Lenovo Has An Inventory Conversion Period Of 75 Days, An Average Collection Period Of
Lenovo has an inventory conversion period of 75 days, an average collection period of 38 days, and a payables deferral period of 30 days. Required: What is the length of the cash conversion cycle? (5) If Lenovo’s annual sales are R3 421 875 and all sales are on credit, what is the investment in accounts receivable? (5) How many times per year does Lenovo turn over its inventory? Assume that the cost of goods sold is 75% of sales. (5)
Pavin Acquires All Of Stabler’s Outstanding Shares On January 1, 2015, For $680,000 In
Pavin acquires all of Stabler’s outstanding shares on January 1, 2015, for $680,000 in cash. Of this amount, $52,000 was attributed to equipment with a 10-year remaining life and $62,000 was assigned to trademarks expensed over a 20-year period. Pavin applies the partial equity method so that income is accrued each period based solely on the earnings reported by the subsidiary. On January 1, 2018, Pavin reports $520,000 in bonds outstanding with a carrying amount of $483,200. Stabler purchases half of these bonds on the open market for $250,800. During 2018, Pavin begins to sell merchandise to Stabler. During that year, inventory costing $158,000 was transferred at a price of $200,000. All but $32,000 (at sales price) of these goods were resold to outside parties by year-end. Stabler still owes $55,000 for inventory shipped from Pavin during December. The following financial figures are for the two companies for the year ending December 31, 2018. Dividends were both declared and paid during the current year. Pavin Stabler Revenues $ (806,000 ) $ (549,000 ) Cost of goods sold 477,000 262,000 Expenses 147,000 180,500 Interest expense—bonds 58,000 0 Interest income—bond investment 0 (25,300 ) Loss on extinguishment of bonds 0 0 Equity in Stabler’s income (131,800 ) 0 Net income $ (255,800 ) $ (131,800 ) Retained earnings, 1/1/18 $ (367,000 ) $ (405,000 ) Net income (255,800 ) (131,800 ) Dividends paid 177,000 99,000 Retained earnings, 12/31/18 $ (445,800 ) $ (437,800 ) Cash and receivables $ 239,000 $ 57,000 Inventory 197,000 109,000 Investment in Stabler 693,800 0 Investment in Pavin bonds 0 254,500 Land, buildings, and equipment (net) 267,000 563,000 Trademarks 0 0 Total assets $ 1,396,800 $ 983,500 Accounts payable $ (122,000 ) $ (281,700 ) Bonds payable (520,000 ) (122,000 ) Discount on bonds 22,000 0 Common stock (331,000 ) (142,000 ) Retained earnings (above) (445,800 ) (437,800 ) Total liabilities and stockholders’ equity $ (1,396,800 ) $ (983,500 ) Note: Credits are indicated by parentheses. Prepare a worksheet to produce consolidated balances. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Consolidated Totals column should be entered with a minus sign.)
Following Are Separate Income Statements For Austin, Inc., And Its 70 Percent Owned Subsidiary,
Following are separate income statements for Austin, Inc., and its 70 percent owned subsidiary, Rio Grande Corporation as well as a consolidated statement for the business combination as a whole. Austin Rio Grande Consolidated Revenues $ (751,000 ) $ (534,000 ) $ (1,285,000 ) Cost of goods sold 417,000 317,000 734,000 Operating expenses 117,000 78,000 237,000 Equity in earnings of Rio Grande (76,000 ) Individual company net income $ (293,000 ) $ (139,000 ) Consolidated net income $ (314,000 ) Noncontrolling interest in consolidated net income (21,000 ) Consolidated net income attributable to Austin $ (293,000 ) Additional Information Annual excess fair over book value amortization of $42,000 resulted from the acquisition. The parent applies the equity method to this investment. Austin has 50,000 shares of common stock and 10,000 shares of preferred stock outstanding. Owners of the preferred stock are paid an annual dividend of $60,000, and each share can be exchanged for two shares of common stock. Rio Grande has 48,000 shares of common stock outstanding. The company also has 14,000 stock warrants outstanding. For $10, each warrant can be converted into a share of Rio Grande’s common stock. Austin holds half of these warrants. The price of Rio Grande’s common stock was $20 per share throughout the year. Rio Grande also has convertible bonds, none of which Austin owned. During the current year, total interest expense (net of taxes) was $39,000. These bonds can be exchanged for 15,000 shares of the subsidiary’s common stock. Determine Austin’s basic and diluted EPS. (Round your final answers to 2 decimal places.)
