Free Essay

Tax Ch. 3

In: Business and Management

Submitted By abe312
Words 2218
Pages 9
Chapter 3 Outline

300 Introduction – pg. 87
Tax accounting – the official reporting of income and expenses so a taxpayer’s taxable income for a particular period can be determined
- The rules for determining when a business must recognize income and when it may deduct expense are referred to as the taxpayers method of accounting
301 Tax Accounting Distinguished from Financial Accounting
- two sets of books because two different governing bodies
Financial accounting – intended to provide useful information about a business so that management, owners, potential investors, creditors and other interested parties can make well informed investment, credit and other decisions
- must prepare according to GAAP
- accrual method – events reported in the accounting period in which they are earned or incurred rather than when its paid or received
Tax accounting records – focuses on items of income and expense that are important for determining taxable income
For external (financial) reporting – GAAP allows a business to choose among various acceptable accounting methods
- management interested in making business look successful and thriving
Tax accounting – goal is to pay least amount of taxes as legally possible
Accounting Periods – pg. 89
- tax year – period of time taxpayers use to calculate taxable income o may or may not be the same as the annual accounting period used for financial reporting purposes o no constitutional requirement that income be calculated on an annual basis
305 Permissible Methods of Accounting – pg. 97
- a business can usually adopt any method of accounting if it clearly reflects its income and the business regularly uses the method in keeping its books o Two most common methods
 Cash receipts and disbursements – actively or constructively receives it and deduct when actually paid
 Accrual – Required by GAAP – an item of income must be included in gross income when:
• All events have occurred that fix the right to receive the item and its amount can be determined with reasonable accuracy
• An event can be deducted when: o All events have occurred that determine the liability o The amount of the liability can be determined with reasonable accuracy o Economic performance has occurred with respect to the liability
 Hybrid method – combines elements of cash and accrual accounting methods – see pg. 97 o A taxpayer that engages in more than one trade or business may use a different method of accounting for each trade or business o Can use one method of accounting for the taxpayers business and a different method of accounting to compute income and deductions not connected with the business
305.01 Limitations on the Use of the Cash Method
- Cash method is not in accordance with GAAP because can produce mismatch of income and deductions
- Businesses required to maintain inventory – pg. 98 – must use accrual method to account for purchases and sales of inventory o Can use the cash method for its other items of income and expense o IRS exempts certain qualifying small businesses from the requirement to use the accrual method for inventories
 Applies to businesses whose average annual gross receipts over the previous three years do not exceed 10 million
 3 conditions for a qualifying small business to use the cash method for all of its trade or business (see pg 98)
- C corps and partnerships with a C corporation partner – most cannot use the cash method if their annual average gross receipts exceed 5 million o Qualified personal service corporations exempt from rule restricting the use of the cash method
 Pg. 100 – QPSC definition – a C corporation in which 95% of more of its employees’ time is devoted to the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performance arts or consulting
 AND 95% or more of the value of its stock must be directly or indirectly held by:
• 1. Employees performing services in a qualifying field
• 2. retired employees who performed such services for the corporation or estate
• 3. Acquired stock o Special Methods of Accounting – pg. 100 (more notes on this further down)
 Installment sales
 Long-term contracts
 Research and experimental expenditures
 Crops and soil and water conservation expenditures o Special rules for corporations/partnerships in farming – pg. 99
 Partnerships engaged in farming that have a C corp as a partner must use the accrual method
 Any C corp engaged in farming with gross receipts greater than 1 million for any tax year
 “Family corporation” – 50% or more of total voting power and 50% or more of other classes of stock are family owned
307 Accrual Method of Accounting – pg. 105
.01 Accounting for Income
- All – events test - Taxpayers include income on their tax returns for the tax year during which all events have occurred to fix their right to receive the income and its reasonably accurate to determine o Not the actual or constructive receipt of income but the right to receive income – this rule governs the timing of when income must be included in gross income o The all events test is satisfied when all events have occurred to establish the existence of the liability and the amount of the liability can be determined with reasonable accuracy o Taxpayers have a fixed right to receive income when any one of the following events occurs:
 Required performance is completed
 Payment of the income becomes due
 Or payment is received
- Advance receipt of payments for services – pg. 106 o Generally included in gross income for accrual method for the year received o But, may defer all or a portion of an advance payment for services if they include advance payments for services in whole or in part in their revenues for a subsequent tax year for financial statement purposes o See page 106 for examples about the deferral method of advance payments
- Advance receipt of payments for sales of goods – pg. 107 o An accrual method taxpayer can wait to recognize income from advance payments from the sale of goods if it accounts for the sale using the same method for financial and tax accounting purposes
 Under this alternative method, an advance payment is included in a taxpayer’s gross receipt on the earlier of :
• The tax year in which the payments are included in gross income under the accrual method or
• The tax year in which the taxpayer includes any portion of the advance payments in income for financial reporting purposes
