Prior to the purchase, Little was involved in a patent infringement with Ideas, Inc. MegaCorp, Inc. agreed to pay $5 million in damages, and deduct it as necessary business expense. However, the IRS states that MegaCorp, Inc. must characterize the payment as capital expenditure. That is why MegaCorp, Inc. has come for help to determine if they are entitled to the deduction. ISSUE Can companies deduct payments as business expense if they incurred the liability through the purchase of another company? CONCLUSION MegaCorp, Inc. must capitalize the $5 million payment for the infringement liability as capital expenditure.
(2,500+4,000+6,500=$13,000) 8-40) A) Charlie is allowed the tax deduction of the charitable contribution at the basis price of $600 because it is defined as ordinary income property. B) Durwood is only allowed to deduct the fair market value of $7,000 because his chartable contribution has decreased from the basis value of $8,000. By tax law he can only deduct the $7,000
The difference resulted from $60,000 of nondeductible premiums on Ajax's officers' life insurance and $40,000 of rental income received in advance. Rental income is taxable when received. Ajax's effective tax rate is 30%. In its Year 2 income statement, what amount should Ajax report as income tax expense-current portion? 5.
• A financial asset is considered to have value if it has the ability to generate positive cash flows. • A financial asset is considered to have value if it is acquired at its market value • A financial asset is considered to have value if it is acquired a its book price. When determing the value of a firm, which of the following statements is true? • The timing of cash flows a firm can generate is very important in determing the value of a firm. All else being equal, cash received sooner is better.
Sooner or Later’s valuation professionals have indicated that if the revenue target was factored into the fair value assessment, the grant-date fair value would be $6. Additionally, according to FASB ASC 718-10-55-64: Performance or service conditions that only affect vesting are excluded from the estimate of grant-date fair value, but all other performance or service conditions that affect an award’s fair value are included in the estimate of grant-date
it represents the purchase price of a business that is about to be sold. D. it is the difference between the fair market value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business. 42) Easton Company and Lofton Company were combined in a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton.
The Reform Act limits third party rights to sue to only five times. This helps the auditor avoid multiple or endless lawsuits. 5. The Reform Act changed how the court appoints lead plaintiffs, this was done in favor of institutional investors whom likely have the greatest financial risk. This helps the auditor by preventing those with minimal financial risk rushing to the courts to press a suit and having the advantage over the larger entity.
Page 484 has formulas!! 6. When the firms maintains a target leverage ratio, we compute its levered value V^L as the present value of its free cash flows using the WACC, whereas its unlevered value V^U is the present value of its free cash flows using its unlevered cost of capital or pretax WACC. 15.3 Recapitalizing to Capture the Tax Shield 1. when securities are fairly priced, the original shareholders of a firm capture the full benefit of the interest tax shield from an increase in leverage 15.4 Personal
However, to qualify for this section, the properties exchanged must be like-kind and used for a trade or business or for investment. (4)So, in this case, the property exchanged is a house and not one used in any trade, business or for investment purposes. Hence, it does not qualify for Sec 1031 tax exchange. 2(c) As Sec 61 of IRS, any activity which is carried with the intention of earning any income will be classified by the IRS as a business and taxed accordingly. (5) So the distinction between hobby and business is important to determine the taxability of the profits earned from such activity.
If no service contract exists, those fees are recognized over the average customer relationship period. Associated expenses are deferred only to the extent of such deferred revenue. For contracts that involve the bundling of services, revenue is allocated to the services based on their relative fair value. AT&T Inc. records the sale of equipment to customers as gross revenue when AT&T Inc. is the primary obligor in the arrangement, when title is passed and when the products are accepted by customers. For agreements involving the resale of third-party services in which AT&T Inc. is not considered the primary obligor of the arrangement, AT&T Inc. records the revenue net of the associated costs incurred.