Question & Answer

Explain how implicit taxes may limit the benefits of the conversion strategy

Do after-tax rates of return for investments in either interest or dividend paying securities increase with the length of the investment?  Why or why not?

What is needed to implement the conversion strategy?

What is the key factor in shifting income from a business to its owners? What are some methods of shifting income in this context?

What is wheel structure?

What would happen to the ASL curve and the level of unemployment if unemployment benefits were increased?

What is an “implicit tax” and how does it affect a taxpayer’s decision to purchase municipal bonds?

What is the difference between a tax deduction and a tax credit?Is one more beneficial than the other?Explain.

The incredible growth of Amazon.com has put fear into the hearts of traditional retailers. Amazon’s stock price has soared to amazing levels. However, it is often pointed out in the financial press that it took the company several years to report its first profit. The following financial information is taken from a recent annual report.   Instructions (a) Calculate free cash flow for Amazon for the current and prior years, and discuss its ability to finance expansion from internally generated cash. Thus far Amazon has avoided purchasing large warehouses. Instead, it has used those of others. It is possible, however, that in order to increase customer satisfaction the company may have to build its own warehouses. If this happens, how might your impression of its ability to finance expansion change? (b) Discuss any potential implications of the change in Amazon’s cash provided by operations from the prior year to the current year.

Several judicial doctrines limit basic tax planning strategies.  What are they?  Which planning strategies do they limit?

Explain the assignment of income doctrine.  In what situations would this doctrine potentially apply?

Describe the business purpose, step-transaction, and substance-over-form doctrines.  What types of tax planning strategies may these doctrines inhibit?

What is the difference between tax avoidance and tax evasion?

What are the rewards of tax avoidance?  What are the rewards of tax evasion?

“Tax avoidance is discouraged by the courts and Congress.”  Is this statement true or false?  Please explain.

What are the consequences for a government in the eurozone when it obtains credit from the ECB? (LO1)

Using the facts from the previous problem, how would your answer change if Isabel’s after-tax rate of return were 8 percent?

LaBouche Corporation owns a warehouse. On November 1, it rented storage space to a lessee (tenant) for 3 months for a total cash payment of $2,400 received in advance. Prepare LaBouche’s November 1 journal entry and the December 31 annual adjusting entry.

What are the three phases in shop floor control?

How would the shifts in the SRAS curve be affected if, in response to rising output levels, firms increased their investment expenditures?

} Using the facts from the previous problem, how would your answer change if Manny’s after-tax rate of return were 8 percent?

List the three parts of a common twist drill. List the three parts of a common twist drill.

} Hank, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship.  In late December he performed $20,000 of legal services for a client.  Hank typically requires his clients to pay his bills immediately upon receipt.  Assume his marginal tax rate is 30 percent this year and will be 40 percent next year, and that he can earn an after-tax rate of return of 12 percent on his investments.  Should Hank send his client the bill in December or January?

On a diagram like Figure A1.8 draw the graphs for the following equations:                      y = –3 + 4x                      y = 15 – 3x

The transactions below took place during the year 2014. 1. Convertible bonds payable with a par value of $300,000 were exchanged for unissued common stock with a par value of $300,000. The market price of both types of securities was par. 2. The net income for the year was $410,000. 3. Depreciation expense for the building was $90,000. 4. Some old office equipment was traded in on the purchase of some dissimilar office equipment, and the following entry was made. Equipment 50,000 Accum. Depreciation—Equipment 30,000 Equipment 40,000 Cash 34,000 Gain on Disposal of Plant Assets 6,000 The Gain on Disposal of Plant Assets was credited to current operations as ordinary income. 5. Dividends in the amount of $123,000 were declared. They are payable in January of next year. Instructions Show by journal entries the adjustments that would be made on a worksheet for a statement of cash flows.