- Contested Amounts – pg. 107 – recognize when received
.02 Accounting for Expenses -pg. 102 o Economic performance
 Interest – occurs as the interest economically accrues daily, not as the payments are made
 Taxpayers liability arises from another party providing property or services – occurs as the property or services are provided
 Taxpayer’s liability arises out of the use of property by the taxpayer – economic performance occurs ratably over the period of time the taxpayer is entitled to use the property o Recurring Item Exception – pg 108 – a business can treat a liability as incurred for a tax year if the all-events test is met and the following requirements are satisfied:
 Economic performance
 The liability is recurring in nature and similar liabilities are treated the same
• A liability is recurring if it can generally be expected to be incurred from one tax year to the next
 Either the amount of the liability is not material or accruing the liability for that tax year would result in a better matching of the liability with the income to which it relates o Certain liabilities CANNOT quality for the recurring item exception –pg. 109 o Prepaid Expenses – must be capitalized and amortized over the period covered by the payment unless the 12 month rule applies
 If 12 month rule applies – a business deducts the amount of prepaid expenses in the year paid
• 12 month rule applies if: the amount paid creates any right or benefit for the taxpayer that does not extend beyond the EARLIER of: o 12 months after the first date on which the taxpayer realizes the right or benefit or o The end of the tax year following the tax year in which the payment is made
 Expenses owed to a related party – need to ensure that the amount reported in income and the deduction taken by related parties are accounted for at the same time – SO – the tax laws require that the accrual method taxpayer postpone the timing of the deduction until the cash method recipient includes the amount in income
• See page 110, figure 3-1 regarding related party relationships
 Contested liabilities – can take a deduction for a contested liability when it is paid – pg. 111
309 Special Accounting Methods
.01 Installment Method – taxpayer recognized gain as the payments are received rather than at the time the sale occurs
- Based on the premise that the taxpayers’ ability to pay taxes on income and gain is greatest at the time the cash becomes available
- More closely resembles the cash method of accounting because income is recognized as cash is received
- This method must be used to recognize income from installment sales regardless of what the taxpayer’s overall accounting method is o Taxpayer can elect not to use installment method – in this case the entire gain is recognized in the year of the sale (like accrual)
.02 Long-term Contracts – can use completed contract or % complete method (PCM)
- Pg 113 A long term contract has 3 requirements: o Contract for the manufacture, building, installation or construction of property o Will not be completed in the contracting year o If it’s for the manufacture of property, must involve personal property that is a unique item not normally carried in the taxpayer’s inventory or would usually take more than 12 months to complete
- Percentage of completion – taxpayers include in their gross income each year a portion of the total contract price that corresponds to the portion of the total estimated contract costs actually incurred during the year o Amount determined by multiplying the total contract price by the percentage of the total estimated contract costs that the taxpayer incurs during the year o Can elect to wait until they have incurred at least 10% of the estimated total contract costs before they include anything in gross income o After the contract is complete – the taxpayer must go back and reapply the PCM using its actual contract price and costs
- Completed contract method – no income or expenses related to the contract are recognized until the contract is completed o Types of contracts not required to use PCM include:
 exempt construction contracts – home construction or other to be completed within 2 years – (see pg. 115 for other info)
 residential construction contracts – home construction contract and the building(s) constructed contain more than 4 dwelling units
.03 Research and Experimental Expenditures – pg. 115
- Option to: o Capitalize o Capitalize and amortize over 60 months o Deduct entirely in current year
.04 Crop method of accounting – pg. 116 – the cost of producing the crop cannot be deducted until the year that the farmer realizes the gross income from the crop
.05 Soil and Water – pg. 116 – treat expenses as capital expenditures
312 Claim of Right Doctrine – a rule that requires taxpayers that receive money or other property under a claim of right without restriction to include the amount received in gross income for the year of receipt, regardless of the taxpayer’s method of accounting
- “claim of right” – treats the property as its own
- The amount of money of FMV of the property received must be included in gross income even though the business may not be entitled to keep the money or property and will be required to refund the money or property in a subsequent year – pg. 117 o 4 requirements for the claim of right doctrine to apply
 The business must receive the cash or other property
 Cash or property must constitute income for the business under the method of accounting
 Must have unrestricted control over the use and disposition of the cash or property received
 The business must possess the cash or other property under a claim of right
- Mitigation Rule - Pg. 118 – taxpayers entitled to reduce their tax liability for the year of repayment by the amount of tax attributable to the inclusion of the item in gross income - this rule applies only to deductions that exceed $3,000
313 Tax Benefit Rule – pg. 118
- Tax benefit rule - A tax rule under which an amount recovered must be included in gross income for the year of the recovery if all or a portion of the expense deducted in a prior tax year is recovered in a subsequent tax year and if the deduction resulted in a tax benefit for the taxpayer o The taxpayer must have deducted an amount in a prior year that resulted in a tax benefit to the taxpayer – thus:
 None of the amount recovered is included in a taxpayer’s gross income to the extent the amount did not reduce the taxpayer’s income tax liability in the prior tax year

