Spartan Builders Corporation is a builder of high-end housing with locations in major metropolitan areas throughout the Midwest. At June 30, 2018, the company has deferred tax assets totaling $10 million and deferred tax liabilities of $5 million, all of which relate to U.S. temporary differences. Reversing taxable temporary differences and taxable income in the carryback period can be used to support approximately $2 million of the $10 million gross deferred tax asset. The remaining $8 million of gross deferred tax assets will have to come from future taxable income. The company has historically been profitable. However, significant losses were incurred in fiscal years 2016 and 2017. These two years reflect a cumulative loss of $10 million ($7 million of which was due to a write-down of inventory), with losses of $3 million expected in 2018. Beginning in fiscal 2019, management decided to get out of the metropolitan Chicago market, which had become oversaturated with new houses. Evaluate the company’s need to record a valuation allowance for the $10 million of gross deferred tax assets. What positive and negative evidence would you weigh?
> Jenny Cochran, a graduate of the University of Tennessee with 4 years of experience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components. During the previ
> Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Della Torre,a professional tennis player who has just come to the United State
> On the basis of your answers to Problems 22-1 and 22-2, indicate the range of possible prices that Hastings could bid for each share of Vandell common stock in an acquisition. Data from Problems 22-1: Hastings Corporation is interested in acquiring Van
> Describe some similarities and differences among broker-dealer networks, alternative trading systems (ATS), and registered stock exchanges.
> Counts Accounting’s beta is 1.15 and its tax rate is 40%. If it is financed with 20% debt, what is its unlevered beta?
> What is the present value of a perpetuity of $100 per year if the appropriate discount rate is 7%? If interest rates in general were to double and the appropriate discount rate rose to 14%, what would happen to the present value of the perpetuity?
> You buy a share of The Ludwig Corporation stock for $21.40. You expect it to pay dividends of$1.07,$1.1449,and$1.2250inYears 1,2,and3,respectively,andyouexpect to sell it at a price of $26.22 at the end of 3 years. a. Calculate the growth rate in dividen
> What are some similarities and differences between the NYSE and the NASDAQ Stock Market?
> What is the required rate of return on a preferred stock with a $50 par value, a stated annual dividend of 7% of par, and a current market price of (a) $30, (b) $40, (c) $50,and (d) $70 (assume the market is in equilibrium with the required return equal
> What are financial intermediaries, and what economic functions do they perform?
> Edmund Corporation recently made a large investment to upgrade its technology. Althoughtheseimprovementswon’thavemuchofanimpactonperformanceintheshort run, they are expected to reduce future costs significantly. What impact will this investment have on E
> What is a firm’s fundamental value (which is also called its intrinsic value)? What might cause a firm’s intrinsic value to be different from its actual market value?
> Suppose a company simultaneously issues $50 million of convertible bonds with a coupon rate of 10% and $50 million of straight bonds with a coupon rate of 14%. Both bonds have the same maturity. Does the convertible issue’s lower coupon rate suggest that
> Define each of the following terms: a. Interest tax shields; value of tax shield b. Adjusted present value (APV) model c. Compressed adjusted present value (CAPV) model
> The current price of a stock is $ 33,and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercis
> Many companies that go public with an IPO don’t actually need additional cash to continue growing their operations. Why might such a firm decide to go public?
> Define each of the following terms: a. PV; I; INT; FVN; PVAN; FVAN; PMT; M; INOM b. Opportunity cost rate c. Annuity; lump-sum payment; cash flow; uneven cash flow stream d. Ordinary (or deferred) annuity; annuity due e. Perpetuity; consol. f. Outflow; i
> What is the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this were an annuity due, what would its future value be?
> A company currently pays a dividend of $2 per share D0 = $2 .It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, and then at a constant rate of 7% there after. The company’s stock has a beta of 1.2, the r
> Nick’sEnchiladasIncorporatedhaspreferredstockoutstandingthatpaysadividendof$5 at the end of each year. The preferred sells for $50 a share. What is the stock’s required rate of return (assume the market is in equilibrium with the required return equal to
> Woidtke Manufacturing’s stock currently sells for $22 a share. The stock just paid a dividend of $1.20 a share (i.e., D0 = $1 20), and the dividend is expected to grow forever at a constant rate of 10% a year. What stock price is expected 1 year from now
> Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1 $1 50). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rs, is 13%. What is the estimated value
> Broussard Skateboard’s sales are expected to increase by 15% from $8 million in 2016 to $ 9.2 million in 2017. Its assets totaled $5 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected
> A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $4 per share D1 = $4 , and it is expected to grow at some constant rate gL throughout time. The stock’s required rate of return is 14% (assume the market is in equi
> Explain how to use the free cash flow valuation model to find the price per share of common equity.
