ADMS 3520 Lecture Notes - Property Income, Dividend Tax, Mutual Fund

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fuchsiacoyote961

27 May 2014

School

York University

Department

Administrative Studies

Course

ADMS 3520

Professor

all

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Document Summary

Lecture 4: income from property, capital gains and capital losses. 7 covers property income and expenses, i. e. how dividend income, interest income, rental income and other types of property income are taxed and the expenses that can be deducted against this income. 8 covers capital gains and losses, i. e. how the gain on the sale of an investment (including your home) is taxed during your lifetime. As before, urls to background materials are included for those who are interested in additional information. Exercises 7-3, 7-6 to 7-8, self-study problem 7-4. Property income [7-2 to 7-5] passive income from investments (investment income) Most interest, dividends, rental income (minus expenses) and some royalties. In some cases, a corporation"s activity of earning property income can be considered an active business, e. g. a corporation earning investment income because of the number of employees (more than 5 full-time employees throughout the year).

Related Questions

1.Which of the following statements about conversion of income is correct?

converting ordinary income into capital gain is a beneficial tax planning strategy

converting capital gain income into ordinary income is a beneficial tax planning strategy

converting qualifying dividends into interest income is a beneficial tax planning strategy

holding assets that will generate a capital gain inside a retirement plan is a beneficial tax planning strategy

2. Which of the following statements is NOT a true statement regarding long-term capital assets?

capital assets that are held for more than one year are treated as long-term

no distinction is made between capital losses and ordinary losses

with few exceptions, the maximum capital gains tax rate is 15%

the benefit of holding a capital asset long enough to garner long-term capital gain treatment must be weighed against the financial risk associated with a possible decline in value during the holding period

3. Which of the following statements about the taxation of dividends is correct?

all dividends are taxed at the same rate as applicable to capital gains

dividends paid by credit unions and mutual insurance companies qualify for the lower tax rate

qualifying dividends are taxed at a maximum 15% rate

d. there is no tax benefit to changing some of an individual's funds from a lower-yielding fixed income investment into a dividend-paying stock

4. Which of the following is an advantage of making an IRC Section 83(b) election with respect to restricted stock?

an 83(b) election can be made any time within the tax year of the transfer of shares from the company to the employee

if the stock is forfeited, the compensation recognized and the taxes paid are deductible as losses

any future appreciation would be taxed as capital gain instead of taxable compensation

d. the employee does not receive any cash at the time of the stock award to pay the tax on the compensation recognized under the election

5.The maximum alternative minimum tax rate for individuals is:

less than the maximum regular federal income tax rate for individuals

equal to the maximum regular federal income tax rate for individuals

greater than the maximum regular federal income tax rate for individuals

d. going to decrease each year by 1% until it reaches 20% in 2010

6. How is alternative minimum taxable income (AMTI) for individuals computed?

AMTI = taxable income + adjustments + preferences - exemptions

AMTI = taxable income - adjustments + preferences - exemptions

AMTI = taxable income +/- adjustments + preferences - exemption

d. AMTI = taxable income +/- adjustments - preferences - exemptions

7. Which of the following statements regarding the calculation of alternative minimum taxable income (AMTI) for corporations versus the calculation of AMTI for individuals is accurate?

	a.	AMTI is calculated the same for both corporations and individuals
	b.	an additional step is required for corporations based on their adjusted current earnings
	c.	the exemption amount for corporations is not subject to phaseout to phaseout while the exemption amounts for individuals are
	d.	thethere is no adjustments to taxable income for corporations, only preferences

What are the coverage ratios for the following data (using formula below)? Please show how you came up with solution. Thank you Times interest earned = EBIT / Interest expense = ?? Times burden covered = EBIT / Interest + Principal repayment / 1 - tax rate = ??