314 Summary
- Financial accounting – provide useful information for management etc.
- To determine taxable income, need to know their tax year and method of accounting o C Corps have flexibility of using calendar or fiscal year o Personal service corps and flow through entities (S corps or partnerships) generally must have the same tax year as owners to prevent undue deferral of tax o Small businesses generally use the cash method of accounting

Similar Documents

Free Essay

Tax Laws India

...Lovely Professional University, Punjab Course Code COM354 Course Category Course Title TAX LAWS-II Courses with Numerical focus Course Planner 17055::Shikha Bhasin Lectures 4.0 Tutorials Practicals Credits 1.0 0.0 5.0 TextBooks Sr No T-1 Title Indirect Taxes Laws & Practice, Reference Books Sr No R-1 R-2 Other Reading Sr No OR-1 OR-2 OR-3 OR-4 OR-5 OR-6 OR-7 OR-8 Journals articles as Compulsary reading (specific articles, complete reference) Mohan Rajat "Service Tax Planning- Limits of Management Consultancy Services" [ consultancy-services-4073.asp] , Thakur Pradeep & Dhawan Himanshi, "ED asks for CWG broadcast contract details" Times of India, Nov 11, 2010 [ for-CWG-broadcast-contract-details/articleshow/6904772.cms] , Bhalla Monish "Unprofessional Service Tax rules for certain professionals" on 04 November 2010 [] , CA. Mohan Rajat "GST recent developments" [] , Singh Kumar Dheeraj "Historical Background of VAT" [] , By Mahony,Megan , Journal of State Taxation. Nov/Dec 2012 Vol 31 Issue , P 15-18 4P- An recent activity related to sales Tax , By Piquado ,Paul , Federal register 10/22/2012, Vol 77 Issue 204 P......

Words: 3216 - Pages: 13

Premium Essay

Econ 310

...206 and Econ 207 COURSE DESCRIPTION: Public Finance deals with the taxing and spending activities of government. It is alternatively called Public Sector Economics or Public Economics. The focus of the course is on the microeconomic functions of government, and in particular the way that government affects the allocation of resources and the distribution of income. The analysis of the spending activities of government will include a discussion of public goods, externalities, education, welfare programs, Social Security and health care. On the tax side, we will build a framework for tax analysis, and then apply this framework to the personal income tax, the corporation income tax, and other U.S. taxes. COURSE OBJECTIVES: 1. To understand the economic rationale for government involvement in a market economy. 2. To learn about the major sources and uses of revenue in the United States fiscal system. 3. To develop your ability to analyze the equity and efficiency effects of government spending and taxation programs. 4. To learn how economic principles can be applied in an analysis of political decision-making. 5. To understand the...