Give Examples Of Dilutive Securities And Discuss How They Impact The Earnings Per Share
give examples of Dilutive Securities and discuss how they impact the Earnings Per Share calculation?
On January 1, 2016, Aspen Company Acquired 80 Percent Of Birch Company’s Voting Stock
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company’s voting stock for $392,000. Birch reported a $355,000 book value and the fair value of the noncontrolling interest was $98,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $228,000 when Cedar had a $204,000 book value and the 20 percent noncontrolling interest was valued at $57,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned to a trade name with a 30-year remaining life. These companies report the following financial information. Investment income figures are not included. 2016 2017 2018 Sales: Aspen Company $ 500,000 $ 750,000 $ 825,000 Birch Company 251,500 343,250 627,900 Cedar Company Not available 164,900 246,800 Expenses: Aspen Company $ 465,000 $ 567,500 $ 632,500 Birch Company 199,000 282,000 555,000 Cedar Company Not available 152,000 205,000 Dividends declared: Aspen Company $ 10,000 $ 30,000 $ 40,000 Birch Company 15,000 20,000 20,000 Cedar Company Not available 4,000 12,000 Assume that each of the following questions is independent: If all companies use the equity method for internal reporting purposes, what is the December 31, 2017, balance in Aspen’s Investment in Birch Company account? What is the consolidated net income for this business combination for 2018? What is the net income attributable to the noncontrolling interest in 2018? Assume that Birch made intra-entity inventory transfers to Aspen that have resulted in the following intra-entity gross profits in inventory at the end of each year: Date Amount 12/31/16 $11,500 12/31/17 21,700 12/31/18 28,800 What is the accrual-based net income of Birch in 2017 and 2018, respectively?
On January 1, 2016, Uncle Company Purchased 80 Percent Of Nephew Company’s Capital Stock
On January 1, 2016, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $510,000 in cash and other assets. Nephew had a book value of $617,500 and the 20 percent noncontrolling interest fair value was $127,500 on that date. On January 1, 2015, Nephew had acquired 30 percent of Uncle for $330,250. Uncle’s appropriately adjusted book value as of that date was $1,067,500. Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $20,000 in dividends to shareholders each year and Nephew distributes $5,000 annually. Any excess fair-value allocations are amortized over a 10-year period. Year Uncle Company Nephew Company 2016 $ 92,000 $ 31,800 2017 159,000 48,400 2018 167,000 51,400 Assume that Uncle applies the equity method to account for this investment in Nephew. What is the subsidiary’s income recognized by Uncle in 2018? What is the net income attributable to the noncontrolling interest for 2018?
Firenze Company Developed A Specialized Banking Application Software Program That It Licenses To Various
Firenze Company developed a specialized banking application software program that it licenses to various financial institutions through multiple-year agreements. On January 1, 2018, these licensing agreements have a fair value of $760,000 and represent Firenze’s sole asset. Although Firenze currently has no liabilities, the company has a $168,000 net operating loss (NOL) carryforward because of recent operating losses. On January 1, 2018, Parma, Inc., acquired all of Firenze’s voting stock for $1,010,000. Parma expects to extract operating synergies by integrating Firenze’s software into its own products. Parma also hopes that Firenze will be able to receive a future tax reduction from its NOL. Assume an applicable federal income tax rate of 35 percent. If there is a greater than 50 percent chance that the subsidiary will be able to utilize the NOL carryforward, how much goodwill should Parma recognize from the acquisition? If there is a less than 50 percent chance that the subsidiary will be able to utilize the NOL carryforward, how much goodwill should Parma recognize from the acquisition?
