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: Year Overdraft (S'000) Trade creditors (S'000) Interest 2017 2018 2019 50 567 1167 1133 400 733 The industry averages for firms similar to ARG Inc. are Profit 9% Creditor days 70 days Net Margin Interest cover Stock days Debtor days 15 times 85 days 75 days Current ratio Quick ratio DEBT/Equity ratio 21 times 0.s times 40% (using Book 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: Year Overdraft (S'000) Trade creditors (S'000) Interest 2017 2018 2019 50 567 1167 1133 400 733 The industry averages for firms similar to ARG Inc. are Profit 9% Creditor days 70 days Net Margin Interest cover Stock days Debtor days 15 times 85 days 75 days Current ratio Quick ratio DEBT/Equity ratio 21 times 0.s times 40% (using Book 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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During the last five months of the year, Dwana opens a new Internet telecommunications business called Dwan-Com. Dwan-Com bills 50,000 of revenues, but receives only 40,000 cash. Dwan-Com incurs 3,000 of supply expenses, and 41,000 of labor costs. Dwan-Com pays for 2,200 of the supplies and 38,000 of the labor costs in the current year. a. What is Dwan-Coms taxable income if it elects the cash method of accounting? b. What is Dwan-Coms taxable income if it elects the accrual method of accounting? c. What method of accounting do you recommend that Dwan-Com elect?
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?
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,…
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.…
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.…
Common Corp. has been acquiring shares of Fort Co. over the last three years and now owns 42% of the outstanding voting common shares. The remaining 58% of the shares are held by members of the same family. To date, the family has elected all members of the board of directors, and Common has not been able to obtain a seat on the board. Common is hoping to eventually buy a block of shares from an elderly family member and thus one day own 60% of the shares. Common reports under IFRS. How should Common report the investment in Fort in its financial statements? Question 1 options: a) Common should prepare consolidated financial statements with Fort. b) Common should use the equity method to account for the investment in Fort. c) Common should use the equity method or the cost method to account for the investment in Fort. d) Common should use the cost method or fair value method to account for…
Common Corp. has been acquiring shares of Fort Co. over the last three years and now owns 42% of the outstanding voting common shares. The remaining 58% of the shares are held by members of the same family. To date, the family has elected all members of the board of directors, and Common has not been able to obtain a seat on the board. Common is hoping to eventually buy a block of shares from an elderly family member and thus one day own 60% of the shares. Common reports under IFRS. How should Common report the investment in Fort in its financial statements? Question 1 options: a) Common should prepare consolidated financial statements with Fort. b) Common should use the equity method to account for the investment in Fort. c) Common should use the equity method or the cost method to account for the investment in Fort.
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