Words: 795 - Pages: 4

Premium Essay

; Flmvg

...[pic] Accounting and MIS 626: Tax Accounting I Course Syllabus - Autumn 2010 Tues/Thurs 7:30 -9:18 am – Schoenbaum Hall 205 Instructor: Stephanie L. Brewer, CPA, CVA Office: 434 Fisher Hall Phone: 614-292-3903 (office) E-mail: (preferred method of contact) Office Hours: Tues. 1:45-3:15 pm; Weds. 3:45 – 5:15 pm / Mondays & Thursdays by appointment Course Materials: Required - Smith, Raabe, Maloney, 2011 ed. South-Western Federal Taxation: Taxation of Business Entities, ISBN 0-538-78621-3 Recommended - Smith, Raabe, Maloney, Study Guide, South-Western Federal Taxation 2011: Taxation of Business Entities, ISBN 0-538-47063-1 Course Description: This course covers the fundamentals of federal income tax and how it influences taxpayer decisions. Emphasis is on individuals and businesses organized as proprietorships, but the rules generally applicable to all taxpayers are covered. Prerequisite: AMIS 521 or equivalent. Course Objectives: This course is designed to acquaint the student with the workings and concepts of the federal tax law, especially as it pertains to individuals and business entities and to introduce the student to the workings of the U.S. tax system. Emphasis will be on learning the concepts underlying the tax law, using the current tax formula and its elements, applying tax law to decision models and incorporating tax planning principles into decision-making opportunities. Students are assumed......

Words: 1412 - Pages: 6

Premium Essay


...Introduction • • Presentation Group discussion 2. Profits tax • Group exercise 3. Negotiation • • Role play Group exercise 4. Tax for individuals • • Case study Group discussion 5. Reboot • • Presentation Group discussion 6. Tax cases / Anti-avoidance • Group discussion Ch.3, 4, 8, 9 & 11 7. Cross border tax issues • Group discussion Ch.3, 4, 12 & 13 8. Tax planning • • Case study Group reflection Ch.3, 4, 5, 9, 11 & 12 9. Conclusion • • Presentation Group discussion Ch.3 & 11 Ch.2, 5 & 11 Workshop 2 You are expected to have studied the relevant chapters of the Learning Pack thoroughly prior to attending the workshops in order to actively participate in the case studies and group discussions throughout the workshops. The main topics covered in the workshops are listed below. Workshop 1  Profits tax computation, addition and disposal of property plant and equipment, depreciation allowance – plant and machinery, commercial building allowance, interest income and expenses, gain from sale of product design and trademark, investment income, share award costs, and other deductible expenses  Trade versus investment, source of profit/income  Salaries tax computation, share grants, accommodation, living allowance, home leave, contribution to MPF, charitable donation, personal allowances, individual tax return  Additional assessment and penal......

