All Related Questions of Municipal Bonds

Q: Interest on municipal bonds is referred to as a permanent difference when

Interest on municipal bonds is referred to as a permanent difference when determining the proper amount to report for deferred taxes. Explain the meaning of permanent differences, and give two other e...

Q: The following information is available for Remmers Corporation for 2014.

The following information is available for Remmers Corporation for 2014. 1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $120,000. This difference...

Q: Wise Company began operations at the beginning of 2015. The following

Wise Company began operations at the beginning of 2015. The following information pertains to this company. 1. Pretax financial income for 2015 is $100,000. 2. The tax rate enacted for 2015 and future...

Q: Hagar Corporation has municipal bonds classified as available for-sale at

Hagar Corporation has municipal bonds classified as available for-sale at December 31, 2013. These bonds have a par value of $800,000, an amortized cost of $800,000, and a fair value of $720,000. The...

Q: Why it that municipal bonds are not is taxed at the federal

Why it that municipal bonds are not is taxed at the federal level, but are taxable across state lines? Why it is that U.S. Treasury bonds are not taxable at the state level?

Q: For the year ended December 31, 2018, Fidelity Engineering reported

For the year ended December 31, 2018, Fidelity Engineering reported pretax accounting income of $977,000. Selected information for 2018 from Fidelity’s records follows: Interest income on municipal bo...

Q: Dennis is currently considering investing in municipal bonds that earn 6 percent

Dennis is currently considering investing in municipal bonds that earn 6 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 8 percent. If Dennis’ tax rate is 20 percent, wh...

Q: Marc and Michelle are married and earned salaries this year of $

Marc and Michelle are married and earned salaries this year of $64,000 and $12,000, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $500 from corpo...

Q: Tim suffered greatly this year. In January a freak storm damaged

Tim suffered greatly this year. In January a freak storm damaged his sailboat and in July Tim’s motorcycle was stolen from his vacation home. Tim originally paid $27,000 for the boat, but he was abl...

Q: Jack, a geologist, had been debating for years whether or

Jack, a geologist, had been debating for years whether or not to venture out on his own and operate his own business. He had developed a lot of solid relationships with clients and he believed that ma...

Q: Christopher is a cash-method, calendar-year taxpayer,

Christopher is a cash-method, calendar-year taxpayer, and he made the following cash payments related to his business this year. Calculate the after-tax cost of each payment assuming he has a 30 per...

Q: Cairo Corporation has municipal bonds classified as available for-sale at

Cairo Corporation has municipal bonds classified as available for-sale at December 31, 2012. These bonds have a par value of $800,000, an amortized cost of $800,000, and a fair value of $740,000. The...

Q: In the current year, Azure Company has $350,000

In the current year, Azure Company has $350,000 of net operating income before deducting any compensation or other payment to its sole owner, Sasha. In addition, Azure has interest on municipal bonds...

Q: In determining Blue Corporation’s current E & P for 2017, how

In determining Blue Corporation’s current E & P for 2017, how should taxable income be adjusted as a result of the following transactions? a. A capital loss carryover from 2016, fully used in 2017. b....

Q: Cardinal Corporation, a calendar year taxpayer, receives dividend income of

Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from municip...

Q: K.T. Tim has been appointed to serve as executor

K.T. Tim has been appointed to serve as executor for the estate of Ms. Lisa Triciao, who passed away on August 15, 2015. Ms. Triciao’s assets consisted of the following: The probat...

Q: What are municipal bonds? Why are they issued? Are all

What are municipal bonds? Why are they issued? Are all municipal bonds free from default risk? What characteristic makes municipal bonds especially attractive to high-income investors?

Q: Omega Corporation, a regular C corporation, presents you with the

Omega Corporation, a regular C corporation, presents you with the following partial book income statement for the current year: Omega also provides the following partial balance sheet information: Y...

Q: Beach Corporation, an accrual basis taxpayer, reports the following results

Beach Corporation, an accrual basis taxpayer, reports the following results for the current year: a. What is Beach’s taxable income? b. What is Beach’s current E&...

Q: Woodland Corporation reports the following financial accounting results and other depreciation information

Woodland Corporation reports the following financial accounting results and other depreciation information for the current year: Sales revenue…………………………………..…………………………………..$ 2,000,000 Plus: Interest...