King’s Road Recently Acquired All Of Oxford Corporation’s Stock And Is Now Consolidating The
King’s Road recently acquired all of Oxford Corporation’s stock and is now consolidating the financial data of this new subsidiary. King’s Road paid a total of $950,000 for Oxford, which has the following accounts: Fair Value Tax Basis Accounts receivable $ 111,000 $ 111,000 Inventory 176,000 176,000 Land 184,000 184,000 Buildings 226,750 168,000 Equipment 268,250 216,000 Liabilities (301,000 ) (301,000 ) What amount of deferred tax liability arises in the acquisition? What amounts will be used to consolidate Oxford with King’s Road at the date of acquisition? On a consolidated balance sheet prepared immediately after this takeover, how much goodwill should King’s Road recognize? Assume a 30 percent effective tax rate.
House Corporation Has Been Operating Profitably Since Its Creation In 1960. At The Beginning
House Corporation has been operating profitably since its creation in 1960. At the beginning of 2016, House acquired a 70 percent ownership in Wilson Company. At the acquisition date, House prepared the following fair-value allocation schedule: Consideration transferred for 70% interest in Wilson $ 777,000 Fair value of the 30% noncontrolling interest 333,000 Wilson business fair value $ 1,110,000 Wilson book value 865,000 Excess fair value over book value $ 245,000 Assignments to adjust Wilson’s assets to fair value: To buildings (20-year remaining life) $ 61,000 To equipment (4-year remaining life) (23,800 ) To franchises (10-year remaining life) 56,000 93,200 To goodwill (indefinite life) $ 151,800 House regularly buys inventory from Wilson at a markup of 25 percent more than cost. House’s purchases during 2016 and 2017 and related ending inventory balances follow: Year Intra-Entity Purchases Remaining Intra-Entity Inventory— End of Year (at transfer price) 2016 $101,250 $33,750 2017 134,375 53,750 On January 1, 2018, House and Wilson acted together as co-acquirers of 80 percent of Cuddy Company’s outstanding common stock. The total price of these shares was $292,800, indicating neither goodwill nor other specific fair-value allocations. Each company put up one-half of the consideration transferred. During 2018, House acquired additional inventory from Wilson at a price of $234,000. Of this merchandise, 45 percent is still held at year-end. House Corporation Wilson Company Cuddy Company Sales and other revenues $ (949,472 ) $ (820,740 ) $ (324,200 ) Cost of goods sold 565,000 366,000 155,000 Operating expenses 287,000 276,500 92,300 Income of Wilson Company (124,768 ) 0 0 Income of Cuddy Company (30,760 ) (30,760 ) 0 Net income $ (253,000 ) $ (209,000 ) $ (76,900 ) Retained earnings, 1/1/18 $ (822,000 ) $ (670,000 ) $ (216,000 ) Net income (above) (253,000 ) (209,000 ) (76,900 ) Dividends declared 100,000 96,000 60,000 Retained earnings, 12/31/18 $ (975,000 ) $ (783,000 ) $ (232,900 ) Cash and receivables $ 19,272 $ 374,840 $ 83,250 Inventory 405,500 373,000 193,350 Investment in Wilson Company 915,068 0 0 Investment in Cuddy Company 153,160 153,160 0 Buildings 414,000 344,000 162,000 Equipment 313,000 149,000 89,400 Land 238,000 340,000 16,900 Total assets $ 2,458,000 $ 1,734,000 $ 544,900 Liabilities $ (663,000 ) $ (641,000 ) $ (162,000 ) Common stock (820,000 ) (310,000 ) (150,000 ) Retained earnings, 12/31/18 (975,000 ) (783,000 ) (232,900 ) Total liabilities and equities $ (2,458,000 ) $ (1,734,000 ) $ (544,900 ) Note: Parentheses indicate a credit balance. Using the three companies’ following financial records for 2018, prepare a consolidation worksheet. The partial equity method based on separate company incomes has been applied to each investment. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Noncontrolling Interest and Consolidated Totals columns should be entered with a minus sign.)