MICROSOFT CORP BALANCE SHEET
	2014	2015
Assets
Cash
Cash and cash equivalents	$8,669	$5,595
Short-term investments	$77,040	$90,931
Total cash	$85,709	$96,526
Receivables	$19,544	$17,908
Inventories	$2,660	$2,902
Deferred income taxes	$1,941	$1,915
Other current assets	$4,392	$5,461
Total current assets	$114,246	$124,712
Non-current assets
Gross property, plant and equipment	$27,804	$32,337
Accumulated Depreciation	-$14,793	-$17,606
Net property, plant and equipment	$13,011	$14,731
Equity and other investments	$14,597	$12,053
Goodwill	$20,127	$16,939
Intangible assets	$6,981	$4,835
Other long-term assets	$3,422	$2,953
Total non-current assets	$58,138	$51,511
Total assets	$172,384	$176,223
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt	$2,000	$7,484
Accounts payable	$7,432	$6,591
Taxes payable	$782	$606
Accrued liabilities	$4,797	$5,096
Deferred revenues	$23,150	$23,223
Other current liabilities	$7,464	$6,858
Total current liabilities	$45,625	$49,858
Non-current liabilities
Long-term debt	$20,645	$27,808
Deferred taxes liabilities	$2,728	$2,835
Deferred revenues	$2,008	$2,095
Other long-term liabilities	$11,594	$13,544
Total non-current liabilities	$36,975	$46,282
Total liabilities	$82,600	$96,140
Stockholders' equity
Common stock	$68,366	$68,465
Retained earnings	$17,710	$9,096
Accumulated other comprehensive income	$3,708	$2,522
Total stockholders' equity	$89,784	$80,083
Total liabilities and stockholders' equity	$172,384	$176,223

MICROSOFT CORP INCOME STATEMENT
(USD in millions except per share data)	2014	2015
Revenue	$86,833	$93,580
Cost of revenue	$26,934	$33,038
Gross profit	$59,899	$60,542
Operating expenses
Research and development	$11,381	$12,046
Sales, General and administrative	$20,632	$20,324
Restructuring, merger and acquisition	$127	$0
Other operating expenses	$0	$10,011
Total operating expenses	$32,140	$42,381
Operating income	$27,759	$18,161
Interest Expense	$597	$781
Other income (expense)	$658	$1,127
Income before taxes	$27,820	$18,507
Provision for income taxes	$5,746	$6,314
Net income from continuing operations	$22,074	$12,193
Net income	$22,074	$12,193
Net income available to common shareholders	$22,074	$12,193
Earnings per share
Basic	$2.66	$1.49
Diluted	$2.63	$1.48
Weighted average shares outstanding
Basic	$8,299	$8,177
Diluted	$8,399	$8,254
EBITDA	$33,629	$25,245

MICROSOFT CORP CASH FLOW STATEMENT
(USD in millions except per share data)	2014	2015
Cash Flows From Operating Activities
Net income	$22,074	$12,193
Depreciation & amortization	$5,212	$5,957
Investment/asset impairment charges	$0	$7,498
Investments losses (gains)	-$109	-$443
Deferred income taxes	-$331	$224
Stock based compensation	$2,446	$2,574
Accounts receivable	-$1,120	$1,456
Inventory	-$161	-$272
Accounts payable	$473	-$1,054
Other working capital	$1,432	$1,383
Other non-cash items	$2,315	-$436
Net cash provided by operating activities	$32,231	$29,080
Cash Flows From Investing Activities
Investments in property, plant, and equipment	-$5,485	-$5,944
Acquisitions, net	-$5,937	-$3,723
Purchases of investments	-$72,690	-$98,729
Sales/Maturities of investments	$65,366	$85,861
Other investing activities	-$87	-$466
Net cash used for investing activities	-$18,833	-$23,001
Cash Flows From Financing Activities
Debt issued	$10,350	$10,680
Debt repayment	-$3,888	-$1,500
Common stock issued	$607	$634
Common stock repurchased	-$7,316	-$14,443
Excess tax benefit from stock based compensation	$271	$588
Dividend paid	-$8,879	-$9,882
Other financing activities	$461	$4,843
Net cash provided by (used for) financing activities	-$8,394	-$9,080
Effect of exchange rate changes	-$139	-$73
Net change in cash	$4,865	-$3,074
Cash at beginning of period	$3,804	$8,669
Cash at end of period	$8,669	$5,595
Free Cash Flow
Operating cash flow	$32,231	$29,080
Capital expenditure	-$5,485	-$5,944
Free cash flow	$26,746	$23,136

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ADMS 3520 Lecture Notes - Property Income, Dividend Tax, Mutual Fund

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