Q: Commercial banks moved heavily into equipment leasing during the early 1970s,

Commercial banks moved heavily into equipment leasing during the early 1970s, acting as lessors. One major reason for this invasion of the leasing industry was to gain the benefits of accelerated depr...

Q: Porporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds

Porporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds?

Q: Paul has $10,000 that he wishes to invest in

Paul has $10,000 that he wishes to invest in bonds. He can purchase Treasury bonds with a coupon rate of 7% or municipal bonds with a coupon rate of 5.5%. Paul lives in a state with no state income ta...

Q: The Sampsons are considering investing in bonds as a way of saving

The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between 12 and 16 years from now, which is ex...

Q: The Sampsons are considering investing in bonds as a way of saving

The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between 12 and 16 years fro...

Q: The Sampsons are considering investing in bonds as a way of saving

The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between 12 and 16 years from now, which is ex...

Q: The Sampsons are considering investing in bonds as a way of saving

The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between 12 and 16 years from now, which is ex...

Q: Why is it that municipal bonds are not taxed at the federal

Why is it that municipal bonds are not taxed at the federal level, but are taxable across state lines? Why are U.S. Treasury bonds not taxable at the state level? (You may need to dust off the history...

Q: Based on the following facts, calculate adjusted current earnings (ACE

Based on the following facts, calculate adjusted current earnings (ACE). Alternative minimum taxable income (AMTI before ACE adjustment) ……………. $5,120,000 Municipal bond interest ……………………………………………………...

Q: In the current year, Azure Company has $350,000

In the current year, Azure Company has $350,000 of net operating income before deducting any compensation or other payments to its sole owner, Sasha. In addition, Azure has interest on municipal bonds...

Q: The Coffee Company engages in the following transactions during the taxable year

The Coffee Company engages in the following transactions during the taxable year. • Sells stock held for three years as an investment for $30,000 (adjusted basis of $20,000). • Sells land used in th...

Q: Cardinal Corporation, a calendar year taxpayer, receives dividend income of

Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from municip...

Q: Maysa is considering making an investment in municipal bonds yielding 4%.

Maysa is considering making an investment in municipal bonds yielding 4%. What would the yield on a taxable bond have to be to provide a higher after-tax return than the municipal bond if Maysa is in...

Q: Return to the facts of problem 58. Assume that Maysa bought

Return to the facts of problem 58. Assume that Maysa bought $5,000 par value of Rondo Corporation bonds for $4,500. The bonds pay 8% interest annually. Three years later, the price of the bonds has...

Q: Ying pays an adviser $300 to help manage her investments and

Ying pays an adviser $300 to help manage her investments and provide investment advice. The adviser's fee is not directly related to any particular investment owned by Ying. She owns $40,000 worth o...

Q: Why is interest paid on a loan used to purchase municipal bonds

Why is interest paid on a loan used to purchase municipal bonds not deductible?

Q: Liang pays $12,000 in interest on debt which was

Liang pays $12,000 in interest on debt which was used to purchase portfolio investments. He receives $6,000 in interest from a certificate of deposit, $4,200 in royalties, and $2,000 in interest on m...

Q: Interest on corporate bonds is taxable to the recipient whereas interest on

Interest on corporate bonds is taxable to the recipient whereas interest on municipal bonds is tax-free. Would you expect that the interest rate on a corporate bond would be higher or lower than the r...

Q: If the income tax exemption on municipal bonds were abolished, what

If the income tax exemption on municipal bonds were abolished, what would happen to the interest rates on these bonds? What effect would it have on interest rates on U.S. Treasury securities?

Q: The following information is available for Remmers Corporation for 2012.

The following information is available for Remmers Corporation for 2012. 1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $120,000. This difference...

Q: Wise Company began operations at the beginning of 2013. The following

Wise Company began operations at the beginning of 2013. The following information pertains to this company. 1. Pretax financial income for 2013 is $100,000. 2. The tax rate enacted for 2013 and future...

Q: In this simulation, you are asked to address questions related to

In this simulation, you are asked to address questions related to the accounting for taxes. Prepare responses to all parts.

Q: The Heinlein and Krampf Brokerage firm has just been instructed by one

The Heinlein and Krampf Brokerage firm has just been instructed by one of its clients to invest $250,000 of her money obtained recently through the sale of land holdings in Ohio. The client has a good...

