Question 1
S CORPORATION TAX RETURN PROBLEM Required: ? Using the information provided below, complete Salt Source Inc.?s (SSI) 2010 Form 1120S. Also complete Kim Bentley?s Schedule K-1. ? Form 4562 for depreciation is not required. Include the amount of tax depreciation given in the problem on the appropriate line on the first page of Form 1120S. ? If any information is missing, use reasonable assumptions to fill in the gaps. ? The forms, schedules, and instructions can be found at the IRS Web site (www.irs.gov). The instructions can be helpful in completing the forms. Facts: Salt Source Inc. (SSI) was formed as a corporation on January 5, 2007, by its two owners Kim Bentley and James Owens. SSI immediately elected to be taxed as an S corporation for federal income tax purposes. SSI sells salt to retailers throughout the Rocky Mountain region. Kim owns 70 percent of the SSI common stock (the only class of stock outstanding) and James owns 30 percent. ? SSI is located at 4200 West 400 North, Salt Lake City, UT 84116. ? SSI?s Employer Identification Number is 87-5467544. ? SSI?s business activity is wholesale sales. Its business activity code is 424990. ? Both shareholders work as employees of the corporation. ? Kim is the president of SSI (Social Security number 312-89-4567). Kim?s address is 1842 East 8400 South, Sandy, UT 84094. ? James is the vice president of SSI (Social Security number 321-98-7645). James?s address is 2002 East 8145 South, Sandy, UT 84094. ? SSI uses the accrual method of accounting and has a calendar year-end. 12/31/10 12/31/09 Liabilities and Capital Accounts payable $ 49,000 $ 45,500 Notes payable 50,000 0 Mortgage payable 63,000 67,500 Capital: Jerry Johnson 94,553 82,040 Steve Stillwell 217,542 176,679 TOTALS $474,095 $371,719 C-18 Appendix C The following is SSI?s 2010 income statement: SSI Income Statement For year ending December 31, 2010 Revenue from sales $980,000 Sales returns and allowances (10,000) Cost of goods sold (110,000) Gross profit from operations $860,000 Other income: Dividend income $ 15,000 Interest income 5,000 Gross income $880,000 Expenses: Compensation ($600,000) Depreciation (10,000) Bad debt expense (14,000) Meals and entertainment (2,000) Maintenance (8,000) Business interest (1,000) Property taxes (7,000) Charitable contributions (10,000) Other taxes (30,000) Rent (28,000) Advertising (14,000) Professional services (11,000) Employee benefits (12,000) Supplies (3,000) Other expenses (21,000) Total expenses (771,000) Net income $ 109,000 Notes: 1. SSI?s purchases during 2010 were $115,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of ?263A do not apply to SSI. 2. Of the $5,000 interest income, $2,000 was from a West Jordan city bond used to fund public activities (issued in 2007) and $3,000 was from a money market account. 3. SSI?s dividend income comes from publicly traded stocks that SSI has owned for two years. 4. SSI?s compensation is as follows: ? Kim $120,000 ? James $80,000 ? Other $400,000. 5. SSI wrote off $6,000 in accounts receivable as uncollectible during the year. 6. SSI?s regular tax depreciation was $17,000. AMT depreciation was $13,000, Appendix C C-19 7. SSI distributed $60,000 to its shareholders. 8. SSI is not required to compute the amount in its accumulated adjustments account. The following are SSI?s book balance sheets as of January 1, 2010, and December 31, 2010. 2010 January 1 December 31 Assets Cash $ 90,000 $143,000 Accounts receivable 300,000 310,000 Allowance for doubtful accounts (60,000) (68,000) Inventory 45,000 50,000 State and local bonds 38,000 38,000 Investments in stock 82,000 82,000 Fixed assets 100,000 100,000 Accumulated depreciation (20,000) (30,000) Other assets 20,000 21,000 Total assets $595,000 $646,000 Liabilities and Shareholders? Equity Accounts payable 60,000 55,000 Other current liabilities 5,000 8,000 Other liabilities 10,000 14,000 Capital stock 200,000 200,000 Retained earnings 320,000 369,000 Total liabilities and shareholders? equity $595,000 $646,000
Question 2
