Jasmine Scents has been given two competing offers for short-term financing. Both offers are for borrowing $15,000 for 1 year. The first offer is a discount loan at 8%, and the second offer is for interest to be paid at maturity at a stated interest rate of 9%. Calculate the effective annual rates for each loan, and indicate which loan offers the better terms.
> Thomas is an employer with two employees, Patty and Selma. Patty’s wages are $12,450 and Selma’s wages are $1,275. The state unemployment tax rate is 5.4 percent. Calculate the following amounts for Thomas: a. FUTA tax before the state tax credit b. Stat
> 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 $25,400. Based on George’s final 2018 pay stub, the income tax withholding amounted to $5,380 and th
> During 2018, Palo Fiero purchases the following property for use in his calendar year­end manufacturing business: Palo uses the accelerated depreciation method under MACRS, if available, and does not make the election to expense or take bonu
> On February 2, 2018, Alexandra purchases a personal computer for her home. The computer cost $2,800. Alexandra uses the computer 80 percent of the time in her accounting business, and the remaining 20 percent of the time for various personal uses. Calcul
> During 2018, William purchases the following capital assets for use in his catering business: Assume that William decides to use the election to expense on the baking equipment (and has adequate taxable income to cover the deduction) but not on the aut
> Janie owns a 40% interest in Chang Partnership. Chang has W-2 wages of $50,000 and qualified property of $450,000 in 2018. a. When computing the W-2 wages limitation, what is the amount of wages that will be allocated to Janie? b. What is the amount of q
> Calculate the following: a. The first year of depreciation on a residential rental building costing $200,000 purchased July 2, 2018. b. The second year (2019) of depreciation on a computer costing $5,000 purchased in May 2018, using the half year conve
> Explain the use of the mid quarter convention for MACRS depreciation:
> On April 8, 2018, 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 November 15, 2018, with a cost basis of $500,000. a. Cal
> Mike purchases a new heavy duty truck (5-year class recovery property) for his delivery service on April 30, 2018. No other assets were purchased during the year. The truck is not considered a passenger automobile for purposes of the listed property and
> Serena is a 40-year-old single taxpayer. She operates a small business on the side as a sole proprietorship. Her 2018 Schedule C reports net profits of $5,624. Her employer does not offer health insurance. Serena pays health insurance premiums of $7,545
> Steve Drake sells a rental house on January 1, 2018, and receives $120,000 cash and a note for $45,000 at 10 percent interest. The purchaser also assumes the mortgage on the property of $35,000. Steve’s original cost for the house was $180,000 on January
> Nadia Shalom has the following transactions during the year: Sale of office equipment on March 15 that cost $19,000 when purchased on July 1, 2016. Nadia has claimed $3,000 in depreciation and sells the asset for $13,000 with no selling costs. Sale of l
> Susan is a single taxpayer, 26 years of age, with AGI of $28,000 and no tax-exempt income. She did not have minimum essential coverage for 8 months in 2018. Compute Susan’s individual shared responsibility payment for 2018.
> Derek purchases a small business from Art on July 1, 2018. He paid the following amounts for the business: a. How much of the $325,000 purchase price is for Section 197 intangible assets? b. What amount can Derek deduct on his 2018 tax return as Secti
> Tom has a successful business with $100,000 of taxable income before the election to expense in 2018. He purchases one new asset in 2018, a new machine which is 7year MACRS property and costs $25,000. If you are Tom’s tax advisor, how would you advise T
> Indicate whether the following statements are true or false: Decreasing one’s tax liability through legal methods is called tax planning, while illegally reducing taxes is called tax evasion. In a “closed” transaction, all tax-significant events have bee
> On September 14, 2018, Jay purchased a passenger automobile that is used 75 percent in his accounting business. The automobile has a basis for depreciation purposes of $43,000, and Jay uses the accelerated method under MACRS. Jay does not elect to expens
> The Au Natural Clothing Corporation has changed its year-end from a calendar yearend to March 31, with permission from the IRS. The income for its short period from January 1 to March 31 is $24,000. Calculate the tax for this short period.
