Calculate: (i) The Annual Interest as part of the leverage analysis.(ii) The industry averages for firms similar to ARG Inc. 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 ($'000)1,1671,13350567400733Interest???The industry averages for firms similar to ARG Inc. areNetProfit 9%Creditor days70 daysMarginInterest coverStock daysDebtor days15 timesCurrent ratio2.1 times85 daysQuick ratio0.8 times75 daysDEBT/Equity ratio40% (using Book value) ARG INCIncome Statement for the years ending December 31201920182017(S'000)(S'000)(S'000)Revenue5,20034002600Cost of Goods sold457063028062104Profit before interest & tax594496Interest70343Earnings before tax560140560493Тах140123Net Income420420370Dividends202020Retained profit400400350ARG IncBalance Sheet as at December 31201920182017(S'000)(S'000)(S'000)Fixed Assets1,6001,200800Current AssetsInventoryAccounts Receivable1,4501,0008506001.4004002,8501,8501,000Total Assets4,4503,0501,800Current Liabilities2,3001,300450Ordinary shares1,0001,0001,000Reserves1,150750350Total Liabilities & Owners Equity4,4503,0501,800

Overdraft is the facility which is offered by banks to its customers. As per this facility a…

Answered: i) The Annual Interest as part of the…

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i) The Annual Interest as part of the leverage analysis. (ii) The industry averages for firms similar to ARG Inc.

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter12: S Corporations

Section: Chapter Questions

Problem 36P

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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
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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.…
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