James Bennet needs us to locate investment opportunities for him.
James divides his fortune between youth and old age, as is shown to us. He is currently cashless.
He has access to bank borrowing and lending at 18%.
Some investment opportunities are presented to him.
Investing is the act of placing money into a bank, a piece of property, or a company.
Savings can also take the form of investments.
The most he should spend while still young is $15,254.23.
This calculation is displayed.
The future value is the present value times 1.18.
Future worth = $15,000 + $3,000
= $ 18,000
Therefore, the present value is equal to $18,000 divided by 1.18.
= $ 15, 254.23.
The value that represents today's value is referred to as present value.
Consequently, we might infer that the greatest amount is $15,254.23 that he can spend during his childhood.
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Swifty Corporation manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480000 when 10000 units were produced and sold. The company has a one-time opportunity to sell an additional 1000 units at $145 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:
Income would increase by $45000.
Income would increase by $3000.
Income would increase by $145000.
Income would decrease by $3000.
Coronado Industries is using the target cost approach on a new product. Information gathered so far reveals:
Expected annual sales 350000 units
Desired profit per unit $0.35
Target cost $168000
What is the target selling price per unit?
a. $0.48
b. $0.35
c. $0.70
d. $0.83
Answer:
1. Swifty Corporation
If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:
Income would increase by $45000.
2. Coronado Industries:
The target selling price per unit is:
d. $0.83
Explanation:
a) Data and Calculations:
Swifty Corporation:
Variable cost per unit = $100
Sales price per unit = $176
Contribution margin per unit = $76 ($176 - $100)
Fixed manufacturing costs = $480,000
Production and sales units = 10,000 units
Revenue from special order = $145,000 ($145 * 1,000)
Variable costs for 1,000 units 100,000 ($100 * 1,000)
Contribution margin $45,000 ($145,000 - $100,000)
Fixed costs for special order $0
Net income = $45,000
Coronado Industries:
Expected annual sales 350,000 units
Desired profit per unit $0.35
Target cost $168,000
Desired profit = $122,500 (350,000 * $0.35)
Total sales revenue = $290,500 ($168,000 + $122,500)
Target selling price per unit = $0.83 ($290,500/350,000)
A consumer's weekly income is $250, and the consumer buys 12 bars of chocolate per week. When weekly income increases to $280, the consumer buys 13 bars per week. The income elasticity of demand for chocolate by this consumer is about
Answer:
0.69
Explanation:
Given that we have the formula for calculating income elasticity of demand as the percent change in quantity demanded divided by the percent change in income, hence, we have the percent change in quantity demanded => 13 - 12 = 1 ÷ 12 = 0.083
the percent change in income => 280 - 250 = 30 ÷ 250 = 0.12
Therefore we have => 0.083 ÷ 0.12 = 0.69
Hence, the final answer is 0.69
At year-end (December 31), Chan Company estimates its bad debts as 0.30% of its annual credit sales of $896,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $448 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off. Prepare Chan's journal entries for the transactions.
Answer:
Explanation:
Dec 31:
Debit Bad debts expense = 0.003 × $896000 = $2688
Credit Allowance for doubtful accounts = $2688
February 1:
Debit Allowance for doubtful accounts $448
Credit Accounts receivable—P. Park $448
June 5:
Debit Accounts receivable—P. Park $448
Credit Allowance for doubtful accounts $448
June 5:
Debit Cash $448
Credit Accounts receivable—P. Park $448
A new employee, John Chapman, earns $10 per hour and gets time-and-a-half over 40 hours per week. His first week he worked 45 hours. Deductions from his check were $30 for OASDI, $7 for Medicare, $ 61 for federal income tax withholding, and $15 for a United Way contribution. What was his gross pay for the period
Answer: $475
Explanation:
Gross pay is:
= Regular pay + Overtime
= (Regular hours * Regular pay) + ( Overtime hours * regular pay * time and a half)
= (10 * 40 hours) + ( (45 - 40 hours) * 10 * 1.5)
= 400 + 75
= $475
In addition to the date of recordation, what other factor is used to determine lien priority?
Answer:
Two factors primarily determine lien priority. Firstly the lien's categorization as superior or junior, and secondly the date the lien was recorded.