> alculate the amount of the child and dependent care credit allowed for 2018 in each of the following cases, assuming the taxpayers had no income other than the stated amounts. a. William and Carla file a joint tax return. Carla earned $26,000 during the
> Brian and Kim have a 12-year-old child, Stan. For 2018, Brian and Kim have taxable income of $52,000, and Stan has interest income of $4,500. No election is made to include Stan’s income on Brian and Kim’s return. a. For purposes of the tax on a child’s
> Margaret and David Simmons are married and file a joint income tax return. They have two dependent children, Margo, 5 years old (Social Security number 316-31-4890), and Daniel, who was born during the year (Social Security number 316-31-7894). Margaret
> Diane is a single taxpayer who qualifies for the earned income credit. Diane has two qualifying children who are 3 and 5 years old. During 2018, Diane’s wages are $18,300 and she receives dividend income of $700. Calculate Diane’s earned income credit
> Amy is a calendar-year taxpayer reporting on the cash basis. Please indicate how she should treat the following items for 2018: a. She makes a deductible contribution to an IRA on April 15, 2019. b. She has made an election to accrue the increase in valu
> Karen, 28 years old and a single taxpayer, has a salary of $31,000 and rental income of $33,000 for the 2018 calendar tax year. Karen is covered by a pension through her employer. a. What is the maximum amount that Karen may deduct for contributions to h
> Ann hires a nanny to watch her two children while she works at a local hospital. She pays the 19-year-old nanny $170 per week for 42 weeks during the current year. a. What is the employer’s portion of Social Security and Medicare tax for the nanny that
> Using the information in the previous question, assume that the Collins’ Form 1095-A also indicated that the total advance payment of the premium tax credit was $9,200. Calculate the excess advance premium tax credit and the repayment a
> The Taxpayer Bill of Rights lists 10 different rights. Name four of those rights.
> Susan and Stan Collins live in Iowa, are married and have two children ages 6 and 10. In 2018, Susan’s income is $38,290 and Stan’s is $12,000 and both are self-employed. They also have $500 in interest income from tax
> Julie, a single taxpayer, has completed her 2018 Schedule C and her net loss is $40,000. Her only other income is wages of $30,000. Julie takes the standard deduction of $12,000 in 2018. a. Calculate Julie’s taxable income or loss. b. Calculate the busin
> During 2018, Jill, age 39, participated in a Section 401(k) plan which provides for maximum employee contributions of 12 percent. Jill’s salary was $90,000 for the year. Jill elects to make the maximum contribution. What is Jill’s maximum tax-deferred co
> Clifford Johnson has a limited partnership investment and a rental condominium. Clifford actively manages the rental condominium. During 2018, his share of the loss from the limited partnership was $11,000, and his loss from the rental condo was $17,000
> Tony is a 45-year-old psychiatrist who has net earned income of $300,000 in 2018. What is the maximum amount he can contribute to his SEP for the year?
> Clarita is a single taxpayer with two dependent children, ages 10 and 12. Clarita pays $3,000 in qualified child care expenses during the year. If her adjusted gross income (all from wages) for the year is $18,500, calculate Clarita’s child and dependent
> Refer to the previous problem 8. If Stan’s parents elected to report Stan’s income on his parents’ return, what would the tax on Stan’s income be? Data from problem 8: Brian and Kim have a 12-year-old child, Stan. For 2018, Brian and Kim have taxable i
> Barry is a single, 40-year-old software engineer earning $190,000 a year and is not covered by a pension plan at work. How much can he put into a Roth IRA in 2018?