Write A Letter Not Less Than 600 Words ,thanking An NOG For Financially Supporting
write a letter not less than 600 words ,thanking an NOG for financially supporting your education and pointing out 4 things you would do to help the organization after school , And write it’s benefits to the organization
Wyldeburg Ltd (WL) Is A Small Niche Provider Of Products For Garden Birds Including
Wyldeburg Ltd (WL) is a small niche provider of products for garden birds including seeds, feeders and associated products. One of the best selling products is sunflower seed hearts. They are sold in 1kg, 3kg, 5kg and 10kg packs to 176 garden centres, 25 pet shops, two supermarket chains and direct to the public via the Internet. The seeds are procured from China, packed in 50Kg sacks delivered in minimum 11 tonne loads. The lead time from order to deliver to WL is quoted at 43 calendar days. WL use an agent to manage the freight forwarding to the WL packing and production plant. WL break the sacks down into the four different sized packs based upon the production forecast which is formed at the beginning of each month. Demand is variable, dependent upon the route to market and the season. Overall it can vary from 5 to 20 tonnes per month. The maximum storage capacity of the WL packing and distribution plant is 24 tonnes of finished products and 26 tonnes of the 50Kg sacks. Garden centres and pet shops order weekly, supermarkets forecast weekly but firm up at 6pm the day before delivery and products are on a sale or return basis. Customers ordering via the Internet before 3pm will have their products despatched the same day. Delivery to local garden centres and pet shops is undertaken by WL’s own transport and for distant outlets a national carrier is used. For supermarket deliveries, and returns, a different national carrier is used and for direct to public sales the Royal Mail parcel service is used. The company has experienced a number of issues relating to its logistical activities. Namely; • Returned goods from pet shops and garden centres because of damaged packaging during transit or offloading • Large volume returns from supermarkets as a new season’s products are substituted in the valuable gondola-end displays within the retailer. • Shortages of 1kg and 3kg packs • Insufficient storage capacity within the packing and distribution plant. Tasks You have been appointed as a new distribution manager and have been given free rein to review the distribution operation and its relationship to the overall supply chain of the firm. 1 What issues can you identify that are related to your function and what solutions would you suggest 40 marks 2 What issues do you anticipate having to discuss with other departments such as sales, production and procurement, and what facets of their responsibilities would you seek to persuade them to change 60 marks Note; Please use the conversion of 1000kgs equal to 1 tonne in your calculations CASE STUDY – BASIC GUIDELINES Step 1 Overview of the case study (background context) Read the case study generally to gain an overview and ask and answer the following questions as you read; • What background facts influence the current problems? • What are the constraints or obstacles of the situation? • What are the key overall areas that I will need to look at in detail to answer this assignment? Understanding the background issues helps to understand the context of the case study. Step 2 Identifying the specific problems,( which may be directly asked in the question or not) Identifying the major problems and their causes correctly gives you some opportunity to identify the necessary solutions Re-read the case study and • list the issues and/or problems in your own words. • Sort the major problems from the minor problems • Identify specific discussion/ numerical evidence from the case study which relates to each of the problems • Discuss the underlying causes of the problems. • Note that a mindmap approach can sometimes be helpful . Step 3 Linking theory to problems and case evidence You need to tie the identified issues/or problems of the case study to theory or best practice to demonstrate your application of knowledge from your module, and your ability to relate it to practical situationsStep 4 – Step 4 Answering This section will include a description of what you understand the problems to be. You then take each one separately and evaluate the potential solutions for the identified key problems. Note; Often there is more than one solution, so it is useful to evaluate each solution in terms of its advantages and disadvantages. The use of numerical data given in the case or from your notes will ensure that your answer has more credibility, and obviously marks. In addition these calculations will feed into determining your recommendations. Things that may need to be considered are: costs time resources expertise tradeoffs with other supply chain functions customer satisfaction/repeat purchases/market share Your answer should be clear and concise and well structured. Recommended structure: use headings and subheadings where possible bullet points or numbered lists can also be used to list the advantages and disadvantages. Additional Information/References and Appendices (if relevant) should be included at the back of the document. A concluding paragraph should be given at the end of each question,(where appropriate)