Q: The Phew Charitable Trust pays no taxes on its capital gains or

The Phew Charitable Trust pays no taxes on its capital gains or on its dividend income or interest income. Would it be irrational for it to have low-dividend, high-growth stocks in its portfolio? Woul...

Q: Why is it that municipal bonds are not taxed at the federal

Why is it that municipal bonds are not taxed at the federal level, but are taxable across state lines? Why is it that U.S. Treasury bonds are not taxable at the state level? (You may need to dust off...

Q: 1. At December 31, 2013, Bren Co. had

1. At December 31, 2013, Bren Co. had the following deferred income tax items: • A deferred income tax liability of $15,000 related to a noncurrent asset • A deferred income tax asset of $3,000 relate...

Q: The company reported pretax financial income in its income statement of $

The company reported pretax financial income in its income statement of $50,000. Among the items included in the computation of pretax financial income were the following: Interest revenue from munic...

Q: The company reported sales of $60,000. Other income

The company reported sales of $60,000. Other income statement items for the year were as follows: Interest revenue from municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....

Q: Hinton Exploration Company reported pretax financial income of $637,000

Hinton Exploration Company reported pretax financial income of $637,000 for the calendar year 2013. Included in the Other Income section of the income statement was $98,000 of interest revenue from mu...

Q: Polytechnic Corporation reported taxable income of $2,340,000

Polytechnic Corporation reported taxable income of $2,340,000 for the year ended December 31, 2013. The controller is unfamiliar with the required treatment of temporary and permanent differences in r...

Q: Refer to Practice 16-3. Compute the effective tax rate

Refer to Practice 16-3. Compute the effective tax rate. In Practice 16-3 The company reported pretax financial income in its income statement of $50,000. Among the items included in the computation o...

Q: Taxpayers in the state of Kentucky alleged that a tax on out

Taxpayers in the state of Kentucky alleged that a tax on out-of-state municipal bonds that excluded interest from in-state bonds was a violation of the commerce clause. Representatives of the state ar...

Q: Jessica has $10,000 invested in corporate bonds with a

Jessica has $10,000 invested in corporate bonds with a stated interest rate of 7 percent and $10,000 in tax-exempt municipal bonds issued for governmental activities with a stated interest rate of 5.5...

Q: Krystyna, a single individual, invested $20,000 in

Krystyna, a single individual, invested $20,000 in corporate bonds with a stated interest rate of 5 percent and another $20,000 in tax-exempt municipal bonds issued for governmental activities with a...

Q: Arnold Corporation (a calendar-year, accrual-basis taxpayer

Arnold Corporation (a calendar-year, accrual-basis taxpayer) reported $500,000 pre-tax income on its financial statements for the year. In examining its records, you find the following: • $3,000 of i...

Q: William, an employee for Williamson Corporation, receives an annual salary

William, an employee for Williamson Corporation, receives an annual salary of $120,000 and is in the 28 percent marginal tax bracket. He is eligible to contribute to Williamson’s 401(k) plan and could...

Q: Richardson Company reported pretax income from continuing operations in the first six

Richardson Company reported pretax income from continuing operations in the first six months of the current year in the amount of $100,000. Projected pretax operating income for the balance of the yea...

Q: Record the following events of Mayo Health Clinic, a VHWO:

Record the following events of Mayo Health Clinic, a VHWO: 1. In her will, a leading citizen left a bequest of $400,000 to the clinic. Stipulations were that the amount was to become the corpus of a p...

Q: The following information is available to assist you in preparing a bank

The following information is available to assist you in preparing a bank reconciliation for Calico Corners on May 31: a. The balance on the May 31 bank statement is $8,432.11. b. Not included on the...

Q: Metge Corporation’s worksheet for calculating taxable income for 2017 follows:

Metge Corporation’s worksheet for calculating taxable income for 2017 follows: The enacted tax rate for 2017 is 35%, but it is scheduled to increase to 40% in 2018 and subsequent y...

Q: Refer to Table 6–6. a. On May

Refer to Table 6–6. a. On May 23, 2016, what were the coupon rate, price, and yield on municipal bonds issued by the Delaware River Port Authority? b. What was the yield to maturity,...