> You have a problem and need a full-text copy of the Related Party Code Section 267. Go to the Office of the Law Revision Counsel of the United States House of Representatives website (uscode.house.gov) and enter Title 26 (the Internal Revenue Code) and
> Frank, age 35, and Joyce, age 34, are married and file a joint income tax return for 2018. Their salaries for the year total $84,600 and they have taxable interest income of $3,900. They have no deductions for adjusted gross income. Their itemized deduct
> Classify each of the following as an enrolled or unenrolled preparer: a. Certified public accountant b. Enrolled agent c. A preparer that has completed the annual filing season program d. An attorney
> Eric, your friend, received his Form W-2 from his employer (below) and has asked for your help. Eric’s 2018 salary was $145,000 and he does not understand why the amounts in Boxes 1, 3 and 5 are not $145,000? His final paycheck for the
> Cautionary Tales Inc. is considering the acquisition of Danger Corp. at its asking price of $150,000. Cautionary would immediately sell some of Danger’s assets for $15,000 if it makes the acquisition. Danger has a cash balance of $1,500 at the time of th
> Toni’s Typesetters is analyzing a possible merger with Pete’s Print Shop. Toni’s has a tax loss carryforward of $200,000, which it could apply to Pete’s expected earnings before taxes of $100,000 per year for the next 5 years. Using a 34% tax rate, compa
> A 6-month call option on 100 shares of SRS Corp. stock is selling for $320. The strike price for the option is $80. The stock is currently selling at $79 per share. Ignoring brokerage fees, what price must the stock achieve to just cover the expense of t
> Crystal Cafes recently sold a $1,000-par-value, 10-year convertible bond with a 7% coupon rate. The interest payments will be paid annually at the end of each year and the principal will be repaid at maturity. A similar bond without a conversion feature
> Newcomb Company has a bond outstanding with a $1,000 par value and convertible at $30 per share. What is the bond’s conversion ratio? If the underlying stock currently trades at $25 per share, what is the bond’s conversion value? Would it be advisable fo
> During the past 2 years Meacham Industries issued three separate convertible bonds. For each of them, calculate the conversion price: a. A $1,000-par-value bond that is convertible into 10 shares of common stock. b. A $1,000-par-value bond that is conver
> N and M Corp. is considering leasing a new machine for $25,000 per year. The lease arrangement calls for a 5-year lease with an option to purchase the machine at the end of the lease for $3,500. The firm is in the 34% tax bracket. What is the present val
> Horizon Telecom sold $300,000 worth of 120-day commercial paper for $298,000. What is the dollar amount of interest paid on the commercial paper? What is the effective 120-day rate on the paper?
> Jackson Industries has borrowed $125,000 under a line-of-credit agreement. Although the company normally maintains a checking account balance of $15,000 in the lending bank, this credit line requires a 20% compensating balance. The stated interest rate o
> The end-of-year parties at Yearling, Inc., are known for their extravagance. To thank the employees for their hard work, management provides the best food and entertainment. During the planning for this year’s bash, a disagreement broke out between the t
> Cleaner’s Inc. is switching to paying employees every 2 weeks rather than weekly and will therefore “skip” 1 week’s pay. The firm has 25 employees who work a 60-hour week and earn an average wage of $12.50 per hour. Using a 10% rate of interest, how much
> Lyman Nurseries purchased seeds costing $25,000 with terms of 3/15 net 30 EOM on January 12. How much will the firm pay if it takes the discount? What is the approximate cost of giving up the discount, using the simplified formula?
> Klein’s Tools is considering offering a discount to speed up the collection of accounts receivable. Currently, the firm has an average collection period of 65 days, annual sales are 35,000 units, the per-unit price is $40, and the per-unit variable cost
> Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days. The company has a per-unit variable cost of $20 and a per unit sale price of $30. Bad debts currently are 5% of sales. The firm estimates that a pro
> Mama Leone’s Frozen Pizzas uses 50,000 pounds of cheese per year. Each pound costs $5.50. The ordering cost for the cheese is $250 per order, and its carrying cost is $1.50 per pound per year. Calculate the firm’s economic order quantity (EOQ) for the ch
> Seven years ago, after 15 years in public accounting, Stanley Booker, CPA, resigned his position as manager of cost systems for Davis, Cohen, and O’Brien Public Accountants and started Track Software Inc. In the 2 years preceding his de
> In corporate settings, it is not unusual for firms to assess the financial viability of a business unit and decide whether to retain it within the corporation or divest it. The selling of units that do not seem to “fit” should bring about greater synergy