Required Readings** During the first week of the module, 1. Read pages 260-372 in Shaw and Barry . 2. The following articles from Global Issues in Context, "Automobile Emissions": -- "After Bailout, Detroit owes US fuel efficiency" 3. The following article from Global Issues in Context, "Tragedy of the Commons": --"The Tragedy of the Commons" Environmental Issues: Essential Primary Sources, 2006. 4. The following articles/podcasts from Global Issues in Context, "Global Warming": --Global Warming Seen as a Major Problem Around the World Less Concern in the U.S., China and Russia. Pew Global Attitudes Project, April 1, 2010. --"Software Calculates City-Specific Carbon Footprint" (podcast) 5. The following podcasts from Global Issues in Context: --Fracking Activists Try To Sway New York Governor CuomoMorning Edition, August 29, 2012. --Experts: Some fracking critics use bad science..Business Top Stories from The Associated Press (AP), July 22, 2012. 6. The following article/podcast from Global Issues in Context, "Sweatshops": --Better a low-paid worker than a starving one. The Times (London, England), Feb 3, 2012. --Apple, Foxconn To Improve Factory Conditions. Morning Edition, March 30, 2012. 7. The following article/podcast from Global Issues in Context, "Workers' Rights and Labor Unions": --Enough with this union monopoly of the public sector: Time to contract out. Gwyn Morgan. Globe & Mail (Toronto, Canada), July 20, 2009. --Which Workers Need Unions, And Which Don't?, Talk of the Nation, Sept 3, 2012. **THESE READINGS/RESOURCES ARE FOR BOTH THE ORIGINAL ASSIGNMENT AND WRITTEN ASSIGNMENT IN THIS MODULE Answer the following questions, drawing upon the assigned readings and resources and using specific examples from those readings and resources to illustrate and explain your thoughts. In answering these questions, please follow this format: --write out the question and then provide your response. --when you reference (name) a theory, cite your source using the APA in--text citation style. --you must cite sources and provide bibliographic reference at the end of the assignment. For an example of how to format this correctly, go to the Course Information module, click on Course Readings and Materials and see the correct style for the textbook. The Shaw & Barry (2013) text is your primary resource in this course. Assigned questions: Current news and politics is full of concern about the environment, particularly as it is related to oil use and the auto industry. There are a number of ethical considerations that arise out of these issues. Please be sure to answer ALL of the following questions: Some propose that these concerns could be alleviated if our use of cars was limited by increased gasoline taxes--if gas is more expensive, we will use less of it and, as a beneficial by-product, improve the environment. What do you think of this proposal and what theory would support your position? Are there injustices built into such measures? If so, is there any practical way to avoid them? What about the possibility that the US auto industry, encouraged by its partial owner, the US government, will no longer produce large gas guzzlers (think Hummer) or will subsidize hybrid or green cars? Is it ethical for the government to essentially prevent a US company from producing a legal good or encourage a company to produce one good over another? What ethical theory supports your position? What are the possible ethical considerations of banning or restricting the developing world's access to the same cheaper technologies (fluorocarbons, coal burning plants, etc.) that made the US what it is today? Finally, the world today is full of news about fracking, the process by which a high volume of liquid is pumped into the ground to fracture rock and extract natural gas. What are the ethical considerations of either permitting or prohibiting property owners from using their property in this manner? REMEMBER, YOU MUST USE YOUR SELECTED THEORY TO SUPPORT YOUR POSITION AND SHOULD SPECIFICALLY USE FACTS AND INFORMATION FROM THE READINGS AND RESOURCES TO SUPPORT YOUR POSITION. Make sure that you have adequately dealt with all the subtleties of the particular theory. The answers to these questions can be found in the text but merely quoting from the text or paraphrasing the text will earn minimal credit--the answers should be in your own words and should involve some explanation and discussion of what these concepts mean.