Q: A Section 20 subsidiary of a major U.S. bank

A Section 20 subsidiary of a major U.S. bank is planning to underwrite corporate securities and expects to generate $5 million in revenues. It currently underwrites U.S. Treasury securities and genera...

Q: Hagar Corporation has municipal bonds classified as a held-to-

Hagar Corporation has municipal bonds classified as a held-to-maturity at December 31, 2017. These bonds have a par value of $800,000, an amortized cost of $800,000, and a fair value of $720,000. The...

Q: Wise Company began operations at the beginning of 2018. The following

Wise Company began operations at the beginning of 2018. The following information pertains to this company. 1. Pretax financial income for 2018 is $100,000. 2. The tax rate enacted for 2018 and futu...

Q: Review Figures 13-1 and 13-2, and record

Review Figures 13-1 and 13-2, and record in writing an investment plan to fund your retirement, presumably one of your own long-term goals. Figures 13-1: Figures 13-2:

Q: Now that you have read the chapter on stocks and bonds,

Now that you have read the chapter on stocks and bonds, what do you recommend to Ariya Jutanugarn in the case at the beginning of the chapter regarding: 1. Investing for retirement in 18 years? 2. Own...

Q: After nearly 14 years of marriage, Harry and Belinda’s finances have

After nearly 14 years of marriage, Harry and Belinda’s finances have improved, even though they have incurred debts for an automobile loan and a condominium. Plus they now have a 5-y...

Q: Consider the yields (as an interest rate, in percent per

Consider the yields (as an interest rate, in percent per year) of municipal bonds, as shown in Table 3.8.1. a. Construct a histogram of this data set. b. Based on the histogram, what values appear to...

Q: For the yields of municipal bonds (Table 3.8.

For the yields of municipal bonds (Table 3.8.1 in Chapter 3): a. Find the average yield. b. Find the median yield. c. Find the quartiles. d. Find the five-number summary. e. Draw a box plot of these y...

Q: For the municipal bond yields of Table 3.8.1

For the municipal bond yields of Table 3.8.1 in Chapter 3: a. Find the standard deviation of the yield. b. Find the range. c. Find the coefficient of variation. d. Use these summaries to describe the...

Q: Western Corporation, a calendar year, accrual basis corporation, reported

Western Corporation, a calendar year, accrual basis corporation, reported $500,000 of net income after tax on its 2018 financial statements prepared in accordance with GAAP. The corporation’s books an...

Q: Mr. G has $15,000 to invest. He

Mr. G has $15,000 to invest. He is undecided about putting the money into tax-exempt municipal bonds paying 3.5 percent annual interest or corporate bonds paying 4.75 percent annual interest. The two...

Q: Dennis is currently considering investing in municipal bonds that earn 6 percent

Dennis is currently considering investing in municipal bonds that earn 6 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 8 percent. If Dennis’ tax rate is 22 percent, wh...

Q: Christopher is a cash-method, calendar-year taxpayer,

Christopher is a cash-method, calendar-year taxpayer, and he made the following cash payments related to his business this year. Calculate the after-tax cost of each payment assuming Christopher has a...

Q: Marc and Michelle are married and earned salaries this year of $

Marc and Michelle are married and earned salaries this year of $64,000 and $12,000, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $500 from corpo...

Q: Timpanogos Inc. is an accrual-method calendar-year corporation

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 it...

Q: Corporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds

Corporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds?

Q: What is the distinguishing feature of how municipal bonds are taxed?

What is the distinguishing feature of how municipal bonds are taxed?

Q: 1. What are debt securities with maturities longer than one year

1. What are debt securities with maturities longer than one year and corporate stocks referred to as? a. Money market securities b. Mortgage market securities c. Capital market securities d. Deriv...

Q: Chee, single, age 40, had the following income and

Chee, single, age 40, had the following income and expenses during 2018: Calculate Chee's taxable income for the year. If Chee has any options, choose the method that maximizes his deductions.

Q: In 2002, Bill Eaves worked in the purchasing department of Mavis

In 2002, Bill Eaves worked in the purchasing department of Mavis County. In 2006, Eaves was promoted to assistant county administrative officer for personnel. Five years later, Eaves was promoted to c...