> Benson Oil is being considered for acquisition by Dodd Oil. The combination, Dodd believes, would increase its cash inflows by $25,000 for each of the next 5 years and by $50,000 for each of the following 5 years. Benson has high financial leverage, and
> Zarin Printing Company is considering the acquisition of Freiman Press at a cash price of $60,000. Freiman Press has liabilities of $90,000. Freiman has a large press that Zarin needs; the remaining assets would be sold to net $65,000. As a result of acq
> Hahn Textiles has a tax loss carryforward of $800,000. Two firms are interested in acquiring Hahn for the tax loss advantage. Reilly Investment Group has expected earnings before taxes of $200,000 per year for each of the next 7 years and a cost of capit
> Trapani Tool Company is evaluating the acquisition of Sussman Casting. Sussman has a tax loss carryforward of $1.8 million. Trapani can purchase Sussman for $2.1 million. It can sell the assets for $1.6 million, their book value. Trapani expects its earn
> Icy Treats Inc. is a seasonal business that sells frozen desserts. At the peak of its summer selling season, the firm has $35,000 in cash, $125,000 in inventory, $70,000 in accounts receivable, and $65,000 in accounts payable. During the slow winter peri
> Connors Shoe Company is contemplating the acquisition of Salinas Boots, a firm that has shown large operating tax losses over the past few years. As a result of the acquisition, Connors believes that the total pretax profits of the merger will not change
> What is the conversion ratio for each of the following bonds? a. A $1,000-par-value bond that is convertible into common stock at $43.75 per share. b. A $1,000-par-value bond that is convertible into common stock at $25 per share. c. A $600-par-value bon
> Calculate the conversion price for each of the following convertible bonds: a. A $1,000-par-value bond that is convertible into 40 shares of common stock. b. A $1,000-par-value bond that is convertible into 25 shares of common stock. c. A $1,000-par-valu
> Given the lease payments, terms remaining until the leases expire, and discount rates shown in the following table, calculate the capitalized value of each lease, assuming that lease payments are made annually at the end of each year. Lease payment
> Joanna Browne is considering either leasing or purchasing a new Chrysler Sebring convertible that has a manufacturer’s suggested retail price (MSRP) of $33,000. The dealership offers a 3-year lease that requires a capital payment of $3,300 ($3,000 down p
> Northwest Lumber Company needs to expand its facilities. To do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 40% tax bracket, and its after-tax cost of debt is 9%. The terms of the lease a
> JLB Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 40% tax bracket, and its after-tax cost of debt is currently 8%. The terms of the lease and of the purchase are as follows: Annual end-of-year
> Schuyler Company wishes to purchase an asset costing $117,000. The full amount needed to finance the asset can be borrowed at 14% interest. The terms of the loan require equal end-of-year payments for the next 6 years. Determine the total annual loan pay
> For each of the loan amounts, interest rates, annual payments, and loan terms shown in the following table, calculate the annual interest paid each year over the term of the loan, assuming that the payments are made at the end of each year. Loan Amo
> Kent Hotels has warrants that allow the purchase of three shares of its outstanding common stock at $50 per share. The common stock price per share and the market value of the warrant associated with that stock price are shown in the table. a. For each
> Everdeen Inc. has a 90-day operating cycle. If its average age of inventory is 35 days, how long is its average collection period? If its average payment period is 30 days, what is its cash conversion cycle? Place all this information on a timeline simil
> Dinoo Mathur wishes to determine whether the $1,000 price asked for Stanco Manufacturing’s bond is fair in light of the theoretical value of the attached warrants. The $1,000-par-value, 30-year, 11.5%-interest-rate bond pays annual interest and has 10 wa
> Calculate the implied price of each warrant for each of the bonds shown in the following table. Price of bond Number of warrants attached to bond Interest rate with warrants attached Coupon rate (paid annually) on equal-risk straight bond Years to B
> Craig’s Cake Company has an outstanding issue of 15-year convertible bonds with a $1,000 par value. These bonds are convertible into 80 shares of common stock. They have an 8% annual coupon rate, whereas the interest rate on straight bonds of similar ris
> Eastern Clock Company has an outstanding issue of convertible bonds with a $1,000 par value. These bonds are convertible into 50 shares of common stock. They have a 10% annual coupon rate and a 20-year maturity. The interest rate on a straight bond of si
> Calculate the straight bond value for each of the bonds shown in the table below. Interest rate on equal-risk straight bond Years to Coupon rate (paid annually) Bond Par value maturity A $1,000 6% 7.0% 20 B 1,000 7 8.5 14 C 1,000 8 10.0 30 D 1,000 9