Explanation:
An encumbrance is most broadly defined as
another's right to use a property without the permission of the property owner.
another's right to claim the sale proceeds of a property that has been used as collateral for a loan.
another's interest in a real property that limits the interests of the freehold property owner.
another's right to control how the freehold owner of a real property uses the property.
In addition to the date of recordation, lien's categorization is other factor used to determine lien priority.
What is lien priority?Lien priority helps to know the order in which creditors get paid following a foreclosure.
Date of recordation is one of the factor yo consider because those on the earlier dates are attended to first.
Therefore, lien priority is so base on categorization because Superiors are been attended to first.
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Identify whether each of the following statements best illustrates the concept of consumer surplus, producer surplus, or neither.
Statement Consumer Surplus Producer Surplus Neither
Even though I was willing to pay up to $83 for a watch, I bought a watch for only $75.
I sold a used textbook for $55, even though I was willing to go as low as $47 in order to sell it.
A local store was having a sale on sweaters, so I bought a jersey sweater for my brother.
Answer:
Consumer surplus
producer surplus
neither
Explanation:
Consumer surplus is the difference between the willingness to pay of a consumer and the price of the good.
Consumer surplus = willingness to pay – price of the good
The willingness to pay for the watch was $83 but the watch was bought for $75. There is a consumer surplus from the purchase
Producer surplus is the difference between the price of a good and the least price the seller is willing to sell the product
Producer surplus = price – least price the seller is willing to accept
The least price the seller was willing to accept for the purchase was $47 but he was paid $55 for the textbook. This is a producer surplus
The closer the smoothing constant, ALPHA, is to 0 the greater the reaction to the most recent demand the greater the dampening, or smoothing, effect the more accurate the forecast will be the less accurate the forecast will be
Answer: the greater the dampening, or smoothing effect
Explanation:
The smoothing constant determines the level at which a forecast is influenced by previous observations. It simply determine the sensitivity of forecasts with regards to the changes in demand.
It should be noted that large values of α will lead to a scenario whereby forecasts will be more responsive to the more recent levels. On the other hand, the smaller values will result in a damping effect. Therefore, the closer the smoothing constant to α, the greater the dampening, or smoothing effect.
the gap between 'where we are now' and 'where we want to be' is known as the.....
Answer:
Planning gap.
Explanation:
Planning can be defined as the process of developing organizational objectives and translating them into action plans or courses of action.
This ultimately implies that, planning is a strategic technique used by organizations to make an aggregate plan for its manufacturing (production) process typically ahead of time, in order to have an idea of the level of goods that are to be produced and what resources are required so as to reduce the total cost of production to its barest minimum.
The planning gap can be defined as the gap between "where we are now?" and "where we want to be?"
Basically, "where are we now?" describe the current situation of things or financial and non-financial activities that a business firm currently holds.
On the other hand, "where we want to be?" is a vision and mission statement that focuses on achieving the goals and objectives set for a business firm.
Cara has just come in for her morning shift , but the sales floor is a mess . Looks like the night crew didn't clean up . She groans , but then gets to work cleaning the displays before customers come . If she doesn't , who else will ? What good problem - solving skills is she exhibiting? a ) Seeking advice when necessary Ob ) Open to seeing new perspectives c ) Having a solutions - oriented attitude
Answer:
having a solutions-oriented attitude
Explanation:
she seen things wasn't done so she starts cleaning because she takes pride in her job
why multinational company are developed
Answer:
Multinationals provide an inflow of capital into the developing country.
Explanation:
This capital investment helps the economy develop and increase its productive capacity.
As of December 31, Drake Inc. reported the following (in millions): Current AssetsLong-term AssetsCurrent LiabilitiesTotal Liabilities $31,967$42,737$26,132$61,491 What amount did Drake Inc. report as equity on December 31
Answer:
$13,213
Explanation:
The computation of the equity is shown below:
As we know that
Total assets = total liabilities + total stockholder equity
here
Totalassets be
= $31,967 + $42,737
= $74,707
ANd, the total liabilities is $61,491
So, the equity should be
= $74,707 - $61,491
= $13,213
Super Garage was started on June 1 by Mr. Peter Thomson . A summary of June transactions
is presented below.
June 1. Invested $25,000 cash to start the garage.