Question 3
Please see the attachment for the instruction. PLEASE DO NOT USE PREVIOUS STUDENT WORK. Thank you!,HI Just a friendly reminder, please have this assignment for me by 7pm EST today. I need to turn in via email by midnight tonight. Thank you for all your help! I will have another pay written assignment for you after this one. Thank you!,Hi, almost done yet? Please advise. Thank you!,Hi there. I just do an edit of your written assignment. You have only 2 pages, can you please add more details to make it a full three pages, pretty please!!! I think I'm already late for this assignment anyway. Can I have it back by 5pm EST 7/29/2011 please. Thank you again.,Also, the book that you used in the reference, please put it in the APA format and anywhere in the documents. Thank you!,Also, the book that you used in the reference, please put it in the APA format and anywhere in the documents. Thank you!,Also, the book that you used in the reference, please put it in the APA format and anywhere in the documents. Thank you!,Also, the book that you used in the reference, please put it in the APA format and anywhere in the documents. Thank you!,Sorry for the repeating. My computer frozen.
Question 4
20-4 Component Technologies, Inc.: Adding FlexConnex Capacity In 2002, Component Technologies, Inc. (CTI)I. manufactured components, such as interconnect components, electronic connectors, fiber-optic connectors, flexible interconnects, coaxial cable, cable assemblies, and interconnect systems, used in computers and other electronic equipment. CTI's global marketing strategy produced significant growth; CTI was now one of three major suppliers in its market segments. Major customers included other global companies, such as illM, HP, Hitachi, and Siemens. These companies, in turn, manufactured and marketed their products worldwide. FlexConnex, one of CTI's largest selling products, was very profitable (see Exhibit 1). The Santa Clara, California plant that manufactured the FlexConnex component was projected to reach its full capacity of 75 million units in 2003. With sufficient capacity to meet demand, CTTexpected its sales of FlexConnex could continue to increase 10 percent per year as applications of computer technology extended into industrial products and consumer products such as automobiles and appliances. PLANNING MEETING At a meeting of his staff, Tom Richards, director of manufacturing planning, stated that they needed to plan to bring additional capacity for FlexConnex online in about two years. He suggested that they begin by proposing possible alternatives.Thestaffquicklyidentifiedthreepromisingalternatives: . 1. The Santa Clara plant had been designed for future expansion. Additional space was available at the site, and new production capacity could be easily integrated into the existing production processes as long as compatible manufacturingtechnologieswereemployed. . 2. CTI owned a plant in Waltham, Massachusetts that manufactured a product line that was being phased out. Some existing equipment in the Waltham plant was compatible with the Santa Clara plant's manufacturing technology and could be converted to the production of FlexConnex. Half of the Waltham plant would be available in 2003, and the remainder in 2005. 3. CTI could build a greenfield plantZin Ireland, close to its ~jor European customers. To attract such industries, the Irish government would make a site available at low cost. A new technology currently being Beta-tested3 by an equipment manufacturer could be used to equip this plant. Torn believed that these three were promising proposals. To ensure cn could bring additional, profitable, FlexConnex capacity online in two years, Tom felt that they should begin developing plans for these alternatives. Nonetheless, he wanted the staff to keep an open mind to additional altematives even as they evaluated these three. As the discussion started to wind down, Gracie Stanton, an engineer, said that she had a suggestion. Gracie: Before we spend our time developing these three alternatives in detail, I'd like to get a rough feel for the potential profitability of each alternative. We should11'twaste our time developing detailed plans for an alternative if there is no chance it will ever show a positive NPV. Source: Issues in Accounting Education, by Julie H. Hertenstein, May 2000, Vol. 15 Issue 2, p. 257-261 I Thiscaseis basedondecisionsfacedby anactualcompany.ComponentTechnologies,Inc.,is a disguisedname. Other facts bave been changed for instructional purposes. 2The term "greenfield plant" is commonly used to refer to a brand new plant built entirely.from scratch, as contrasted with the expansion, conversion, refurbishment, or renovation of an existing plant. 