Words: 309 - Pages: 2

Free Essay

Study of Herman Melville

...Projects Due | R, 1/10 | Intro and Ch. 1 | 2,3,4,16,17,19,21,22 | T, 1/15 | Ch. 3 | 8,9,10,11,13,14,16,19,20,21,22,23,24,25,26,27,29,39,40, 41,44,46,47,48,49,50,52 | R, 1/17 | Ch. 3 | See previous assignment | T, 1/22 | Ch. 4 | 2,5,6,7,8,12,14,15,16,17,19,20,21,22,23,24,25, | R, 1/24 | Ch. 4 | 30,31,32,34,35,36,37,38,39,40,41,42,44,45,51 | T, 1/29 | Ch. 5 | 4,5,10,11,17,27,28,29,40,41,47 | R, 1/31 | Ch. 5 | See previous assignment | T, 2/5 | Exam #1 | R, 2/7 | Ch. 6 | 1,8,9,10,13,17,18,21,23,24,29,33,34,36,43,44,45 | T, 2/12 | Ch. 7 | 3,5,7,8,10,17,20,40,41,42,49,53,57,58,61 | R, 2/14 | Ch. 7 | See previous assignment | T, 2/19 | Ch. 8 | 1,5,7,8,24,25,26,28,29,33,35 | R, 2/21 | Ch. 8 | See previous assignment | T, 2/26 | Ch. 11 | 1,4,6,7,13,16,25,26,27,28,31,35,37 TAX RESEARCH CASE DUE TODAY | R, 2/28 | Ch. 11 | See previous assignment | T, 3/5 | Exam #2 | R, 3/7 | Ch. 9 | 1,2,6,7,9,10,19,20,23,27,28,29,32,41 | T, 3/12 | Ch. 9 | See previous assignment | R, 3/14 | Ch. 10 | 7,8,9,15,16,18,19,20,22 | T, 3/19 | Ch. 12 | 1,2,6,18,19,20,21,22 | W, 3/20 | Last day to drop a course with a grade of “W” | R, 3/21 | Ch. 13 | 3,5,9,14,15,18,19, 26, 37, 39, 43, 44 | T, 3/26 | Spring Holiday | R, 3/28 | Spring Holiday | T, 4/2 | Ch. 13 | Catch-up and review day | R, 4/4 | Exam #3 | T, 4/9 | Ch. 14 | 1,2,3,4,6,7,8,9,10,19,21,23,24,26,27,28,33,34 | R, 4/11 | Ch. 15 |......

Words: 510 - Pages: 3

Premium Essay

Course Schedule

...Chapter 1 The Tax Return Homework Assignment 6:00 pm Room B111 Ch 1 online quiz Group 2 - Problems 3,11,13,15,16,18,19,21,22,24 Group 4 - CP 2A p. 1-39 Ch. 2 On-line quiz Group 2 - Problems 1,3,4,6,8,11,13,17,19,20,21,23 Group 4 - CP 2A p. 2-42 Ch. 3 On-line quiz Group 2 - Problems 3,4,5,8,10,14,16,21,22,23 Group 4 - CP 2A p. 3-46 Ch. 4 On-line Quiz Group 2 - Problems 1,2,5,9,10,13,15,19 Group 4 - CP 1 p. 4-42 (Prep Exam I) Ch. 5 On-line Quiz Group 2 - Prob. 1,2,6,10,12,15,24,27,28 Group 4 - CP 1 p. 5-44 (Prep Exam II) Wednesday, 6:00-7:00pm, Room B111 Ch. 6 On-line Quiz Group 2 - Problems 1,2,6,11,19,23,27,28 Group 4 - CP 1 p. 6-44 Ch. 7 On-line Quiz Group 2 - Problems 2,4,7,9,11 Group 4 - CP 1 - p. 7-36 Due Date** (NOON) M – 10/1 M – 10/1 M – 10/1 M – 10/8 M – 10/8 M – 10/8 M – 10/15 M – 10/15 M – 10/15 M – 10/22 M – 10/22 M – 10/22 M – 10/29 M – 10/29 M – 10/29 On campus M – 11/5 M – 11/5 M – 11/5 T – 11/13 T – 11/13 T – 11/13 Oct 1 M Ch 2 Gross Income Oct 8 M Ch 3 Bus Exp & Retire Plans Oct 15 M Ch 4 Self Empl & Empl Exp Oct 22 M Ch 5 Itemized Deductions 24 Oct 29 W M Chapters 1-4 Objective Exam Ch 6 Credits & Special Taxes Nov 5 M Ch 7 Acct Periods & Deprec Nov 12 13 M T Holiday – No Classes Ch 8 Capital Gains & Losses Ch. 8 On-line Quiz Group 2 - Problems 1,2,4,5,8,9,11,15,16 Group 4 - CP 1 p. 8-53 Ch. 9 On-line Quiz Group 2 - Problems 2,7,9,10,14,15 Group 4 - CP 1 p. 9-42 Ch. 10 Group I......

