ends on September 30, 2016. During that year, Potter, a partner, received $3,000 per month as a guaranteed payment, and his share of partnership income after guaranteed payments was $23,000. For Octo

> Walter receives cash of $18,000 and land with a fair market value of $75,000 (adjusted basis of $50,000) in a current distribution. His basis in his partnership is $16,000. a. What amount of gain must Walter recognize as a result of the current distribut

> L&J Interests is a partnership with two equal partners, Linda and Joanne. The partnership has income of $75,000 for the year before guaranteed payments. Guaranteed payments of $45,000 are paid to Linda during the year. Calculate the amount of income that

> Go to the IRS website (www.irs.gov) and print pages 1 and 2 of Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc. Review the different elements of income which must be passed through to each partner and be reported as separate

> Wilson has a 40 percent interest in the assets and income of the CC&W Partnership, and the basis in his partnership interest is $45,000 at the beginning of 2016. During 2016, the partnership’s net loss is $60,000 and Wilson’s share of the loss is $24,000

> Jay contributes property with a fair market value of $16,000 and an adjusted basis of $5,000 to a partnership in exchange for an 8 percent partnership interest. a. Calculate the amount of gain recognized by Jay as a result of the transfer of the property

> Mike purchases a heavy-duty truck (5-year class recovery property) for his delivery service on April 30, 2016. The truck is not considered a passenger automobile for purposes of the listed property and luxury automobile limitations. The truck has a depre

> Larry and Jessica form the L&J Partnership. Larry contributes property with an adjusted basis of $70,000, a fair market value of $200,000, and subject to a liability of $80,000 in exchange for a 40 percent interest in the partnership. Jessica receives a

> Elaine’s original basis in the Hornbeam Partnership was $30,000. Her share of the taxable income from the partnership since she purchased the interest has been $90,000, and Elaine has received $80,000 in cash distributions from the partnership. Elaine di

> Nan contributes property with an adjusted basis of $60,000 to a partnership. The property has a fair market value of $75,000 on the date of the contribution. What is the partnership’s basis in the property contributed by Nan?

> Hal, Steve, and Lew form a partnership to operate a grocery store. For each of the following contributions by the partners, indicate (1) the amount of income or gain recognized, if any, by the partner, and (2) the partner’s basis in the partnership int

> Debbie and Alan open a web-based bookstore together. They have been friends for so long that they start their business on a handshake after discussing how they will share both work and profits or losses from the business. Have Debbie and Alan formed a re

> Married taxpayers Otto and Ruth are both self-employed. Otto earns $352,000 of selfemployment income and Ruth has a self-employment loss of $13,500. How much Medicare surtax for high-income taxpayers will Otto and Ruth have to pay with their 2016 income

> Ann hires a nanny to watch her two children while she works at a local hospital. She pays the 19-year-old nanny $165 per week for 46 weeks during the current year. a. What is the employer’s portion of Social Security and Medicare tax for the nanny that A

> Sally hires a maid to work in her home for $260 per month. The maid is 25 years old and not related to Sally. During 2016, the maid worked 10 months for Sally. a. What is the amount of Social Security tax Sally must pay as the maid’s em

> Thomas is an employer with one employee, Sarah. Sarah’s wages are $19,450, and the state unemployment tax rate is 5.4 percent. Calculate the following amounts for Thomas: a. FUTA tax before the state tax credit b. State unemployment tax c. FUTA tax aft

> Stewart Beauf is a self-employed surfboard maker in 2016. His Schedule C net income is $115,000 for the year. He also has a part-time job and earns $9,100 in wages subject to FICA taxes. Calculate Stewart’s self-employment tax for 2016 using Schedule SE.

> Is it possible to depreciate a residential rental building when it is actually increasing in value? Why?

> Fly-By-Night (P.O. Box 1234, Dallas, TX 75221, EIN 12-9876543) paid George Smith, an employee who lives at 432 Second Street, Garland, TX 75040, wages of $24,300. The income tax withholding amounted to $5,320 and the FICA tax was $1,858.95 ($1,506.60 for

> Philcon Corporation (P.O. Box 4563, Anchorage, AK 99508; EIN 12-3456789) paid Louise Chugach, an employee who lives at 5471 East Tudor Road, Anchorage, AK 99508, wages of $124,554 in 2016. The income tax withholding for the year amounted to $16,050.40, a

> For each of the following payments, indicate the form that should be used to report the payment: a. Interest of $400 paid by a bank b. Payment of $400 in dividends by a corporation to a shareholder c. Periodic payments from a retirement plan d. Salary as

> Jan has two jobs during 2016. One employer withheld and paid Social Security taxes on $70,000 of Jan’s salary, and the other employer withheld and paid Social Security taxes on $49,500 in salary paid to Jan. Calculate the amount of Jan’s overpayment of S

> Yolanda earns $123,000 in 2016. Calculate the FICA tax that must be paid by: Yolanda: Social Security Medicare Yolanda's Employer: Social Security Medicare Total FICA Tax $-

> Jenny earns $44,500 in 2016. Calculate the FICA tax that must be paid by: Jenny: Social Security Medicare Jenny's Employer: Social Security Medicare $. Total FICA Tax $.

> Go to the IRS website (www.irs.gov) and redo Problem 5 using the most recent interactive Form 1040-ES. Print out the completed Form 1040-ES.