ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who,as directors, retain sole ownership of its ordinary share capital. One third of the initial share capitalwas provided by each sister. However, the company has managed to return a profit in each year ofoperation as shown in the financial statements.ARG Inc. has an overdraft limit of $3.2 million and pays interest on its overdraft at a rate of 6 percent(6%) per year. The company currently has no long-term debt. Current liabilities consist of tradecreditors and overdraft finance in each of the three years as follows:Year201720182019Overdraft ($'000)Trade creditors (S'000)Interest1,1671,13350567400733The industry averages for firms similar to ARG Ine. areNetProfit 9%Creditor days70 daysMargin15 times85 days75 daysCurrent ratioQuick ratioInterest cover21 timesStock daysDebtor days0.8 timesDEBT/Equity ratio40% (using Book value)Required:As the newly-appointed Chief Financial Officer of ARG Inc. write a report of no more thanthree pages 1.5 line spaces to the board which discusses whether the company is likely tobe successful if it approaches its bank FCIB for a loan to undertake a project at a cost of $2.5million. Your discussion should include an analysis of the current financial position andrecent financial performance of the company. The report should comment on whether thebank should provide ARG Inc. with the finance and on what basis. Annual Interest should beclearly calculated as part of the leverage analysis.ARG INCIncome Statement for the years ending December 31201920182017(S'000)(S'000)(S'00)Revenue5,20034002600Cost of Goods sold457028062104Profit before Interest & tax630594496Interest70343Earnings before taxТах560560493140140123Net Income420420370Dividends202020Retained profit400400350ARG IncBalance Sheet as at December 31201920182017(S'000)(000,ş)800(S'000)Fixed Assets1.6001,200Current Assetsinventory1,4501,000600Accounts Receivable1,4008504002,8501,8501,000Total Assets4,4503,0501,800Current Liabilities2.3001,300450Ordinary shares1,0001,0001,000Reserves1,150750350Total Liabilities & Owners Equity4,4503,0501,800

Overdrafts refer to that financial condition of an account from which money is withdrawn by the…

ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who, as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital was provided by each sister. However, the company has managed to return a profit in each year of operation as shown in the financial statements. ARG Inc. has an overdraft limit of $3.2 million and pays interest on its overdraft at a rate of 6 percent (6%) per year. The company currently has no long-term debt. Current liabilities consist of trade creditors and overdraft finance in each of the three years as follows: 2018 567 733 2019 Year Overdraft (S'000) Trade creditors (S'000) Interest 2017 50 400 1,167 1,133 The industry averages for firms similar to ARG Inc. are Net Profit 9% Creditor days 70 days Margin Interest cover Stock days Debtor days 15 times 85 days 75 days Current ratio Quick ratio DEBT/Equity ratio 21 times 0.8 times 40% (using llook value)

ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who, as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital was provided by each sister. However, the company has managed to return a profit in each year of operation as shown in the financial statements. ARG Inc. has an overdraft limit of $3.2 million and pays interest on its overdraft at a rate of 6 percent (6%) per year. The company currently has no long-term debt. Current liabilities consist of trade creditors and overdraft finance in each of the three years as follows: 2018 567 733 2019 Year Overdraft (S'000) Trade creditors (S'000) Interest 2017 50 400 1,167 1,133 The industry averages for firms similar to ARG Inc. are Net Profit 9% Creditor days 70 days Margin Interest cover Stock days Debtor days 15 times 85 days 75 days Current ratio Quick ratio DEBT/Equity ratio 21 times 0.8 times 40% (using llook value)

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter9: Acquisitions Of Property