Q: An investment firm offers its customers municipal bonds that mature after varying

An investment firm offers its customers municipal bonds that mature after varying numbers of years. Given that the cumulative distribution function of T, the number of years to maturity for a randomly...

Q: A municipal bond service has three rating categories (A, B

A municipal bond service has three rating categories (A, B, and C). Suppose that in the past year, of the municipal bonds issued throughout the United States, 70% were rated A, 20% were rated B, and 1...

Q: In detern1ining Blue Corporation's current E & P for 2018, how

In detern1ining Blue Corporation's current E & P for 2018, how should taxable income be adjusted as a result of the following transactions? a. A capital loss carryover from 2017, fully used in 2018. b...

Q: Ten years ago, DEWA, an electricity and water authority,

Ten years ago, DEWA, an electricity and water authority, issued $20 million worth of municipal bonds that carried a coupon rate of 6% per year, payable semiannually. The bonds had a maturity date of 2...

Q: Western Corporation, a calendar year, accrual basis corporation, reported

Western Corporation, a calendar year, accrual basis corporation, reported $500,000 of net income after tax on its 2019 financial statements prepared in accordance with GAAP. The corporation’s books an...

Q: Chee, single, age 40, had the following income and

Chee, single, age 40, had the following income and expenses during 2021: Income Salary………………………………………………………………………… $43,000 Rental of vacation home (rented 60 days, used personally 60 days, vacant...

Q: Jack, a geologist, had been debating for years whether or

Jack, a geologist, had been debating for years whether or not to venture out on his own and operate his own business. He had developed a lot of solid relationships with clients and he believed that ma...

Q: Short-term municipal bonds currently offer yields of 4%, while

Short-term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Which gives you the higher after-tax yield if your tax bracket is: a. Zero b. 10% c. 20% d. 30%

Q: Why are high-tax-bracket investors more inclined to invest

Why are high-tax-bracket investors more inclined to invest in municipal bonds than low-bracket investors?

Q: Which of the following observations appear to indicate market inefficiency? Explain

Which of the following observations appear to indicate market inefficiency? Explain whether the observation appears to contradict the weak, semistrong, or strong form of the efficient-market hypothesi...

Q: Simmox Company’s income before taxes is $290,000, and

Simmox Company’s income before taxes is $290,000, and its tax rate is 35%. Note that $40,000 is nontaxable interest income from its investment in municipal bonds and is included in $290,000. There are...

Q: Simmox Company’s income before taxes is $290,000, and

Simmox Company’s income before taxes is $290,000, and its tax rate is 35%. Note that $40,000 is nontaxable interest income from its investment in municipal bonds and is included in the $290,000. There...

Q: The Sampsons are considering investing in bonds as a way of saving

The Sampsons are considering investing in bonds as a way of saving for their children’s college education. They learn that there are bonds with maturities between twelve and sixteen years, which is ex...

Q: Annual Interest. Paul has $10,000 that he wishes

Annual Interest. Paul has $10,000 that he wishes to invest in bonds. He can purchase Treasury bonds with a coupon rate of 7% or municipal bonds with a coupon rate of 5.5%. Paul lives in a state with n...

Q: Suppose that short-term municipal bonds currently offer yields of 4

Suppose that short-term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Which gives you the higher after-tax yield if your combined tax bracket is? a. Zero b. 10...

Q: Why are high-tax-bracket investors more inclined to invest

Why are high-tax-bracket investors more inclined to invest in municipal bonds than are low-bracket investors?

Q: The town of Draper, with a population of 20,000

The town of Draper, with a population of 20,000, sits adjacent to State University, which has an enrollment of 27,000 students. Downtown Draper merchants have long complained about the lack of parking...

Q: As an investor, you plan to invest your funds in long

As an investor, you plan to invest your funds in long-term bonds. You have $100,000 to invest. You may purchase highly rated municipal bonds at par with a coupon rate of 6 percent; you have a choice o...

Q: Do investors in high tax brackets or those in low tax brackets

Do investors in high tax brackets or those in low tax brackets benefit more from tax-exempt securities? Why? Do municipal bonds or corporate bonds offer a higher before-tax yield at a given point in t...

Q: It is currently the beginning of year 1. Gotham City is

It is currently the beginning of year 1. Gotham City is trying to sell municipal bonds to support improvements in recreational facilities and highways. The face values of the bonds and the due dates a...