Also, with even higher liabilities, it may be difficult to meet the debt service agreements if the company doesn’t have enough cash flow from operations. 1(c) What potential income tax ramifications exist for Mr. Johnson personally if he purchases the stock of Smithon and converts it to an S corporation? If the Mr.Jones decides to convert Smithon to a subchapter S Corporation, it will enable the corporation itself to avoid paying taxes, but the profit and losses will be passed to shareholders as personal income and losses. Now we should consider the expected losses from the huge investment in equipment purchase. Net operating losses cannot be used to shelter personal income but can be carried forward by a C corporation to provide tax benefit in future when the business expects profit.
Why? 4. Which of the following trade or business expenditures of Ajax Inc. are deductible on its current year tax return? If an expenditure is not deductible, explain why it is not a valid deduction. Expenditure Amount Salaries and wages to employees $400,000 Purchase of new office
Because companies do not get tax benefits from paying excess earnings out as dividends when no debt is issued, a tax savings is associated with paying interest payments before taxes. The tax benefits for one year of the 30%, 50%, and 70% debt structures are $25.3M, $42.1M, and $59.0M respectively. The present values of these tax shields are $180.5M, $300.8M, and $421.2M (assuming that the risk of debt is constant at 14%). The value of the company is the sum of the value of the firm’s equity and the value of the firm’s debt. Specifically, the value in this case was calculated using the following formula: Value of firm = Value of the unlevered firm + PV(ITS) We used the market value of the firm with very little debt (as is the case in 1981) as our unlevered firm value.
A tax advantage of business combination can occur when the existing owner of a company sells out and receives: a. cash to defer the taxable gain as a “tax-free reorganization” b. stock to defer the taxable gain as a “tax-free reorganization” c. cash to create a taxable gain d. stock to create a taxable gain 2. Publics Company acquired the net assets of Citizen Company during 20X9. The purchase price was $800,000. On the date of the transaction, Citizen had no long-term investments in marketable equity securities and $400,000 in liabilities. The fair value of Citizen assets on the acquisition date was as follows: |Current assets |$ 800,000 | |Noncurrent assets | 600,000 | | |$1,400,000 | How should Publics account for the $200,000 difference between the fair value of the net assets acquired, $1,000,000, and the cost, $800,000?
iii) For the onetime costs we do not have enough data to calculate the company wise expenses so, we discount it at a rate that seems reasonable. In this case which we have assumed to be the mean of the WACCs of the two entities. 3. Will synergy cash-flows allow the banks to increase their debt? Ans: Since, cost synergies will not change the book values of equities for the merged entity, but they will be transferred to the retained earnings which will increase the overall equity.
Jane Smith tax issues: e. What are the different tax consequences between paying down the mortgage (debt) and assuming a new mortgage (debt) for federal income tax purposes? f. Can John and Jane Smith utilize a 1031 tax exchange to buy a more expensive house using additional money from John's case? g. Does Jane have a business or hobby? Why is this distinction important? h. Would Jane (and John) realize better tax benefits if she had a separate business for her jewelry-making activities?
olEvaluate the case for cutting public expenditure rather than raising taxes as a means of reducing fiscal deficits. (30) A fiscal deficit is when the government spends more than it receives in tax revenue. There are many benefits of cutting expenditure rather than increasing taxes. Firstly this will avoid any tax evasion and avoidance. This is because when taxes are increased a smaller amount of income is retained giving people the incentive to declare lower incomes to the HMRC so that they fall into a lower tax bracket.
If there is less number of accidents than estimated, the company would save even more and not incur all the expense that the law firm estimated. With the greatest good for the greatest number thought, $12 million cost is definitely less than $18 million cost for the fix. This way the company saves $6 million in cost. And the lesser represented percentage in this case will be those who might loss property and life, if at all in an accident. Rights ethics: Rights ethics are carried on by strongly implying individual rights.
This would increase the costs of goods sold and lower the net income for the company for that accounting period. The company would have to pay less tax on the lower net income. If the FMCG decided to use the FIFO method, the costs of goods sold would be lower and the net income would be higher. Thus, the company would have to pay more tax at the end of the accounting period. Low income tax payments are why one-third of U.S. companies use LIFO (Harrison, Horgren, & Thomas, 2010).
In United States, free trade advocates typically argue that consumers benefit from freer trade because foreign competition forces U.S. companies to keep prices low and provides a greater selection of goods and services. Foreign trade also forces U.S. companies to modernize plants, production techniques and technology, which keeps them competitive. Another argument for free trade is that the cost of protectionism outweighs the benefits. Finally an open trading system may create a better climate for investment and entrepreneurship than one in which the fear of governments cutting off access to markets is present. However, the competition that free trade brings to domestic industries may at the same time result in unemployment and slower growth.