Section: Chapter Questions

Problem 30P

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ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who, as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital was provided by each sister. However, the company has managed to return a profit in each year of operation as shown in the financial statements.ARG Inc. has an overdraft limit of $3.2 million and pays interest on its overdraft at a rate of 6 percent (6%) per year. The company currently has no long-term debt. Current liabilities consist of trade creditors and overdraft finance in each of the three years as follows: a) What is is the interest for the year 2017 b) what is the interest for the year 2018 c) what is the interest for the year 2019
ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who, as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital was provided by each sister. However, the company has managed to return a profit in each year of operation as shown in the financial statements.ARG Inc. has an overdraft limit of $3.2 million and pays interest on its overdraft at a rate of 6 percent (6%) per year. The company currently has no long-term debt. Current liabilities consist of trade creditors and overdraft finance in each of the three years as follows: a) What is is the interest for the year 2017 b) what is the interest for the year 2018 c) what is the interest for the year 2019 THE INCOME STATEMENT AND BALANCE SHEET IS ATTACHED
corporation, was formed three years ago by its sole shareholder, James, who has operated it as an S corporation since its inception. Last year, James made a direct loan to Birch Corp. in the amount of $5,000. Birch Corp. has paid the interest on the loan but has not yet paid any principal. (Assume the loan qualifies as debt for tax purposes.) For the year, Birch experienced a $30,000 business loss. At the beginning of the year, James’s basis in his Birch Corp. stock was $8,000 and his basis in his Birch Corp. debt was $5,000. What amount is the amount of suspended loss at the end of the year?
Lauralee, Inc. owns a 30% interest in Eastwood Co., giving it representation on the investee’s board of directors. At the beginning of the year, the Equity Investment was carried on Lauralee’s balance sheet at $500,000. During the year, Eastwood reported net income of $250,000 and paid Lauralee a dividend of $50,000. In addition, Lauralee sold inventory to Eastwood, recording a gross profit of $20,000 on the sale. At the end of the year, 50% of the merchandise remained unsold by Eastwood. Required: a. Prepare the equity method journal entry to defer the unrealized inventory gross profit.b. How much equity income should Lauralee report from Eastwood during the year?c. What is the balance in the Equity Investment at the end of the year?
On January 1, 2018, Chandler purchased 80% of the outstanding shares of Joey at a cost of $96,000. On that date, Joey had $60,000 accumulated profits and $60,000 outstanding shares. On the same date, Chandler sold an equipment (useful life of five years from date of sale) to Joey for $12,000. The book value of the equipment on that date was $14,400. For the year, Chandler had reported an income of $33,600 from its own operations and paid dividends of $18,000. Joey, on the other hand, reported $6,400 income and paid dividends of $3,600. Included in Chandler's income is the loss of $2,400 on the sale of equipment on January 1. All of the assets and liabilities of Joey have book values equal to their market value. Determine the Non-controlling interest in the net assets of Subsidiary on December 31, 2018.
Lone Star Company is a calendar-year corporation, and this year Lone Star reported $210,000 in current E&P that accrued evenly throughout the year. At the beginning of the year, Lone Star's accumulated E&P was $25,200. At the beginning of the year, Lone Star's sole shareholder was Matt. Lone Star declared $63,000 in cash distributions on each of the following dates: March 31, June 30, September 30, and December 31. b. Suppose that Matt sold half of the shares to Chris on June 1st for $51,000. How much dividend income will Matt recognize this year? c. If Matt's basis in the Lone Star shares was $7,440 at the beginning of the year, how much capital gain will he recognize on the sale and distributions from Lone Star?
At the beginning of the question-and-answer portion of the annual shareholder’s meeting of Kemper Ltd., shareholder Mike Kerwin asks, “Why did management sell the holdings in UMW Company at a loss when this company has been very profitable during the period Kemper held its shares?” Since President Tony Chavez has just concluded his speech on the recent success and bright future of Kemper, he is taken aback by this question and responds, “I remember we paid £1,300,000 for those shares some years ago. I am sure we sold these shares at a much higher price. You must be mistaken.” Kervin retorts, “Well, right here in footnote number 7 to the annual report it shows that 240,000 shares, a 30% interest in UMW, were sold on the last day of the year. Also, it states that UMW earned £520,000 this year and paid out £160,000 in cash dividends. Further, a summary statement indicates that in past years, while Kemper held UMW shares, UMW earned £1,240,000 and paid out £440,000 in dividends. Finally,…
At her death, Chow owned 55% of the stock in Finch Corporation, with the balance held by family members. In the past five years, Finch has earned average net profits of $1,710,000, and on the date of Chow's death, the book value of its stock is $4,275,000. An appropriate rate of return for Finch’s business is in is 10.55%. If required, round your intermediate computations to the nearest dollar. a. If goodwill exists, the total value of Finch stock isWhat value would the IRS argue that the stock Chow owned should be included in her estate?
C and D organized Z Corporation 10 years ago, each contributing $40,000 and each receiving 400 shares of common stock. Five years ago, in June, Z declared a one for one dividend payable in pure preferred with a $400 fair market value. The value of the common stock after the distribution was $1,600 per share. In that year, five years ago, Z had accumulated E&P of $52,000 and current E&P of $12,000. In the current year, Z has accumulated E&P of $112,000 and current E&P of $8,000. In December of the current year, C sells all of his preferred stock to E for $36,000. In June of that same year, C had previously sold all of his common stock to F for $200,000. E is C’s son. Same facts as Question 7, except in the current year Z redeems all of C’s preferred stock in exchange for $36,000. a. 306 does not apply to this transaction. The entire $36,000 is ordinary income. b. 306 does not apply to this transaction. Of the redemption proceeds, $32,000 is ordinary income.…
Parch Inc. and Rees Urch, Parch's former head of R&D, formed Sede Inc., which will perform research and development. Sede issued 10,000 shares of common stock to Urch, who is now Sede's president. Parch lent $800,000 to Sede for initial working capital in return for a note receivable that can be converted at will into 100,000 shares of Sede's common stock. Parch also granted Sede a line of credit of $1,000,000. Is consolidation appropriate for Parch and Sede? Explain and justify your answer. What would Parch accomplish with this arrangement? If consolidation were not appropriate, what serious reporting issue exists regarding Parch's separate financial statements?
Mitchell, Nelson, Olsen, and Parker, experts in manufacturing baubles, each owned fifteen out of one hundred authorized shares of Baubles, Inc., a corporation of State X, which does not permit cumulative voting. On July 7, 2007, the corporation sold forty shares to Quentin, an investor, for $1.5 million, which it used to purchase a fac- tory building for $1.5 million. On July 8, 2007, Mitchell, Nelson, Olsen, and Parker contracted as follows: All parties will act jointly in exercising voting rights as shareholders. In the event of a failure to agree, the question shall be submitted to George Yost, whose decision shall be binding upon all parties. Until a meeting of shareholders on April 17, 2014, when a dispute arose, all parties to the contract had voted consistently and regularly for Nelson, Olsen, and Parker as directors. At that meeting, Yost considered the dispute and decided and directed that Mitchell, Nelson, Olsen, and Parker vote their shares for the latter three as directors.…
Amos and Thomas form the Show Corporation during the current year. Amos owns 40% of Show's stock, Thomas owns 20%, and Arthur owns the remaining 40%. Amos paid $50,000 for his interest, and Thomas paid $25,000. Amos and Thomas are responsible for Show's daily operations and serve as co-chief executive officers. During the current year, Show Corporation has an operating income of $60,000 and pays out $10,000 in dividends. Assume that Show Corporation is organized as an S corporation. In its second year of operations, Show has an operating loss of $40,000 and pays out $20,000 in dividends. On December 31, Amos gives a 10% interest in Show (i.e., ¼ of his interest) to his son, Buddy. At the end of the second year, Amos's adjusted basis is $---- and Buddy's adjusted basis is $f---- in the Show stock.