MGAB03H3 Lecture Notes - Capital Structure, Earnings Per Share, Retained Earnings
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change the composition of stockholders' equity. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
increase the book value per share of common stock. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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decrease total assets and total liabilities 2. Regular dividends are declared out of:
3. Solaris, Inc. has 2,000 shares of 5%, $10 par value,cumulative preferred stock and 50,000 shares of $1 par value commonstock outstanding at December 31, 2014. What is the annual dividendon the preferred stock? Question 20 options:
Identify the effect the declaration and distribution of a stockdividend has on the par value per share. Question 24 options:
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TAX 502 - LessonAssignment #6: Penalty Taxes onUndistributed Corporate Income, Dividendsand Other NonliquidatingDistributions
Reading
Text: StudyChapters 7 and 8 of the Bittker & Eustice text.
Assignments
The following Assignmentsshould be completed and submitted to the course faculty via thelearning platform for evaluation and grading. Submit your responsesto these questions in one WORD document. List the question first,and then your response.
Copy the question, andthen provide your answer on all of the following:
LESSON 6, PROBLEM#1
In not less than 1,000 words discuss"earnings and profits". Your discussion should include majordifferences between computing current earnings and profits andcurrent taxable income as well as why earnings and profits shouldbe calculated before a corporation decides to make a distributionto its shareholders.
LESSON 6, PROBLEM#2
Allan owns all of the stock of CadyCo.The stockâs basis is $100,000. CadyCo has a total of current andaccumulated earnings and profits of $50,000. CadyCo distributes$200,000 cash to Allan âwith respect to his stockâ (i.e., as astate law âdividendâ). How is the $200,000 taxed? What is Allanâsstock basis after the distribution? Alternatively, CadyCodistributes to Allan his note to CadyCo for $200,000 borrowed fromCadyCo.
LESSON 6, PROBLEM#3
Assumptions: The stock ofChadCo is owned equally by two shareholders: SecondCo (acorporation) and Arnold (an individual). ChadCo and SecondCo usethe accrual method, Arnold uses the cash method. All use a calendartaxable year. Assume § 1059 does not apply. Use a 34 percentcorporate tax rate in this problem. During the current year, ChadCoaccrued income and expenses as follows:
Gross income from business | $500,000 |
Dividends on AT&T stock (consider§ 243) | 100,000 |
Interest on municipal bonds (§103) | 100,000 |
Capital gain | 100,000 |
Total | $800,000 |
Deductible § 162(a)(l) businessexpenses | $430,000 |
Noncapital expenses not deductibleunder § 162(e) | 90,000 |
Capital losses (see § 1211(a)) | 146,000 |
Total | $666,000 |
Net | $134,000 |
On December 24 of the preceding year, SecondCo and Arnoldincorporated ChadCo and capitalized ChadCo with cash of $100,000each. On December 31 of that preceding year, SecondCo and Arnoldreceived distributions from ChadCo of $5,000 each; ChadCo did notearn any income for that year. In addition, SecondCo and Arnoldreceived distributions of $5,000 each, in the current year.
Which distributions should begross income to SecondCo and Arnold, in what amounts, and why? Whatdoes E&P have to do with this?
Alternative: Arnold just bought the ChadCo shares on December 30of the current year from another shareholder for FMV of $145,000,before the declaration and payment of a
$5,000 distribution to Arnold onDecember 31 of the current year.
Should the distribution be taxableincome to Arnold? Why?
Now assume that SecondCoâs basis in its ChadCo stock is $100,000and Arnoldâs basis in his ChadCo stock is $40,000. On January 2 ofthe current taxable year, ChadCo distributes $100,000 in cash toSecondCo and $100,000 in cash to Arnold. As of the end of thepreceding taxable year, ChadCoâs accumulated E&P was zero.
What are the tax consequences ofthis distribution to ChadCo, SecondCo, and Arnold? [Hint: Firstcompute ChadCoâs current-year taxable income and then computecurrent- year E&P before reducing the E&P for thedistribution (âinterim E&Pâ); after reducing for thedistribution, compute final accumulated E&P.]
Variation: Assume Arnoldâs shares were owned by a differentshareholder every quarter and $50,000 was distributed ratably toall shareholders quarterly?
How much dividend would SecondCoand the holders of Arnoldâs shares receive?
Suppose under the basic facts in (3) above that ChadCo had anaccumulated deï¬cit of
$100,000 in its E&P account as ofDecember 31 of the preceding taxable year.
If, on December 1 of the current year (the declaration date),ChadCoâs board of directors voted to pay the $200,000 distributionby mailing the checks on December 31 of the current taxable year(the payment date, the identiï¬cation of which is a practicegenerally used only by widely held corporations) to shareholders ofrecord on December l5 of the current taxable year (the recorddate), such checks actually being received by SecondCo and Arnoldin the mail on January 2 of the next year? Assume that SecondCo andArnold are the public and that they are the only shareholders (asin the basic facts).
How would your answer to (3) abovechange?
Suppose that SecondCo is an individual and that ChadCo hasalways been an S corporation.
What is ChadCoâs E&Pâ? How iseach shareholderâs personal income tax return affected for thecurrent year by the tax items of ChadCo? How willChadCo distribution of
$100,000 to each shareholder inthe current year affect shareholders?
NEED ASAP PLEASE
Question 1
Which one of the following is not an externaluser of accounting information?
