ADMS 3520 Lecture Notes - Lecture 1: Property Income, Investment, Time Deposit
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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 |
Question: Reading Federal Income Taxation of Corporations andShareholders Text: Study Chapters 7 & 8 o...
Reading
Federal Income Taxation of Corporations andShareholders
Text: Study Chapters 7 & 8of the Bittker & Eustice text.
Penalty Taxes on Undistributed CorporateIncome, Dividends and Other NonliquidatingDistributions
LESSON 6, PROBLEM #1
In not less than 1,000 words discuss "earnings and profits".Your discussion should include major differences between computingcurrent earnings and profits and current taxable income as well aswhy earnings and profits should be calculated before a corporationdecides to make a distribution to 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 and accumulated earningsand profits of $50,000. CadyCo distributes $200,000 cash to Allanâwith respect to his stockâ (i.e., as a state law âdividendâ). Howis the $200,000 taxed? What is Allanâs stock basis after thedistribution? Alternatively, CadyCo distributes to Allan his noteto CadyCo for $200,000 borrowed from CadyCo.
LESSON 6, PROBLEM #3
Assumptions: The stock of ChadCo is owned equally bytwo shareholders: SecondCo (a corporation) and Arnold (anindividual). ChadCo and SecondCo use the accrual method, Arnolduses the cash method. All use a calendar taxable year. Assume §1059 does not apply. Use a 34 percent corporate tax rate in thisproblem. During the current year, ChadCo accrued income andexpenses 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) business expenses | $430,000 |
Noncapital expenses not deductible under § 162(e) | 90,000 |
Capital losses (see § 1211(a)) | 146,000 |
Total | $666,000 |
Net | $134,000 |
(1) 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 be gross income to SecondCo andArnold, in what amounts, and why? What does E&P have to do withthis?
(2) Alternative: Arnold just bought the ChadCo shares onDecember 30 of the current year from another shareholder for FMV of$145,000, before the declaration and payment of a
$5,000 distribution to Arnold on December 31 of the currentyear.
Should the distribution be taxable income to Arnold?Why?
(3) Now assume that SecondCoâs basis in its ChadCo stock is$100,000 and Arnoldâs basis in his ChadCo stock is $40,000. OnJanuary 2 of the current taxable year, ChadCo distributes $100,000in cash to SecondCo and $100,000 in cash to Arnold. As of the endof the preceding taxable year, ChadCoâs accumulated E&P waszero.
What are the tax consequences of this distribution toChadCo, SecondCo, and Arnold? [Hint: First compute ChadCoâscurrent-year taxable income and then compute current- year E&Pbefore reducing the E&P for the distribution (âinterimE&Pâ); after reducing for the distribution, compute finalaccumulated E&P.]
(4) Variation: Assume Arnoldâs shares were owned by a differentshareholder every quarter and $50,000 was distributed ratably toall shareholders quarterly?
How much dividend would SecondCo and the holders of Arnoldâsshares receive?
(5) Suppose under the basic facts in (3) above that ChadCo hadan accumulated de?cit of
$100,000 in its E&P account as of December 31 of thepreceding taxable year.
(6) If, on December 1 of the current year (the declarationdate), ChadCoâs board of directors voted to pay the $200,000distribution by mailing the checks on December 31 of the currenttaxable year (the payment date, the identi?cation of which is apractice generally used only by widely held corporations) toshareholders of record on December l5 of the current taxable year(the record date), such checks actually being received by SecondCoand Arnold in the mail on January 2 of the next year? Assume thatSecondCo and Arnold are the public and that they are the onlyshareholders (as in the basic facts).
How would your answer to (3) above change?
(7) Suppose that SecondCo is an individual and that ChadCo hasalways been an S corporation.
What is ChadCoâs E&Pâ? How is each shareholderâspersonal income tax return affected for the current year by the taxitems ofChadCo? How will ChadCo distribution of
$100,000 to each shareholder in the current year affectshareholders?