2. Purchased repair equipment for $5,000 cash.
4. Paid $500 cash for the space rent.
4. Hired an employee
5. Paid $700 for a one-year fire insurance policy.
6. Received $10000 in cash from customers for repair service.
10. Provided repair service on account to customers $1750.
21. Collected cash of $5000 for services provided on June 6.
27. Withdrew $1,000 cash for personal use.
30. Paid employee salaries $3,000.
30. Received an electricity bills $170.
Required:
i. Journalize the transactions
ii. Post and balance the transactions to ledger accounts
The following data apply to Elizabeth's Electrical Equipment:
Value of operations $20,000
Short-term investments $1,000
Debt $6,000
Number of shares 300
The company plans on distributing $50 million by repurchasing stock. What will the intrinsic per share stock price be immediately after the repurchase?
Answer:
$50
Explanation:
Calculation to determine the intrinsic per share stock price be immediately after the repurchase
First step
Total Assets=Value of operations of 20,000+ Short term investments of 1000
Total Assets=$21,000
Second step
Equity =Assets - Debt
Equity= $21,000-$6,000
Equity= $15,000
Now let determine the intrinsic per share stock price
Intrinsic per share stock price=$15,000/300
Intrinsic per share stock price=$50
Therefore the Intrinsic value per share will be $50 immediately after the repurchase has occured.
The intrinsic per share stock price immediately after the repurchase would be approximately $166,716.67
How did we get the value?To determine the intrinsic per share stock price immediately after the repurchase, we need to calculate the new number of shares outstanding after the repurchase and then divide the remaining value of operations by the new number of shares.
Given data:
Value of operations: $20,000
Short-term investments: $1,000
Debt: $6,000
Number of shares: 300
First, we need to calculate the new number of shares outstanding after the repurchase. Since the company plans on distributing $50 million by repurchasing stock, we can use this information to determine the number of shares repurchased.
The value of operations ($20,000) plus the short-term investments ($1,000) minus the debt ($6,000) gives us the total equity value of the company before the repurchase:
Equity value before repurchase = Value of operations + Short-term investments - Debt
= $20,000 + $1,000 - $6,000
= $15,000
Let's assume the repurchased shares are denoted by R.
Now, we can set up an equation to represent the total equity value after the repurchase:
Equity value after repurchase = (Number of shares - R) × Intrinsic per share stock price
Given that the total equity value after the repurchase is $15,000 and the number of shares is 300, we have:
$15,000 = (300 - R) × Intrinsic per share stock price
We also know that the company plans on distributing $50 million by repurchasing stock, so we can set up another equation to represent the total value of the repurchased shares:
Total value of repurchased shares = R × Intrinsic per share stock price
Given that the total value of repurchased shares is $50 million, we have:
$50,000,000 = R × Intrinsic per share stock price
Now we can solve these two equations simultaneously to find the values of R (repurchased shares) and Intrinsic per share stock price.
We have the following system of equations:
$15,000 = (300 - R) × Intrinsic per share stock price ...(1)
$50,000,000 = R × Intrinsic per share stock price ...(2)
Divide equation (2) by Intrinsic per share stock price:
$50,000,000 / Intrinsic per share stock price = R
Substitute this value of R into equation (1):
$15,000 = (300 - ($50,000,000 / Intrinsic per share stock price)) × Intrinsic per share stock price
Simplify:
$15,000 = 300 × Intrinsic per share stock price - (50,000,000 / Intrinsic per share stock price) × Intrinsic per share stock price
$15,000 = 300 × Intrinsic per share stock price - 50,000,000
Rearrange the equation:
300 × Intrinsic per share stock price = $15,000 + $50,000,000
300 × Intrinsic per share stock price = $50,015,000
Intrinsic per share stock price = $50,015,000 / 300
Intrinsic per share stock price = $166,716.67 (rounded to two decimal places)
Therefore, the intrinsic per share stock price immediately after the repurchase would be approximately $166,716.67.
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In the short run, open-market purchases a. increase investment and real GDP, and decrease interest rates. b. increase real GDP and interest rates, and decrease investment. c. increase investment and interest rates, and decrease real GDP. d. decrease investment, interest rates, and real GDP.
Answer: a. increase investment and real GDP, and decrease interest rates.
