Sanderson Metals Inc. Payroll: Sanderson pays its employees every other Friday for work performed through that day. The firm accrues a liability each month to reflect the fact that it owes the county property tax through that date. There are work days each year. The vacation accrual reflects that pay for vacation days earned but not used is a liability of the company. However, inventory often arrives a few days before the associated invoice is received.
The approximate value of material in this received but unbilled status is accrued to reflect that the company is in possession of the goods and has a liability to pay for them.
Sanderson is currently closing the books on April 20X8. The last day of the month was seven days after a payday. Five railroad carloads of steel arrived in the last week of April but invoices for only three of those shipments have been received. All prior receipts have been invoiced. Hint: Some accruals, like payroll and inventory, clear a few days after month end. Still others, like vacation, are increased steadily and are decreased when some activity occurs, such as people going on vacation.
The liability for the bill, however, comes from owning the property as time passes. Hint: Each transaction has offsetting entries sides that sum to zero. If all of the entries are to current accounts, there is no impact on working capital. But if one side is somewhere else, working capital will change. Paying bills from a previous period will reduce cash and accounts payable by an equal amount.
Collecting accounts receivable will cause cash to increase and accounts receivable to decrease by the same amount. Total Impact. These were its only assets. There were no other sales or inventory receipts. The books were closed for the month on Tuesday June Ignore taxes for this problem. First enter the beginning balance sheet. Next enter one number two times in each column to reflect the transaction indicated at the top of the column.
Note that sometimes the numbers will be additions and sometimes they will be subtractions. Finally add across the page to get the statements for June. Worksheet Rows 1. Assets 3. Cash 4. Receivable 5. Inventory 6. Fixed Assets net 7. Total Assets 8. Skip 9. Liabilities Payable Accruals Debt Equity Total Liab. Skip Sales Cost Expense Net Income. Worksheet Columns 1.
Opening Balance Sheet 2. Record Sales 3. Record Cost of Sale 4. Receive Inventory 5. Pay for Inventory 6. Buy Truck 7. Pay Employees-1st 4 weeks 8.
Pay Employees-Last 2 days 9. Reclassify cash overdraft as loan Record Net Income as Income and Equity June Statements. Leverage — Example 2. Gatwick Ltd. However the after-tax profit reduction is less than that amount because of the taxes saved due to the interest paid.
Notice that borrowing has levered up the return on equity. See the illustration of the equity accounts on page 44 for problems Mints Entertainment, Inc. Preston Road Inc.
The Digital Systems Company was organized two years ago to take advantage of an internet opportunity. TAXES What is their total effective marginal tax rate? Hint: Use Equation 2. Therefore, the only transaction for which Joan received favorable treatment is part b. The Lindscombs have three dependent children. What is their tax liability assuming they file jointly as a married couple c. What are their average and marginal tax rates? First calculate income excluding interest on the exempt New York City bond.
Apply the tax schedule for married couples filing jointly from table 2. They have one dependent child. What was their tax liability for ? Tax on ordinary income. Joan and Harry Leahy both had income in They have two young children.
What is their tax liability for ? What is their average tax rate? What is their marginal tax rate? Can there be more than one marginal rate? Next list deductions from income noticing that principal repayment on the mortgage is not deductible.
Hence the correct marginal rate for financial decisions would depend on the type of investment income under consideration. Harry Swartz wants to invest in a bond and has narrowed his choices down to two issues. The first is offered by Microsoft Corp. Harry feels that the risk levels inherent in the two bonds are similar. The both mature in ten years. Which bond should Harry choose? Solution: First consult the tax schedule for single individuals in Table 2. The bracket rate is also his marginal tax rate which is relevant for investment decisions.
Hence Harry is better off with the municipal bond. Dick Dowen is considering three investment opportunities: 1 A 4. Corporate Income Taxes — Example 2. Calculate the corporate tax on earnings before tax EBT of the following amounts a.
He has that much money, but can also borrow virtually the whole amount from a rich relative. This is very unusual. Ed feels that after the business is started, it will be important to retain as much money in the company as possible to fund growth. Considering cash retention only, should Ed borrow or invest his own money? That is, which option will result in keeping more money in the company available to grow the business?
How much more? The corporate rate schedule is the same for all three years. Inky Inc. Use the corporate tax schedule on page xxx. Explain why only one of the rates in b and c is relevant for financial decisions? The marginal tax rate is relevant in financial decisions involving incremental income because such income is generally taxed at that rate. In addition, it received both interest and dividends from the Bevins Corp.
Sales Cost Expense. Applying Table gives the tax liability. Rachel and Harry are planning to get married. Both have successful careers and expect to earn the following this year.
Use the PERSTAX program to calculate their total tax bill as single individuals and determine whether getting married will cost or save them money and how much. Assume there are no state taxes. Duncan and Angela are also considering getting married, but have considerably lower incomes. The treatment of personal exemptions and itemized deductions is similar to the U.
There is no special consideration given to capital gains and loses or dividends. Write a spreadsheet program to compute taxes for a typical Utopian household. Test your program with the following cases. Income people Deductions. Verify that your program works by calculating the Utopian taxes manually. My friends are so mad that they do not know how I have all the high quality ebook which they do not!
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