Words: 538 - Pages: 3

Free Essay


...financing automobiles and homes, and the use of insurance for protecting one’s family and property. WEEK 1 - TOPIC 1: PERSONAL FINANCIAL PLANNING Objectives List the five steps in the personal financial planning process. Summarize what influences personal financial planning. Identify parts of a financial plan. Materials READING: Read Ch. 1 of Personal finance - Personal Financial Planning in Action: Developing a Personal Financial Plan. SUPPLEMENT: Appendix A: How to Install Quick Time Movie Player SUPPLEMENT: Appendix B: Personal Financial Planning Worksheet WEB LINK: Decision to Own a Home vs. Rent Video SUPPLEMENT: Video Transcript - Decision to Own a Home vs. Rent Assessment Please see instructor's syllabus for details on assignments. Participation/Discussion Questions WEEK 2 - TOPIC 1: MONEY MANAGEMENT Objectives Describe how to organize and prepare personal financial statements. Identify cash management products and services. Complete a personal cash flow statement. Materials READING: Read Ch. 2 of Personal finance - Money Management Strategy and Skills: Putting Your Financial House in Order. READING: Read Ch. 4 of Personal finance - Managing Your Cash and Savings: Cash Management Strategies. WEB LINK: Toolwire® Student Resources Page TOOLWIRE: Toolwire® Learnscape: Understanding Effective Money Management SUPPLEMENT: Mary's Balance Sheet WEB LINK: Home...

Words: 1051 - Pages: 5

Premium Essay

Supply and Demand

...Another relevant concept is that there are opportunity costs associated with any decision. Elasticity also affects revenues as managers change prices and quantities. Increasing Revenue OBJECTIVE: Choose methods to increase revenue in an organization. Resource: Ch. 1, 2, & 6 of Economics Content • Ch. 1: Limits, Alternatives, and Choices o The Economic Perspective o Theories, Principles, and Models o Microeconomics and Macroeconomics o Individuals’ Economizing Problem o Society’s Economizing Problem o Production Possibilities Model o Unemployment, Growth, and the Future • Ch. 2: The Market System and the Circular Flow o Economic Systems o Characteristics of the Market System o Five Fundamental Questions o The “Invisible Hand” o The Demise of the Command System o The Circular Flow Model • Ch. 6: Elasticity, Consumer Surplus, and Producer Surplus o Price Elasticity of Demand o Price Elasticity of Supply o Cross Elasticity and Income Elasticity of Demand o Consumer and Producer Surplus OBJECTIVE: Explain the market equilibrating process. Resource: Ch. 3 of Economics Content • Ch. 3: Demand, Supply, and Market Equilibrium o Markets o Demand o...

Words: 376 - Pages: 2

Premium Essay

Actg 421 Exam 1 Study Guide

...included on the quiz and exam Chapter 1 * Definition of a Tax * Standards for evaluating a tax (Adam Smith) * Tax Rate Structures – define, identify, and calculate (marginal, average, effective, proportional, progressive, regressive) * Major types of US taxes – general level * You do not need to know how to calculate SS/employment tax (but do need to know how to calculate how much SS income is taxable – CH 3) * Sources of Federal Income Tax Law – general level * Income tax terminology * General income tax filing requirements and IRS procedure – know at a general level * Individual Income Tax Calculation – know the formula (p. 1-26) and how to calculate tax using the tax rate schedule (p. 1-22) – IMPORTANT!! * For vs. From Deductions – general level * Know how to use standard deduction vs. itemized deductions * Know how to use personal and dependency exemptions * Tax Planning – understand basics * You do not need to be able to do present value calculations (p. 1-30) but should understand this concept * Understand tax evasion vs. avoidance and basic ethical considerations in tax practice Chapter 2 * Understand generally how concepts, constructs and doctrines fit together * Understand, identify, and apply all of the concepts, constructs and doctrines * Tax Benefit Rule – understand when and how much income to include when a state tax refund is received (hint – always consider whether they......