Explanation:
During an Open Market Purchase, the central bank of the country would be buying back securities from the public which means that it would be infusing money into the economic system.
With an increased amount of money in the economy, people will be able to save more which means that interests rate will drop because there are now more loanable funds. This drop in interest rates will encourage more companies and people to borrow cash for investment which will then lead to a higher GDP.
In the short run, in the open-market purchase, there has been an increase in investment and real GDP and decreased interest rates. Thus option A is correct.
The interest rate has been the amount of interest lent onto the principal sum. The GDP has been the gross domestic product that has been the market value of the final products.
In the open-market purchase, there has been an increase in the amount of money in the market. The government has been buying the securities and results in the market flow of money. The market flow will eventually result in an increase in the GDP with the decreased interest rates.
Thus in the short run, in the open-market purchase, there has been an increase in investment and real GDP and decreased interest rates. Thus option A is correct.
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Stephen is a graduate student at West University. He works part-time at the campus coffee shop earning $5,000 this year. Stephen also receives a $25,000 scholarship that pays for his tuition, fees, and books. What amount does Stephen include in his gross income
Answer:
5,000
Explanation:
Stephen is a graduate student at a university
He works part time at a shop where he earns 5,000 this is als like compensation
He receives $25,000 for scholarships
The amount Stephen includes in id groas income is 5,000
acc 430 Firm B, a calendar year, cash basis taxpayer, leases lawn and garden equipment. During December, it received the following cash payments. To what extent does each payment represent current taxable income to Firm B
Answer: See explanation
Explanation:
a. Even though firm B received a cash of $522, only $22 which is the interest will be taxable as the $500 which is the principal isn't taxable.
b. Even though Firm B got $600 cash, there'll be no taxable income as the receipt brought about a liability. Hence, taxable income is 0.
c. Even though Firm B got $10000 cash, there'll be no taxable income as the receipt brought about a liability and the net worth wasn't increased. Hence, taxable income is 0.
d. The taxable income here will be $888.
Your father offers you a choice of $120,000 in 11 years or $48,500 today. Use Appendix B as an approximate answer, but calculate your final answer using the formula and financial calculator methods. a-1. If money is discounted at 11 percent, what is the present value of the $120,000
Answer:
$38,074
Explanation:
Present value is the sum of discounted cash flows
Present value can be calculated using a financial calculator
Cash flow in year 1 to 10 = 0
Cash flow in year 11 = $120,000
I = 11
PV = 38,074
To determine PV using a financial calculator take the following steps:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
Given the choice, i would choose $48,500 today.
Read the argument below and determine the underlying principle that was used to come to the conclusion presented: A free college education for every citizen is important because it helps the United States create the best-educated workforce in the world. European countries like Germany are able to provide a free college education to their citizens, and the United States should as well. Which other argument uses the same underlying principle as the argument above?
a. Children should get free dental care, even if they drink a lot of soda which causes cavities.
b. Children should get free dental care because it will help prevent more serious issues later on and reduces future healthcare costs.
c. Every child should get free dental care, even if they can afford to pay for it.
Answer:
1. The underlying principle is
to create the best-educated workforce in the world.
2. The argument that uses the same underlying principle as the argument 1 above is:
b. Children should get free dental care because it will help prevent more serious issues later on and reduces future healthcare costs.
Explanation:
The underlying principle is a general rule which can be applied to different situations. It shows the reason for doing something or embarking on a program. For example, to offer free college education for every U.S. citizen, the underlying principle is to "create the best-educated workforce in the world."
A company like Motorola might establish a goal of reducing its inventory by 50 percent over the next year. To ensure that it reaches this goal, the company could monitor its progress on a quarterly or monthly basis. If the managers at Motorola discover that there is a danger of not achieving this goal, they can take corrective action to adjust for the deficiency. This is a description of the managers' ____ function.
Answer:
stfhgocovovohdj vbb
Explanation:
sryyy
Bombs Away Video Games Corporation has forecasted the following monthly sales:
January $113,000 July $58,000
February 106,000 August 58,000
March 38,000 September 68,000
April 38,000 October 98,000
May 33,000 November 118,000
June 48,000 December 136,000
Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for $5 per unit and costs $2 per unit to produce. A level production policy is followed. Each month's production is equal to annual sales (in units) divided by 12. Of each month's sales, 40 percent are for cash and 60 percent are on account. All accounts receivable are collected in the month after the sale is made.