> Find the conversion (or stock) value for each of the $1,000-par-value convertible bonds described in the following table. Current market price of stock Conversion Convertible ratio A 22.50 $42.25 B 18 50.00 C 20 44.00 D 45 19.50
> What is the conversion (or stock) value of each of the following convertible bonds? a. A $1,000-par-value bond that is convertible into 25 shares of common stock. The common stock is currently selling for $50 per share. b. A $1,000-par-value bond that is
> Given the lease payments and terms shown in the following table, determine the yearly after-tax cash outflows for each firm, assuming that lease payments are made at the end of each year and that the firm is in the 40% tax bracket. Assume that no purchas
> Data Back-Up Systems has obtained a $10,000, 90-day bank loan at an annual interest rate of 15%, payable at maturity. (Note: Assume a 365day year.) a. How much interest (in dollars) will the firm pay on the 90-day loan? b. Find the 90-day rate on the loa
> When Waverly Wear Inc. merged with Southerly Inc., Waverly’s employees were switched from a weekly to a biweekly pay period. Waverly’s weekly payroll amounted to $389,500. The annual cost of funds for the combined firms is 8.76%. What annual savings, if
> The current stockholders’ equity account for Hilo Farms is as follows: Hilo has announced plans to issue an additional 5,000 shares of common stock as part of its stock dividend plan. The current market price of Hilo’
> On accepting the position of chief executive officer and chairman of Muse Inc., Dominic Howard changed the firm’s weekly payday from Monday afternoon to the following Friday afternoon. The firm’s weekly payroll was $100 million, and the cost of short-ter
> Prairie Manufacturing has four possible suppliers, all of which offer different credit terms. Except for the differences in credit terms, their products and services are virtually identical. The credit terms offered by these suppliers are shown in the fo
> Mark and Stacy McCoy are set to move into their first apartment. They visited Levin Furniture, looking for a dining room table and buffet. Dining room sets are typically one of the more expensive home furnishing items, and the store offers financing arra
> Joanne Germano works in an accounts payable department of a major retailer. She has attempted to convince her boss to take the discount on the 1/15 net 65 credit terms most suppliers offer, but her boss argues that giving up the 1% discount is less costl
> Purchases made on credit are due in full by the end of the billing period. Many firms extend a discount for payment made in the first part of the billing period. The original invoice contains a type of shorthand notation that explains the credit terms th
> Litho-Print is considering two possible capital structures, A and B, shown in the following table. Assume a 40% tax rate. a. Calculate two EBIT–EPS coordinates for each of the structures by selecting any two EBIT values and finding th
> Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 40% tax rate. a. Calculate two EBIT–EPS coordinates for each of the structures by selecting any two EBIT values and findin
> Rancco Inc. reported total sales of $73 million last year, including $13 million in revenue (labor, sales to tax-exempt entities) exempt from sales tax. The company collects sales tax at a rate of 5%. In reviewing its information as part of its loan appl
> Raymond Manufacturing faces a liquidity crisis: It needs a loan of $100,000 for 1 month. Having no source of additional unsecured borrowing, the firm must find a secured short-term lender. The firm’s accounts receivable are quite low, but its inventory i
> Determine the cost of giving up the discount under each of the following terms of sale. (Note: Assume a 365-day year.) a. 2/10 net 30. b. 1/10 net 30. c. 1/10 net 45. d. 3/10 net 90. e. 1/10 net 60. f. 3/10 net 30. g. 4/10 net 180.
> The board of Kopi Industries is considering a new dividend policy that would set dividends at 60% of earnings. The recent past has witnessed earnings per share (EPS) and dividends paid per share as shown in the following table. Based on Kopiâ
> Finance factors the accounts of the Holder Company. All eight factored accounts are shown in the following table, with the amount factored, the date due, and the status on May 30. Indicate the amounts that Blair should have remitted to Holder as of May 3
> Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $134,000 that it will accept as collateral. The bank’s terms include a lending rate set at prime plus 3% and a 2% commission charge
> Springer Products wishes to borrow $80,000 from a local bank using its accounts receivable to secure the loan. The bank’s policy is to accept as collateral any accounts that are normally paid within 30 days of the end of the credit peri
> Kansas City Castings (KCC) is attempting to obtain the maximum loan possible using accounts receivable as collateral. The firm extends net-30-day credit. The amounts that are owed KCC by its 12 credit customers, the average age of each account, and the c
> Commercial paper is usually sold at a discount. Fan Corporation has just sold an issue of 90-day commercial paper with a face value of $1 million. The firm has received initial proceeds of $978,000. (Note: Assume a 365-day year.) a. What effective annual