Words: 580 - Pages: 3

Free Essay

Governmental Accounting

...CHAPTER 3: GOVERNMENTAL OPERATING STATEMENT ACCOUNTS; BUDGETARY ACCOUNTING OUTLINE |Number |Topic |Type/Task |Status | | | | |(re: 15/e) | |Questions: | | | | |3-1 |Distinguishing characteristics of fund-based and government-wide |Identify and describe |New | | |financial statements | | | |3-2 |Distinguishing direct and indirect expenses |Define and describe |New | |3-3 |Statement of activities format |Describe |3-2 revised | |3-4 |Program and general revenue |Distinguish |Same | |3-5 |Extraordinary compared with special items |Define and compare |3-5 expanded | |3-6 ......

Words: 5171 - Pages: 21

Free Essay

Foundations of Personal

...|[pic] |Course Syllabus | | |Axia College/College of Humanities | | |FP/101 Version 4 | | |Foundations of Personal Finance | Copyright © 2011, 2010, 2009 by University of Phoenix. All rights reserved. Course Description This course provides an overview of the elements necessary for effective personal financial planning and the opportunity to apply the techniques and strategies essential to this understanding. Primary areas of study include creating and managing a personal budget, understanding and paying taxes, working with financial institutions, wise use of credit cards and consumer loans, financing automobiles and homes, and the use of insurance for protecting one’s family and property. Policies Faculty and students/learners will be held responsible for understanding and adhering to all policies contained within the following two documents: • University policies: You must be logged into the student website to view this document. • Instructor policies: This document is posted in the...

Words: 2008 - Pages: 9

Premium Essay

M&M Pizza

...Contrary to what your momma may have taught you, according to the so-called finance experts too little debt may be just as costly as too much debt, because debt financing is usually the cheapest source. This is why it is often said that debt is a two-edged sword: too much is bad but so is too little. 2. Why is CS important? It directly impacts the cost of capital and therefore directly affects the value and profitability of the company. For example, at one time Hershey Foods determined that its cost of capital was 13%, significantly more than the cost of capital of its competitors, which put Hershey at a significant competitive disadvantage. It might have even put Hershey out of business if steps were not taken to address this issue. 3. Can a company choose its CS? If so, how? Yes, within reasonable limits. If it wants more equity, the company can issue stock and pay off debt. If it wants more debt, it can borrow and with the proceeds buy back stock. The last step was what Hershey Foods did to raise its debt/equity ratio and thereby reduce its cost of capital from 13% to 11%. Because of aggressive cost of capital management, Hershey was able to reduce its WACC from being one of the highest in its industry to being one of the lowest (see graph below). 4. Who were M&M?. Merton Miller and Franco Modigliani (both deceased) were finance/econ professors at U. of Chicago and MIT, respectively. They won a Nobel Prize in Economics for their work on capital......

Words: 1745 - Pages: 7

Premium Essay

Adms 3530 Exam Review

...ADMS 3530 Review Session - Notes and Examples Ch.4: TVM PV & FV: SINGLE CASH FLOWS Future Value: FV = PV × (1 + r)n Present Value: PV = Future Value (1 + r)n PV & FV: MULTIPLE CASH FLOWS Example 1: Multiple Cash Flows In two years from today, the following cash flows will have a future value of $3032.32: $200 today, $Y at the end of one year, and $2,400 at the end of two years. The annual interest rate is 4%. What is Y? A) $330.00 B) $400.00 C) $416.00 D) $432.64 E) $167.55 PERPETUITIES & ANNUITIES Ordinary (regular) Annuity & Ordinary Perpetuity – Cash flows start at end of first time period Perpetuity Due & Annuity Due – Cash Flows start immediately PV Perpetuity (ordinary) = C r PV Perpetuity due = PV Ordinary Perpetuity x (1 +r) Basic Annuity Formulas: PVannuity = PVA = C x PVAF (note: C = PMT) FV annuity = FVA = C x FVAF (future value annuity factor) Annuity Due: PV (Annuity Due) = PV(Simple Annuity) × (1+r) FV (Annuity Due) = FV (Simple Annuity) × (1+r) 3530_Final_Tutorial_-_Notes_and_Problems Updated.docx 1 Example 2: Delayed Annuity What is the present value of a four-year annuity of $100 per year that begins two years from today if the discount rate is 9 percent? A) B) C) D) E) $297.22 $323.86 $356.85 $388.97 $451.64 EFFECTIVE ANNUAL INTEREST RATES (EAR) – see Lecture 3 (TVM) Notes Two Options: EAR = Compounded rate EAR = (1 + im)m -1 APR = Finding nominal rate using simple interest APR = im x m Note: EAR = APR with annual compounding EAR > APR when......