JKS Goods, Inc. Has Prepared The Following Financial Statements: JKS Goods, Inc. Has Hired
JKS Goods, Inc. has prepared the following financial statements: JKS Goods, Inc. has hired you (an outside consultant) to review the financial statements and make any necessary corrections/adjustments before the financial statements are presented to the board of directors. The President of the Company, Mr. Turnkey has provided the following information to help you adjust the financial statements. (1) Inventory is costed using the average cost method. Inventory at December 31, 2016 was comprised of: 3,000 units at an average cost of $12.00 per unit. 2017 purchases included: 2/27/2017: 800 units @ $10.00 per unit 5/3/17: 500 units @$10.50 per unit 6/25/17: 600 units @ $9.75 per unit 9/28/17: 700 units @ $10.25 per unit 1 2/2/17: 400 units @ $11.00 per unit 4,000 units were sold in 2017. (ROUND ALL AVERAGE COST INFORMATION TO TWO DECIMAL PLACES) (2) Equipment includes two assets. a. Asset #1 was purchased on March 1, 2017 for a cost of $40,000. This asset has a salvage value of $5,020 and an expected useful life of 5 years. The asset is depreciated using the straight-line method. b. Asset #2 was purchased on December 1, 2017 for a cost of $65,000. This asset has a salvage value of $2,000 and an expected useful life of 3 years. The asset is depreciated using the straight-line method. (3) Accounts receivable detail is as follows: The allowance for doubtful accounts is based on the aging of accounts receivable method. The estimated percentage of uncollectible amounts is as follows: Current amounts (not yet due) = 1% 1 – 30 days past due = 3% 31 – 60 days past due = 5% Over 60 days past due = 8% There were no write-offs during the year. Invoices are billed at net 30 days. (4) There were two loans with activity during 2017. a. Note amount #1, $30,000. Annual interest rate of 5%. Interest was accrued monthly. Loan date: September 1, 2012. The loan and all accrued loan interest was paid off on September 1, 2017. b. Note amount #2, $50,000. Annual interest rate of 6%. Interest is accrued monthly. Loan date: April 1, 2017. The loan is due on May 1, 2022. Accrued interest will be paid annually on January 1 with the final payment due on May 1, 2022. (5) It has been discovered that $6,000 of product that was paid for and was to be shipped on December 27, 2017 has not been shipped. The product was actually shipped on January 2, 2018. (6) A physical count of supplies at the end of the year reflected $5,000 of supplies on hand at December 31, 2017. (7) Total rent for the year should reflect 12 payments of $5,000 per month. Prepaid rent is included in the Prepaid Expenses account. (8) The Corporate net income tax rate is 15%. Requirements: (1) Prepare a trial balance spreadsheet for the year ended December 31, 2017 as demonstrated in Exhibit 4.5 of the text. You should use the accounts included on the preliminary financial statements provided above. All necessary accounts are included on the preliminary financial statements. (2) Record the adjustments required based on the eight items of information presented above. Use the numbers above as a reference number on your trial balance spreadsheet. Be sure to include all calculations used to determine adjustment amounts. These calculations should be made on separate sheets (tabs) in your one Excel file. You should have six tabs when you are finished your case study – trial balance spreadsheet and financial statements including ratios (on one tab), inventory, depreciation, accounts receivable, notes payable, memo. (3) Using your adjusted trial balance, prepare a properly formatted income statement, balance sheet, and statement of stockholders’ equity for the calendar year 2017. (4) Prepare a memo to Mr. Turnkey detailing what problems you found on his preliminary financial statements. In addition to the issues with the preliminary financial statement, provide Mr. Turnkey with: current ratio, working capital, net profit margin, receivable turnover ratio, average collection period, inventory turnover ratio, average days to sell inventory. Round your ratios to two decimal places. Additional information to assist you with your memo is: a. Average net profit margin for JKS Goods’ competitors is 20.00%. b. Accounts receivable at 12/31/2016, $60,000 c. Product inventory at 12/31/2016, $18,000
Part 1 Prepare The Outline Of A Financial Plan For A Small Business. (1,000–2,500