Required:
Construct a monthly production and inventory schedule in units. Beginning inventory in January is 38,000 units.
Answer:
Bombs Away Video Games Corporation
Production and Inventory Schedule
Sales Units Production units Ending Units
Beginning inventory 38,000
January 22,600 15,200 30,600
February 21,200 15,200 24,600
March 7,600 15,200 1,800
April 7,600 15,200 9,400
May 6,600 15,200 18,000
June 9,600 15,200 23,600
July 11,600 15,200 27,200
August 11,600 15,200 30,800
September 13,600 15,200 32,400
October 19,600 15,200 28,000
November 23,600 15,200 19,600
December 27,200 15,200 7,600
Explanation:
a) data and Calculations:
Sales Budget ($'000) Sales Units Production units Ending Units
Beginning inventory 38,000
January $113,000 22,600 15,200 30,600
February 106,000 21,200 15,200 24,600
March 38,000 7,600 15,200 1,800
April 38,000 7,600 15,200 9,400
May 33,000 6,600 15,200 18,000
June 48,000 9,600 15,200 23,600
July 58,000 11,600 15,200 27,200
August 58,000 11,600 15,200 30,800
September 68,000 13,600 15,200 32,400
October 98,000 19,600 15,200 28,000
November 118,000 23,600 15,200 19,600
December 136,000 27,200 15,200 7,600
Total 182,400 182,400
During 2017, Benson purchased $1,450,000 of raw materials, incurred direct labor costs of $250,000, and incurred manufacturing overhead totaling $160,000. How much raw materials were transferred to production during 2017 for Benson
Answer:
Raw Materials transferred to production during 2017 $1,466,000
Explanation:
The computation of the raw material transferred to production is given below:
Opening raw material 2016 $80,000
Add : Purchase of Raw material $1,450,000
Less Closing Stock raw material 2017 $64,000
Raw Materials transferred to production during 2017 $1,466,000
Hence, the same should be relevant
Define the KPI ‘rate of staff absenteeism’.
Answer:
KPI, Key Performance Indicators are used for measuring the average absenteeism rate per employee. This is computed as a % of the total working days.
Explanation:
Individual employee Key Performance Indicators (KPIs) are metrics that assist in tracking the ability of your employees to meet your expectations and their impact on the business goals.
Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 46,000 units per month is as follows:
Per Unit Direct materials $45.60
Direct labor $8.70
Variable manufacturing overhead $1.70
Fixed manufacturing overhead $18.50
Variable selling & administrative expense $3.00
Fixed selling & administrative expense $14.00
The normal selling price of the product is $98.10 per unit.
An order has been received from an overseas customer for 2,600 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.80 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.
Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 1,000 units for regular customers. The minimum acceptable price per unit for the special order is closest to: __________
Answer:
Ash Corporation
The minimum acceptable price per unit for the special order is closest to:
= $94.93.
Explanation:
a) Data and Calculations:
Normal production capacity per month = 46,000 units
Per Unit
Direct materials $45.60
Direct labor $8.70
Variable manufacturing overhead $1.70
Fixed manufacturing overhead $18.50
Variable selling & administrative expense $3.00
Fixed selling & administrative expense $14.00
The normal selling price of the product = $98.10 per unit.
Special order = 2,600 units
Relevant costs:
Direct materials $45.60
Direct labor $8.70
Variable manufacturing overhead $1.70
Variable selling & administrative expense $1.20
Total relevant costs per unit $57.20
Total variable cost for the special order = $148,720 ($57.20 * 2,600)
Loss sales revenue (1,000 * $98.10) 98,100
Total cost for the special order = $246,820
Minimum acceptable price per unit = $94.93 ($246,820/2,600)
Network externalities: Select one: A. exist when the usefulness of a product increases with the number of consumers who use it B. are created when celebrity endorsements of products lead to a surge in the demand for those products C. can only exist when there are economies of scale D. prevent the dominance of a market by one firm.