3A "Beta-test site" refers to equipment being tested using an actual workload at a customer site. Beta-test is often the final testing phase before the equipment is released as commercially available to customers.A customer who consents to be a Beta-test site agrees not only to use equipment that is not fully tested (thus being, in the American vernacular, a "guinea pig"), but also to provide the vendor detailed feedback on operations and problems encountered. In return, the equipment manufacturer often provides incentives such as financial discounts, extra on-site vendor personnel, etc. 20-9 Tom: Good point, Gracie. Let's break up into three groups, and do back-of-the-envelope calculations based on what we currently know about each alternative. Gracie, would you.head up the Santa Clara group, since you were part of the engineering team for that plant? Edward Lodge, how about Waltham? Ian Townsley, could you and your folks take a look at Ireland? To start, what are the facts and assumptions about each facility? Gracie: Well, there's enough space at the Santa Clara site to produce an additional 30 million units annually. I expect it would cost about $23 million to expand this plant, and bring its total capacity to 105 million units. Of the $23 million, we would spend $5 million to expand the building, and $18 million for additional equipment compatible with Santa Clara's existing manufacturing process. All $23 million would probably be spent in 2003, and the plant would be ready for production in 2004. I assume that the selling price per unit will remain at its current level; further, since the same manufacturing technology will continue to be used, the variable manufacturing cost will remain the same as we show on the 2002 Santa Clara Cost Analysis Sheet [Exhibit 1]. Expanding the existing plant would allow some fixed manufacturing costs, like the plant manager's salary, to be shared with the existing facility, so I estimate that the additional fixed manufacturing costs, excluding depreciation, will be $2.1 million annually beginning in 2004. In 2006, these fixed costs will rise to $2.4 million and remain at that level for the foreseeable future. Edward: Well, the Waltham plant is smaller than the space available in Santa Clara, so I think its capacity will be about 25 million units. It will require renovations to adapt the plant to manufacture FlexConnex, say, about $2 million, and approximately $12 million for equipment. Half of this would be spent in 2003, and half in 2005. Initial production would begin in 2004; half of the 25-million-unit capacity should be available in 2004; two-thirds in 2005; the remainder in 2006. Since the Waltham plant will use the same technology as Santa Clara, we can assume that the variable manufacturing costs will be the same as Santa Clara's. Selling prices will also be the same. However, since Waltham will be a stand-alone faculty, its fixed manufacturing costs, excluding depreciation, would be somewhat higher: $2.4 million annually beginning in 2004. In 2006, however, fixed costs will increase to $2.6 million annually, where I expectthemto remainfor the foreseeablefuture. . Ian: I just visited the Beta-test site for the manufacturing equipment using the new technology that I'propose we use for the greenfield plant. There I learned that the economic size for a plant using this technology to manufacture a product such as FlexConnex is about 70 million units, so I propose that we prepare our estimates for Ireland based on a 70-million-unit capacity plant. Of course, this will cost more, since it is much larger than other sites. With the help of the Irish government, an appropriate site can be obtained for about $1 million. A building large enough to produce 70 million units can probably be built for about $10 million, and equipping the facility with the new technology equipment wilt' cost about $50 million. Most of this would be spent in 2003, although as much as 10 percent might be spent before the end of 2002 to acquire and prepare the site. The plant would begin production in 2004; some areas of the plant would not be complete, however, and as much as 20-25 percent of the investment would remain to be spent during 2004. Although FlexConnex's worldwide selling price will be the same as for the other facilities, the new equipment will lower the variable manufacturing cost to $0.195 per unit. The efficiency of this new plant will help keep fIxed manufacturing costs down, as well, but since the facility will be so large, fixed manufacturing costs, excluding depreciation, would be higher than the other two facilities: $2.8 million annually beginning in 2004, rising to $2.9 millionannuallybeginningin 2008. . Tom: These assumptions sound like reasonable first cuts to me. Let's just start with a five-year analysis, 2003 through 2007, using the discount rate of 20 percent, which the corporate finance manual states is the hurdle rate for capital investments. For simplicity, let's assume all cash flows occur at the end of the respective year. Discount everything to today's dollars, that is, as of the end of 2002. And, consistent with corporate policy, we'll do a pretax analysis; we'll ask the corporate finance staff to evaluate .the tax implications later. A few minutes later, the buzzing of the small groups died down, and the tapping on the laptop keyboards had ceased. Tom: Well, what have you learned from this first glance? 