...43,000 Earnings before interest and taxes 296,000 Interest paid 32,000 Taxable Income 264,000 Taxes ( 35% ) 92,400 Net income 171,600 3) Net income 171,600 Dividends 73,000 Addition to retained earnings 98,600 8) Net sales 27,500 COGS 13,280 Depreciation 2,300 Earnings before interest and taxes 11,920 Interest paid 1,105 Taxable Income 10,815 Taxes ( 35% ) 3,785 Net income 7,030 Earnings before interest and taxes 11,920 + Depreciation 2,300 * Taxes 3,785 Operating cash flow 10,435 9) Ending net fixed assets 4,200,000 * Beginning net fixed assets 3,400,000 + Depreciation 385,000 Net capital spending 1,185,000 10) Net working capital 2010 = Current assets – Current liabilities = 2,100 – 1,380 = 720 Net working capital 2011 = Current assets – Current liabilities = 2,250 – 1,710 = 540 Ending NWC 540 * Beginning NWC 720 Change in NWC (180) 11) Net new borrowing = 2,900,000 – 2,600,000 = 300,000 Interest paid 170,000 * Net new borrowing 300,000 Cash flow to creditors (130,000) 12) Net new equity raised = ( 815,000 + 5,500,000 ) – ( 740,000 + 5,200,000 ) = 6,315,000 – 5,940,000 = 375,000 Dividends paid 490,000 * Net new equity raised 375,000 Cash flow to...
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...Hello New Revenues, Goodbye Debt Crisis For the past few years, the United States has been running on a budget deficit of historic proportions. By spending more than it is earning in tax revenues. To fund this deficit, the United States has to go into more debt, making Congress impose a limitation on how much the government can borrow. When the United States elected Barrack Obama, the nation thought the deficit would soon be reduced. Obama had vowed to cut the deficit in half by early 2009, but since then, he has continuously cut taxes and increased spending, which in return increases the amount of debt for the nation. Since the United States is still unable to find a way to increase its revenues, the nation’s super committee will soon have to make a decision on how to achieve its reduction goal of 1.2 trillion dollars. Republican and Democratic politicians have been going back and forth for years on what the best strategy is to raise revenues for the United States. Most of the earlier acts in the 1980s and 1990s relied heavily on tax increases to do most of the work for the deficit reduction. On the contrary, by the year 1997, tax increases were entirely ruled out as a source of deficit reduction. Each political party’s view on deficit reduction plans tends to be opposites. Many politicians are arguing that Congress will never come to a decision on what path to take to reduce the nation’s debt. Both political parties have strong beliefs on what is the best way to overcome this...
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... stores were required to collect the appropriate sales tax rate in the state where the store was located. The store then forwarded the collected tax to the state tax collector. This system was working fine and was quite simple until the invention of the internet. The system has not changed for the traditional ‘brick and mortar’ store but things are much different for the ‘online’ store. This is where it gets interesting, how do we ensure that the sales taxes are paid or who is responsible for collecting the tax and what rate is paid and what state gets the taxes? For example, where should any sales tax is paid for candy ordered via the Internet from an Ohio vendor by a California resident while traveling in Georgia that is sent to a relative in Michigan (Nellen, 1999)? When the internet went commercial in 1995 it was free of regulation and taxes from the US government at all levels until 1996 when several US states saw the Internet as a great source of revenue for their states. Ten states (Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas, Washington & Wisconsin) started charging ISP’s an Internet access tax. This lead to the authoring of the 1998 Internet Tax Freedom Act by Representative Christopher Cox, R-CA and Senator Ron Wyden, D-OR and signed into law by President Bill Clinton on October 21, 1998(legacy.gseis.ucla.edu, 1998). This bill was drafted and passed to preserve the future potential of the internet. This bill was...