Answer:
A. )exist when the usefulness of a product increases with the number of consumers who use it
Explanation:
Network externality can be regarded as a change that occur in benefit as well as in surplus, which is been derived by agent from a good when there is a change in number of other agents that consumes this same type of good. Network externality can as well be regarded as "network effect" this effect is one is that is been had by one user of a good/service on the value of the product with respect to each other people.
It should be noted that Network externalities exist when the usefulness of a product increases with the number of consumers who use it
Jebali Company reports gross income of $340,000 and other property-related expenses of $229,000 and uses a depletion rate of 14%. Calculate Jebali's depletion allowance for the current year. $fill in the blank 1
Answer:
15,540
Explanation:
Depletion = depletion rate x (gross income - expenses)
0.14 x ($340,000 - $229,000) = 15,540
MC Qu. 101 The following information... The following information describes a company's usage of direct labor in a recent period. The direct labor rate variance is: Actual hours used 46,000 Actual rate per hour $ 16 Standard rate per hour $ 15 Standard hours for units produced 48,000
Answer:
$46,000 Unfavorable
Explanation:
Calculation to determine what The direct labor rate variance is:
Using this formula
Direct labor rate variance = Actual hours * ( Actual Rate - Standard Rate)
Let plug in the formula
Direct labor rate variance=46000*($16- $15)
Direct labor rate variance=46,000*$1
Direct labor rate variance=$46,000 Unfavorable
Therefore The direct labor rate variance is: $46,000 Unfavorable
Explain how the hotel business could create added value to the goods they buy in?
Answer:
Well-designed rooms, attractive and comfortable appliances, well-dressed and respectful assistants, good quality entertainment equipment, and delightful food made by experienced chefs.
Explanation:
Guests will feel more welcomed to a clean and comfortable hotel. Respectful assistants, good quality entertainment equipment, and food made by experienced chefs can boost the morale of guests.
Standish Company manufactures consumer products and provided the following information for the month of February:
Units produced 131,000
Standard direct labor hours per unit 0.20
Standard fixed overhead rate (per direct labor hour) $2.50
Budgeted fixed overhead $65,000
Actual fixed overhead costs $68,300
Actual hours worked 26,350
Required:
a. Calculate the fixed overhead spending variance using the formula approach.
b. Calculate the volume variance using the formula approach.
Answer and Explanation:
The computation is shown below:
a. Fixed overhead Spending Variance is
= Budgeted Fixed Overhead - Actual Fixed overhead
= $65000 - $68300
= - $3300 (unfavorable)
b.
Fixed Overhead Volume Variance is
= (131000 × 0.20 × $2.50) - $65000
=$65500 - $65000
= $500 Favorable
In this way these can be determined
An approach to managing inventories and production operations such that units of materials and products are obtained and provided only as they are needed is called: Customer orientation. Continuous improvement. Total quality management. Just-in-time manufacturing. Theory of constraints.
Answer:
Just-in-time manufacturing
Explanation:
just-in-time manufacturing can be regarded as Lean manufacturing
a production method that helps in
reduction of times within the production system and reduction in
response times from suppliers as well to to customers. It should be noted that the approach to managing inventories and production operations such that units of materials and products are obtained and provided only as they are needed is called Just-in-time manufacturing.
Cheers Corporation purchased for $500,000 5,000 shares of Beer Corporation common stock (less than 5% of the outstanding Beer stock) at the beginning of the current year. It used $400,000 of borrowed money and $100,000 of its own cash to make this purchase. Cheers paid $50,000 of interest on the debt this year. Cheers received a $40,000 cash dividend on the Beer stock on September 1 of the current year. Cheers has $5 million of taxable income before any dividends-received deduction. a. What amount can Cheers deduct for the interest paid on the loan
Answer:
Cheers Corporation
The amount that Cheers can deduct for the interest paid on the loan is:
= $50,000.
Explanation:
a) Data:
Investment in Beer Corporation = $500,000
Number of Beer shares purchased = 5,000
Percentage shareholding in Beer Corporation < 5%
Amount borrowed for the investment = $400,000
Own cash used for the purchase = $100,000
Interest paid on the debt for this year = $50,000 = 12.5%
Cash dividend received for the year = $40,000
Cheers taxable income before dividends = $5 million
The amount of interest deductible = $50,000
b) Since the interest was made for the purpose of the investment in Beers Corporation, the whole amount of interest expense for the year is deductible.