20-10 Edward: The Waltham site looks promising. Ian: Not Ireland. Gracie: This is odd. The Santa Clara plant is right on the margin, and that surprises me since the existing manufacturing facility is one of CTI's most profitable, and we get further economies of scale by expanding that plant. 1wonder if the discount rate we are using is too high. At the "Finance for Manufacturing Engineers" seminar I attended recently, we discussed the problems associated with using a discount rate that was too high. The professor stated that there was a sound theoretical basis for using a discount rate that approximated the company's cost of capital, but many companies "added on" estimates for risk, corporate charges, and other factors that were less well grounded. Based on what I learned in that seminar, I tried to estimate CTI's actual cost of capital; it was about 10 percent.l wonder what would happen if we used 10 percent instead? Tom: With these laptops and spreadsheet programs, that's easy enough; let's check it out. A few seconds later, . . . Gracie: Now, that's better! Edward: Ours too. Ian: Well, at least we're moving in the right direction. But it doesn't make sense to me that a facility with lower variable cost per unit, and lower average fixed cost per unit at capacity, shows a negative NPV when the others are positive. We checked our calculations; what's the story? Could it be that Ireland would not even be up to capacity production in five years because the plant is so big? Gracie: Maybe, but our plants are being penalized, too; after all, even though they reach capacity in the first five years, they will presumably continue to produce FlexCoDl1ex.Although there is constant technological change in this industry, there is a reasonable probability that demand for FlexCoDl1exwill remain strong for at least 10 years. Ian: Well, then, let's look at each of the three plants over a ten-year period, using Gracie's 10 percent discount rate. Later.. . . . Edward: Aha! Waltham continues to improve. Gracie: However, Santa Clara has you beat now! Ian: I've got bad news for both of you! QUESTIONS: 1. Prepare the manufacturing staffs calculations for the three alternatives: a. In the fIrst set of calculations, the staff used a discount rate of 20 percent, a fIve-year time horizon, and ignored taxes and terminal value. What is the relative attractiveness of these three alternatives? b. In the second set, they used a 10 percent discount rate. What happens to the NPV of each alternative? What happens to their relative attractiveness? Why? . c. In the third set, they changed the time horizon to ten years, but kept the 10 percent discount rate. Why does Ian say he has "bad news" for the others? 2. In addition to reducing costs, the new technology proposed for the greenfield plant would increase rnanufacturing flexibility, which would enable eTI to respond more quickly to customers and to provide them more custom features. Should these factors be considered in the analysis? If so, how would you incorporate them? 3. Should other factors be taken into consideration in choosing the location of the FlexCoDl1explant? If so, what are they? 4. Should Torn Richards continue to develop more detailed plans for these.three alternatives? Hnot, which should be eliminate a? AIe there other alternatives that his staff should consider? If so, what are they? 20-11 EXHIBIT 1 FlexConnex Cost Analysis Sheet Santa Clara Plant, 2002 Plant Capacity: 75 million units Selling PricelUnit: $0.85 Variable CostlUnit: $0.255 Fixed Manufacturing Cost: $9.5 million annually (included $2.5 million depreciation) Estimated Plant Profitability at Capacity: Revenue $63,750,000 Variable Cost Fixed Manufacturing Cost* Plant Profitability $35,125,000 *Excludes interest expenses and corporate selling, general and administrative expenses
Question 5
Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Please showing your work in a MS-Excel spreadsheet 4. Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its FA/Sales ratio was 40%. However, its fixed assets were used at only 75% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process, the company wants to set its target Fixed Assets/Sales ratio at the level it would have had had it been operating at full capacity. What target FA/Sales ratio should the company set? a. 28.5% b. 30.0% correct answer c. 31.5% d. 33.1% e. 34.7% 5. Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 50%, which the firm's investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions. Last year?s sales = S0 $300.0 Last year?s accounts payable $50.0 Sales growth rate = g 40% Last year?s notes payable $15.0 Last year?s total assets = A0* $500.0 Last year?s accruals $20.0 Last year?s profit margin = PM 20.0% Initial payout ratio 10.0% a. $31.9 b. $33.6 correct answer. c. $35.3 d. $37.0 e. $38.9