> Contrast and compare trading in face-to-face auctions, dealer markets, and automated trading platforms.
> Tremaine would like to organize UTA as either an S Corporation or a C corporation. In either form, the entity will generate a 9 percent annual before-tax return on a $1,000,000 investment. Tremaine’s marginal income tax rate is 37 percent and his tax rat
> On January 1 of year 1, Arthur and Aretha Franklin purchased a home for $1.5 million by paying $200,000 down and borrowing the remaining $1.3 million with a 7 percent loan secured by the home. The Franklins paid interest only on the loan for year 1 and y
> Javier and Anita Sanchez purchased a home on January 1 of year 1 for $1,000,000 by paying $200,000 down and borrowing the remaining $800,000 with a 6 percent loan secured by the home. The Sanchezes made interest only payments on the loan in years 1 and 2
> Javier and Anita Sanchez purchased a home on January 1, 2018 for, $600,000 by paying $200,000 down and borrowing the remaining $400,000 with a 7 percent loan secured by the home. The loan requires interest-only payments for the first five years. The Sanc
> George (age 42 at year-end) has been contributing to a traditional IRA for years (all deductible contributions) and his IRA is now worth $25,000. He is planning on transferring (or rolling over) the entire balance into a Roth IRA account. George’s margin
> Harriet and Harry Combs (both 37 years old) are married and both want to contribute to a Roth IRA. In 2018, their AGI before any IRA contribution deductions is $50,000. Harriet earned $46,000 and Harry earned $4,000. a. How much can Harriet contribute to
> Jackson and Ashley Turner (both 45 years old) are married and want to contribute to a Roth IRA for Ashley. In 2018, their AGI is $191,000. Jackson and Ashley each earned half of the income. a. How much can Ashley contribute to her Roth IRA if they file
> Brooklyn has been contributing to a traditional IRA for seven years (all deductible contributions) and has a total of $30,000 in the account. In 2018, she is 39 years old and has decided that she wants to get a new car. She withdraws $20,000 from the IRA
> In 2018, Rashaun (62 years old) retired and planned on immediately receiving distributions (making withdrawals) from his traditional IRA account. The balance of his IRA account is $160,000 (before reducing it for withdrawals/distributions described below
> In 2018, Susan (44 years old) is a highly successful architect and is covered by an employee-sponsored plan. Her husband, Dan (47 years old), however, is a Ph.D. student and is unemployed. Compute the maximum deductible IRA contribution for each spouse i
> William is a single writer (age 35) who recently decided that he needs to save more for retirement. His 2018 AGI before the IRA contribution deduction is $66,000 (all earned income). a. If he does not participate in an employer-sponsored plan, what is th
> Describe how goodwill with a zero basis for tax purposes but not for book purposes leads to a permanent book–tax difference when the book goodwill is written off as impaired.
> John (age 51 and single) has earned income of $3,000. He has $30,000 of unearned (capital gain) income. a. If he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution John can make in 2018? b. If he does par
> XYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 40 percent of their salary for five years. (For purposes of this problem, ignore payroll taxes in your computations). a. Assume XYZ has a marginal tax
> Leslie participates in IBO’s nonqualified deferred compensation plan. For 2018, she is deferring 10 percent of her $300,000 annual salary. Based on her deemed investment choice, Leslie expects to earn a 7 percent before-tax rate of return on her deferred
> In 2018, Nitai (age 40) contributes 10 percent of his $100,000 annual salary to a Roth 401(k) account sponsored by his employer, AY Inc. AY Inc., matches employee contributions to the employee’s traditional 401(k) account dollar for dollar up to 10 perce
> Tommy (age 47) and his wife, Michelle (age 49), live in Columbus, Ohio, where Tommy works for Callahan Auto Parts (CAP) as the vice-president of the brakes division. Tommy’s 2018 salary is $360,000. CAP allows Tommy to participate in its nonqualified def
> Alex is 31 years old and has lived in Los Alamos, New Mexico, for the last four years where he works at the Los Alamos National Laboratory (LANL). LANL provides employees with a 401(k) plan and for every $1 an employee contributes (up to 9 percent of the
> Ian retired in June of 2017 at the age of 69 (he turned 70 in August of 2017). Ian’s retirement account was valued at $490,000 at the end of 2016 and $500,000 at the end of 2017. He has had all of his retirement accounts open for 15 years. What is Ian’s
> Jacquiline is unmarried and age 32. Even though she participates in an employer-sponsored retirement plan, Jacquiline contributed $3,000 to a traditional IRA during the year. Jacquiline files as a head of household, her AGI before the contribution is $43
> Penny is 57 years old and she participates in her employer’s 401(k) plan. During the year, she contributed $2,000 to her 401(k) account. Penny’s AGI is $29,000 after deducting her 401(k) contribution. What is Penny’s saver’s credit in each of the followi
> For purposes of determining a taxpayer's deductible home mortgage interest, does it matter when the taxpayer incurred the debt to acquire the home? Explain.