Words: 3875 - Pages: 16

Premium Essay


...Ch. 1 We Have a global economy. Econimics-the study of scarce ersources(limited). Nobody can have everything they want. We make up the economy, always wanting more. Factors of Producion-Land, Labor, Capital, Entrepreneurship. Land-all the natural resources. Labor-skills and abilities (workers too). Capital-What we use making it the final product. Entrepreneurship-A risk taker. He brings the other three factors together in innovative ways. Opportunity Cost-The best alternative, foregoing something, choosing between 2 options, the thing I give up is the opportunity cost (Guns & Butter is about opportunity cost). The graph for the opportunity cost show this: the curve line of the graph is the production possibility curve, the points on the curve tells you that every resources is being used efficiently (factors of production). Point C (outside the curve line) economic growth, w/more resources to use, we get there w/technology. Point A (inside the curve line)is ressession, unemployment, undesirable. Adam Smith, market mechanism(is what it’s called today) invisible hand (goes w/market mechanism) what gets produce, it moves the factors of production/us. This is the fundamental of capitalistic system, and the essential feature of market mechanism is price signal. Example: Block Buster goes out of business, start downloading through netflix. Laissez faire-leave it alone (hands off, capitalistic society). How do we compete? Produce least cost method and produce. Who? For those......

Words: 1551 - Pages: 7

Premium Essay

Acc 455 Academic Professor/Tutorialrank.Com

...Rating: A+ ACC 455 Week 1 Individual assignment Tax Return Position Paper (UOP Course) ACC 455 Week 1 DQ 1 (UOP Course) ACC 455 Week 1 DQ 2 (UOP Course) ACC 455 Week 1 DQ 3 (UOP Course) ACC 455 Week 2 Individual Assignment Problem Set (UOP Course) ACC 455 Week 2 Team Assignment Outline for Week 3 (UOP Course) ACC 455 Week 2 DQ 1 (UOP Course) ACC 455 Week 2 DQ 2 (UOP Course) ACC 455 Week 2 DQ 3 (UOP Course) ACC 455 Week 2 DQ 4 (UOP Course) ACC 455 Week 3 Team Assignment Problem Set (UOP Course) ACC 455 Week 3 DQ 1 (UOP Course) ACC 455 Week 3 DQ 2 (UOP Course) ACC 455 Week 3 DQ 3 (UOP Course) ACC 455 Week 4 Team Assignment Outline for Week 5 (UOP Course) ACC 455 Week 4 Individual Assignment Problem Set (UOP Course) ACC 455 Week 4 DQ 1 (UOP Course) ACC 455 Week 4 DQ 2 (UOP Course) ACC 455 Week 4 DQ 3 (UOP Course) ACC 455 Week 4 DQ 4 (UOP Course) ACC 455 Week 5 Team Assignment Problem Set (UOP Course) ACC 455 Week 5 DQ 1 (UOP Course) ACC 455 Week 5 DQ 2 (UOP Course) ACC 455 Week 5 DQ 3 (UOP Course) ACC 455 Week 5 DQ 4 (UOP Course) ............................................................................................................................................... ACC 455 Week 1 Individual assignment Tax Return Position Paper (UOP Course) For more course tutorials visit Tutorial Purchased: 3 Times, Rating: A Suppose you have a concern about taking a particular position on a tax return. Write a 700-word paper that......

Words: 714 - Pages: 3