Part 1 Prepare the outline of a financial plan for a small business. (1,000–2,500 words) In your plan include descriptions/ explanations of: the financial records that will be kept the accounting procedures that will be used how the financial projections will be calculated—including assumptions made whether business capital is required and if it is, how it will be sourced the taxation records that will be kept the procedures for keeping taxation records how debtors will be managed the KPIs that will be used as well as an appropriate target for each one any financial ratios that will be used how the financial targets will be monitored and reviewed how other plans and policies will be monitored for their impact on the business’s bottom line how the financial plan will be evaluated and reviewed Upload a file (7MB max) 2 Part 2 Create a brochure that could be given to people considering starting their own business and who want to know the key considerations when developing a business plan and determining the best methods of managing the business’s finances.
Ajax Dry Cleaners, Inc. Charges An Initial Franchise Fee Of P195,000. When The Agreement
Ajax Dry Cleaners, Inc. charges an initial franchise fee of P195,000. When the agreement is signed, a payment of P75,000 is due, followed by four annual payments of P30,000 at the end of each period. Ajax’s normal borrowing rate is 12% PV for 4 periods is 3.0373). How much would be the recognized franchise revenue if the franchiser has substantial services to perform and the collection of the note is extremely uncertain a. P166,119 b. P75,000 c. P91,119 d. P-0-
The Budgeted Income Statement For A Business For The Upcoming Year Is Presented As
The budgeted income statement for a business for the upcoming year is presented as follows: Product F Product G Product H Total Sales $300,000 $220,000 $340,000 $860,000 -Variable expenses 180,000 190,000 220,000 590,000 Contribution margin $120,000 $30,000 $120,000 $270,000 -Direct fixed expenses 5,000 5,000 4,000 14,000 -Common fixed expenses 45,000 45,000 36,000 126,000 Operating income (loss) $70,000 ($20,000) $80,000 $130,000 Management is considering the discontinuance of the manufacture and sale of Product G. This action would have no effect on the sales of Products F and H. What is the expected change in the firm’s net income that would result from dropping Product G? A. $25,000 increase B. none of these C. $20,000 decrease D. $20,000 increase E. $25,000 decrease
Express The Balance Sheet In Common-sized Percents. Each Formula Must Include The ROUND Function
Express the balance sheet in Common-sized percents. Each formula must include the ROUND Function Please show how to do each of these problems as well as giving the excel input functions. thank you.
Ale Saved Cherokee Inc. Is A Merchandiser That Provided The Following Information: Amount 13,000
is this on the right track? am I doing something wrong? please explain.
Exxaro Is Evaluating A Proposed Project Whose Estimated NPV Is R12 Million. This Estimate
Exxaro is evaluating a proposed project whose estimated NPV is R12 million. This estimate assumes that economic conditions will be “average”. However, it has since been established that conditions could be better or worse, so a scenario analysis was performed and obtained these results: Economic Scenario Probability of Outcome NPV Recession 0.05 (R70 million) Below average 0.20 (R25 million) Average 0.50 R12 million Above average 0.20 R20 million Boom 0.05 R30 million Required: Calculate the project expected NPV, standard deviation, and coefficient of variation.(5)
The Bigbee Bottling Company Is Contemplating The Replacement Of One Of Its Bottling Machines
The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of R600,000 and a remaining useful life of 5 years. The company does not expect to realise any return from scrapping the old machine in 5 years, but it can sell it now to another company in the industry for R265,000. The old machine is being depreciated by R120,000 per year, using the straight-line method. The new machine has a purchase price of R1,175,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of R145,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected to economise on electric power usage, labour, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of R255,000 will be realised if the new machine is installed. The company’s marginal tax rate is 35% and it has a 12% WACC. Required: What initial cash outlay is required for the new machine? (3) Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. (5) What are the incremental cash flows in Years 1 through 5? (5) Should the company purchase the new machine? Support your answer. (3) In general, how would each of the following factors affect the investment decision, and how should each be treated? The expected life of the existing machine decreases. (2) The WACC is not constant, but is increasing as Bigbee adds more projects into its capital budget for the year. (2)
Each Of The Following Independent Cases Describes A Situation With A Proposed Tax Treatment.