> Desmond is 25 years old and he participates in his employer’s 401(k) plan. During the year, he contributed $3,000 to his 401(k) account. What is Desmond’s saver’s credit in each of the following alternative scenarios? a. Desmond is not married and has no
> Access the 2017 Annual Report for Facebook, Inc., and answer the following questions. a. Using information from the company’s Income Statement and Income Taxes footnote, what was the company’s effective tax rate for 2017? Show how the rate is calculated.
> You have been assigned to compute the income tax provision for Tulip City Flowers, Inc. (TCF) as of December 31, 2018. The company’s Income Statement for 2018 is provided below: Tulip City Flowers, Inc. Statement of Operations at Decembe
> You have been assigned to compute the income tax provision for Motown Memories, Inc. (MM) as of December 31, 2018. The Company’s Income Statement for 2018 is provided below: Motown Memories, Inc. Statement of Operations at December 31, 2
> Karane Enterprises, a calendar year manufacturer based in College Station, Texas began business in 2017. In the process of setting up the business, Karane has acquired various types of assets. Below is a list of assets acquired during 2017: During 2017
> Yuki (age 45 at year-end) has been contributing to a traditional IRA for years (all deductible contributions) and her IRA is now worth $50,000. She is trying to decide whether she should roll over her traditional IRA into a Roth IRA. Her current marginal
> Fizbo Corporation is in the business of breeding and racing horses. Fizbo has taxable income of $5,000,000 other than from these transactions. It has nonrecaptured §1231 losses of $10,000 from 2014 and $13,000 from 2012. Consider the following transacti
> Sherry, who is 52 years of age, opened a Roth IRA three years ago. She has contributed a total of $12,000 to a Roth IRA ($4,000 a year). The current value of the Roth IRA is $16,300. In the current year, Sherry withdraws $14,000 of the account balance to
> John is trying to decide whether to contribute to a Roth IRA or traditional IRA. He plans on making a $5,000 contribution to whichever plan he decides to fund. He currently pays tax at a 32 percent marginal income tax rate but he believes that his margin
> Juanita owns a principal residence in New Jersey, a cabin in Montana, and a houseboat in Hawaii. All of these properties have mortgages incurred before 2017 on which Juanita pays interest. What limits, if any, apply to Juanita’s home mortgage interest de
> Jimmer has contributed $15,000 to his Roth IRA and the balance in the account is $18,000. In the current year, Jimmer withdrew $17,000 from the Roth IRA to pay for a new car. If Jimmer’s marginal ordinary income tax rate is 24 percent, what amount of tax
> Hill Corporation is in the leasing business and faces a marginal tax rate of 21 percent. It has leased a building to Whitewater Corporation for several years. Hill bought the building for $150,000 and claimed $20,000 of depreciation deductions against th
> Metro Corp. traded Land A for Land B. Metro originally purchased Land A for $50,000 and Land A’s adjusted basis was $25,000 at the time of the exchange. What is Metro’s realized gain or loss, recognized gain or loss, and adjusted basis in Land B in each
> James and Kate Sawyer were married on New Year’s Eve of 2017. Before their marriage, Kate lived in New York and worked as a hair stylist for one of the city’s top salons. James lives in Atlanta where he works for a public accounting firm earning an annua
> Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $75,000 from her grandfather who recently passed away. The couple is de
> Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows: Thriller Corporation has current E&P of $300,000 for this year and accumulated E&P at January 1 of thi
> Suppose Vince dies this year with a gross estate of $25 million and no adjusted prior gifts. Calculate the amount of estate tax due (if any) under the following alternative conditions. a. Vince leaves his entire estate to his spouse, Millie. b. Vince lea
> USCo, a U.S. corporation, has decided to set up a headquarters subsidiary in Europe. Management has narrowed its location choice to either Spain, Ireland, or Switzerland. The company has asked you to research some of the income tax implications of settin
> Windmill Corporation manufactures products in its plants in Iowa, Canada, Ireland, and Australia. Windmill conducts its operations in Canada through a 50 percent owned joint venture, CanCo. CanCo is treated as a corporation for U.S. and Canadian tax purp
> Simon is a 30% partner in the SBD Partnership, a calendar year-end entity. As of the end of this year, Simon has an outside basis in his interest in SBD of $188,000, which includes his share of the $60,000 of partnership liabilities. On December 31, SBD
> Assume a calendar-year corporation has a deficit (negative) current E&P of $100 and accumulated E&P of $100. Under this circumstance, a cash distribution of $100 to the corporation’s sole shareholder on June 30 will not be treated as a dividend because t
> Carrie D’Lake, Reed A. Green, and Doug A. Divot share a passion for golf and decide to go into the golf club manufacturing business together. On January 2, 2018, D’Lake, Green, and Divot form the Slicenhook Partnership