Customers | ||
Investors | ||
Regulatory agencies | ||
All of these are external users |
3 points
Question 2
The first step in solving an ethical dilemma is to
identify and analyze the principal elements in thesituation. | ||
identify the alternatives. | ||
recognize an ethical situation and the ethical issuesinvolved. | ||
weigh the impact of each alternative on variousstakeholders. |
3 points
Question 3
Generally accepted accounting principles are
income tax regulations of the Internal Revenue Service. | ||
standards that indicate how to report economic events. | ||
theories that are based on physical laws of the universe. | ||
principles that have been proven correct by academicresearchers. |
3 points
Question 4
Which of the following events is not a businesstransaction?
Issuance of stock in exchange for cash. | ||
Hired employees. | ||
Incurred utility expenses for the month. | ||
Earned revenue for services provided. |
3 points
Question 5
When assets are distributed to the owners of a corporation,these distributions are termed
depletions. | ||
consumptions. | ||
dividends. | ||
a credit line. |
3 points
Question 6
If total liabilities increased by $8,000, then
assets must have decreased by $8,000. | ||
stockholders' equity must have increased by $8,000. | ||
assets must have increased by $8,000, or stockholders' equitymust have decreased by $8,000. | ||
assets and stockholders' equity each increased by $4,000. |
3 points
Question 7
If total liabilities increased by $30,000 and stockholders'equity increased by $20,000 during a period of time, then totalassets must change by what amount and direction during that sameperiod?
$50,000 decrease | ||
$10,000 decrease | ||
$10,000 increase | ||
$50,000 increase |
3 points
Question 8
Misra Company compiled the following financial information as ofDecember 31:
Revenues | $ 340,000 |
Retained Earnings, Beginning | $ 60,000 |
Equipment | $ 80,000 |
Expenses | $ 250,000 |
Cash | $ 90,000 |
Dividends | $ 20,000 |
Supplies | $ 10,000 |
Accounts payable | $ 40,000 |
Accounts receivable | $ 70,000 |
Common Stock | $ 80,000 |
Misra's assets on December 31 are
$180,000. | ||
$250,000. | ||
$360,000. | ||
$ 490,000. |
3 points
Question 9
Mofro's Computer Repair Shop started the year with total assetsof $300,000 and total liabilities of $200,000. During the year, thebusiness recorded $500,000 in computer repair revenues, $300,000 inexpenses, and Mofro paid dividends of $50,000. Stockholders' equityat the end of the year was
$200,000. | ||
$100,000. | ||
$250,000. | ||
$300,000. |
3 points
Question 10
A balance sheet shows
assets, liabilities, and stockholders' equity. | ||
expenses, dividends, and stockholders' equity. | ||
revenues, expenses, and dividends. | ||
revenues, liabilities, and stockholders' equity. |
3 points
Question 11
At September 1, Foli Co. reported retained earnings of $136,000.During the month, Foli generated revenues of $20,000, incurredexpenses of $12,000, purchased equipment for $5,000 and paiddividends of $2,000. What is the amount of retained earnings atSeptember 30?
$136,000 | ||
$142,000 | ||
$8,000 | ||
$137,000 |
3 points
Question 12
Grayton Industries purchased supplies for $1,000. The Companypaid $500 in cash and agreed to pay the balance in 30 days. Thejournal entry to record this transaction would include a debit toan asset account for $1,000, a credit to a liability account for$500. Which of the following would be the correct way to completethe recording of the transaction?
Credit an asset account for $500. | ||
Credit the Retained Earnings account for $500. | ||
Credit another liability account for $500. | ||
Debit the Retained Earnings account for $500. |
3 points
Question 13
Radio Moscow Industries purchased supplies for $1,000. They paid$400 in cash and agreed to pay the balance in 30 days. The journalentry to record this transaction would include a debit to an assetaccount for $1,000, a credit to a liability account for $600. Whichof the following would be the correct way to complete the recordingof the transaction?
Credit an asset account for $400. | ||
Credit another liability account for $400. | ||
Credit the retained earnings account for $400. | ||
Debit the retained earnings account for $400. |
3 points
Question 14
A credit to a liability account
must be accompanied by a debit to an asset account. | ||
indicates an increase in the amount owed to creditors. | ||
is an error. | ||
indicates a decrease in the amount owed to creditors. |
3 points
Question 15
In recording business transactions, evidence that an accountingtransaction has taken place is obtained from
business documents. | ||
the Internal Revenue Service. | ||
the public relations department. | ||
the SEC. |
3 points
Question 16
On June 1, Leno Inc. buys a copier machine for her business andfinances this purchase with cash and a note. When journalizing thistransaction, the company's accountant will
make a simple entry. | ||
use two journal entries. | ||
make a compound entry. | ||
list the credit entries first, which is proper form for thistype of transaction. |
3 points
Question 17
A three column form of account is so named because it hascolumns for
debit, credit, and balance. | ||
debit, credit, and date. | ||
debit, credit, and account name. | ||
debit, credit, and reference. |
3 points
Question 18
The first step in designing a computerized accounting system isthe creation of the
general ledger. | ||
general journal. | ||
trial balance. | ||
chart of accounts. |
3 points
Question 19
Chik Chik Company showed the following balances at the end ofits first year:
Cash | $ 6,000 |
Prepaid insurance | $ 9,400 |
Accounts receivable | $ 7,000 |
Accounts payable | $ 5,600 |
Notes payable | $ 8,400 |
Common stock | $ 2,800 |
Dividends | $ 1,400 |
Revenues | $ 44,000 |
Expenses | $ 35,000 |
What did Chik Chik Company show as total credits on its trialbalance?
$51,400 | ||
$60,800 | ||
$62,200 | ||
$70,200 |
3 points
Question 20
Which of the following time periods would notbe referred to as an interim period?
Monthly | ||
Quarterly | ||
Semi-annually | ||
Annually |