Each of the following independent cases describes a situation with a proposed tax treatment. For each case, indicate whether the treatment is correct, and justify your conclusion. Case A: In 2000, George Marker bought a 500-acre parcel of land for $400,000. He was going to build a home on the property. However, in 2018, he received an offer of $900,000 for 220 acres of the property. Because these 220 acres of land were waterfront and had better road access, he thought the fair market value of the remaining 280 acres was only $240,000. He accepted the offer of $900,000. In filing his 2018 income tax return, he was going to use a $315,600 adjusted cost base {[$400,000 X [$900,000/ ($900,000 $240,000)} in calculating his gain. Case B: Cathy Conrad sold a property with an adjusted cost base of $35,000 for $150,000. She provided a warranty on the property that she estimates would cost her about $15,000 to service. As a result, she calculated her capital gain to be $100,000. Case C: Roger Fell sold a sofa to his son for $1,400 and a painting to his daughter for $900. These selling prices equaled their estimated fair market value. Several years ago, Roger Fell purchased the sofa for $1,700 and the painting for $600. He did not report any capital gain or loss on his 2018 individual income tax return. Case D: Lorraine Lurch purchased a cottage in 2013 for $275,000. She rarely used the cottage, since she preferred to live in her Vancouver condo. The cottage’s current value is $700,000 in 2018. In 2018, she decided to convert the cottage into a rental property. Lorraine Lurch has told everyone that, in 2018, she will report all of her rental income, but she does not intend to recognize a gain or loss on the conversion of the property, since no disposition has occurred. Case E: In 2018, Joe Solo sold a non-depreciable capital asset for $560,000. The adjusted cost base of the asset was $250,000, resulting in a capital gain of $310,000. Under the terms of the sale, he received $56,000 (10% of the proceeds) in 2018, with the remainder being paid in 2019. Thus, he is going to report $31,000 capital gains on his 2018 income tax return, calculated as follows: 10% X $310,000.
Frederick Fence Owned 300,000 Shares Of ABC Ltd., A Publicly Traded Canadian Corporation. These
Frederick Fence owned 300,000 shares of ABC Ltd., a publicly traded Canadian corporation. These shares, including brokerage fees, were acquired at a cost of $600,000. Based on current trading values, these shares are now worth $990,000. The following four cases make different assumptions as to the identity of the purchaser, the circumstances of the sale, and the proceeds of disposition. In each case, assume that the purchaser immediately resold the shares for their fair market value of $990,000. Case 1 Because Frederick needed funds to acquire a house for his father, he sold the shares to an arm’s length party for $990,000. Case 2 Frederick gifted the shares to his 16-year-old daughter. Case 3 Frederick sold the shares to his brother for $150,000 to create a loss, as Frederick had realized significant capital gains during the current year. Since his brother had no other source of income, Frederick’s brother would be taxed on the gain from the resale at the minimum federal rate. Case 4 Frederick’s mother had realized a large amount of capital gains during the current year. To help his mother, Frederick sold the shares to her for $1,200,000. Frederick’s mother planned to use the loss on the immediate resale to offset her capital gains. Required: For each of the cases, advise Frederick of the tax consequences that will result from the disposition, and indicate the tax consequences to the purchaser of the shares when they are resold. In addition, in cases 3 and 4, indicate whether the stated tax planning objective was achieved.
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