> Daisy has developed a viable new business idea. Her idea is to design and manufacture cookware that remains cool to the touch when in use. She has had several friends try out her prototype cookware and they have consistently given the cookware rave revie
> Cartman Corporation owns 90 shares of SP Corporation. The remaining 10 shares are owned by Kenny (an individual). After several years of operations, Cartman decided to liquidate SP Corporation by distributing the assets to Cartman and Kenny. The tax basi
> Timpanogos Inc. is an accrual-method calendar-year corporation. For 2018, it reported financial statement income after taxes of $1,152,000. Timpanogos provided the following information relating to its 2018 activities: Required: a. Reconcile book inco
> Compute HC Inc.’s current year taxable income given the following information relating to its 2018 activities. Also, compute HC’s Schedule M-1 assuming that HC’s federal income tax expense for book purposes is $30,000. • Gross profit from inventory sales
> Compute MV, Corp.’s 2018 taxable income given the following information relating to its year 1 activities. Also, compute MV’s Schedule M-1 assuming that MV’s federal income tax expense for book purposes is $100,000. • Gross profit from inventory sales of
> Independence Corporation needs to replace some of the assets used in its trade or business and is contemplating the following exchanges: Exchange Asset Given Up by Independence Asset Received by Independence A Office building in Chicago, IL Piece
> Convers Corporation (calendar year-end) acquired the following assets during the current tax year: Asset Placed in Service Date Original Basis Machinery October 25 $70,000 Computer Equipment February 3 $10,000 Delivery Truck* March
> In the current year, Jill, age 35, received a job offer with two alternative compensation packages to choose from. The first package offers her $90,000 annual salary with no qualified fringe benefits, requires her to pay $3,500 a year for parking, and pa
> Sylvana is given a job offer with two alternative compensation packages to choose from. The first package offers her $250,000 annual salary with no qualified fringe benefits. The second package offers $235,000 annual salary plus health and life insurance
> Distinguish between exclusion and deferral in a property transaction.
> Santini’s new contract for 2018 indicates the following compensation and benefits: Benefit Description Amount Salary $130,000 Health insurance $9,000 Restricted stock granted $2,500 Bonus $5,000 Hawaii trip $4,000 Group-term life
> People sometimes confuse the applicable credit with the exemption equivalent. Describe how these terms differ and how they are related.
> What is a permanent establishment, and why is it an important part of most income tax treaties?
> What is the primary goal of the United States in negotiating income tax treaties with other countries?
> What are the potential U.S. tax benefits from engaging in an export sale?
> Compare and contrast general sales tax nexus and the new “Amazon” rule creating sales tax nexus in New York.
> States are arguing for economic income tax nexus; provide at least one reason for and one against the validity of economic income tax nexus.
> When are partnerships mandated to adjust the basis of their assets (inside basis) when a partner sells a partnership interest or receives a partnership distribution?
> Describe when a corporate shareholder must defer gains on the receipt of distributions of property from the complete liquidation of a subsidiary corporation.
> In a stock acquisition, describe the difference (if any) between the tax basis of assets held by an acquired corporation and the tax basis of the shares held by a corporate acquirer?
> Describe the applicable credit and the purpose it serves in the gift and estate tax.
> If entities taxed as partnerships and S corporations are both flow-through entities for tax purposes, why might an owner prefer one form over the other for tax purposes? List separately the tax factors supporting the decision to operate as either as an e
> Explain when an acquiring corporation would prefer to buy the target corporation’s assets directly in an acquisition.
> Reveille Corporation experienced a complete loss of its lumber mill as the result of a fire. The company received $2 million from the insurance company. Rather than rebuild, Reveille decided to distribute the $2 million to its two shareholders. No sto
> In general, what causes a stock distribution to be taxable to the recipient?
> What is the limitation on a deductible IRA contribution for 2018?
> Why might a corporation issue a stock distribution to its shareholders?
> Briefly describe the process of computing a corporation’s minimum tax credit carryover.
> ELS, an S corporation, reported a business loss of $1,000,000. Ethan, ELS’s sole shareholder, is involved in ELS’s daily business activities and he reports $1,200,000 of taxable income from sources other than ELS. What must you know in order to determine
> Deductions for traditional IRAs and contributions to Roth IRAs are phased out based on modified AGI (MAGI). In general terms how does MAGI for purposes of determining the traditional IRA deduction differ from AGI and how does it differ from MAGI for purp