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...Tobacco Taxation 1 Tobacco taxation is a hot topic and all 50 state governments have enacted taxes on cigarettes, and many have raised their taxes several times. Taxes on cigarettes are a way governments can achieve two social objectives; the first objective is to reduce the number of citizens who smoke. The government issuing the cigarette tax hopes that the rise in the cost of a pack of cigarettes will persuade people to quit smoking. The second objective is to raise government revenue. A cigarette tax, like any other tax, increases the amount of revenue governments can spend on social programs. Where there’s smoke, there’s taxes — especially for New Yorkers. In a 2010 budget move officials say will generate $440 million in revenue, the state legislature passed a bill that gave New York the highest cigarette tax in the country. On July 1, 2011 every pack sold in the state cost an extra $1.60, raising the total state tax to $4.35, pushing the average cost of a pack up to $9.20. For New York City residents, the cost of a pack will now come out to close to $11 — a $2 rise from just over a year ago. The $440 million in revenue will benefit health care programs, AIDS drugs subsidies, tobacco cessation programs and $71.6 million will go to the state cancer research center in Buffalo. Supporters also applaud the health benefits, saying it will reduce the number of smokers by tens of thousands of people. Tobacco consumption is the leading cause of preventable death in many...
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...debts incurred by the business. His personal property can be attached. He is also responsible for any damage an employee may cause while working for him. * Income Taxes: The owner pays ordinary income tax on all profits. This can be an advantage because most of the time personal tax rates are lower than corporate rates. But, a sole proprietor will have to pay self-employment tax at a rate of 13.3% for the first $106,800 of income and 2.9% after that. The owner needs to register for an EIN (Employer Identification Number) if he will have employees. Payroll taxes need to be paid on employees. * Longevity/ Continuity: The business exists as long as it is financially solvent, the owner is alive, and the owner continues running the business. If the owner brings in another investor it becomes a partnership. * Control: The owner is solely responsible for all decisions concerning the management of the business. If they want to expand the business or end the business it's totally up to them. * Profit Retention: The owner keeps all profits and he also takes all losses. * Location: Different licenses or permits may be needed when moving to another state. Personal taxes vary from state to state. Some states have high taxes and some have no individual income tax. This will affect the total taxes paid on the business. * Convenience/ Burden: Special licenses or business permits may be needed. There is no need for any government approval of the business organization...
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...earnings are required to pay the same tax rate. There are arguments that consider the sales tax proportional because the same rate is evenly applied across low-, middle-, and high-income taxpayers. However application of the sales tax is regressive because the percentage of tax paid decreases with respect to total income as income levels increase. Lower-income tax payers pay the same dollar amount for particular goods as higher-income individuals, but at lower-income levels the tax represents a greater proportion of overall income and therefore the tax is actually, in application, regressive. Sales taxes on essentials like food, clothing, and housing also take up a larger percentage of lower-income individuals budget. The argument for proportionality of the tax is that higher-income individuals actually purchase more goods and more expensive goods. Because sales taxes in general do not take into account the economic or personal circumstances of the purchaser, and that the tax is not a personal income levy, both low- and highincome individuals will pay the same tax rate on the purchase of items. The sales tax is justifiably criticized for violating the vertical and horizontal equity premises of taxation. c. The $0.04 per gallon tax on gasoline in Florida is highly REGRESSIVE. An individual with $1,000 of taxable income pays the same amount on the purchase of 10 gallons of fuel as an individual with $50,000 of taxable...
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...Professor Kirk Hendricks 14 December 2010 Cigarette Taxes: A Fading Epidemic in a Changing World "An injustice anywhere is a threat to justice everywhere." -Dr. Martin Luther King, Jr. Introduction As a grandchild of sharecroppers, biblical values and ethics were instilled in us at an early age. Reflecting on my roots, it was evident that piety included health awareness as well as no alcohol or smoking. Despite these humble beginnings, the war for our nation's health is at a crossroads. Years ago, when my grandparents were young, smoking was not only allowed, it was both a social and cultural norm. Unfortunately, those people who survived are suffering from lung cancer and some haven't lived to tell the tale. Ironically, today as our world becomes more health conscious, we are dropping these "cancer" sticks, opting for a better way of life. As a result, all fifty state governments have enacted taxes on cigarettes. These cigarette taxes help to reduce citizens from smoking as well as convince to stop participating in such a deadly habit. Cigarette taxes also help increase government revenue and will bring more revenue for social programs. Unintended Consequences To begin with, cigarette taxes are imposed to ensure the health of its citizens. According to the Portland Business Journal[1], an interesting situation happened in Oregon. In 1996, Ballet Measure 44 was cast in an effort to increase cigarette taxes by 30 cents per pack. Interestingly, this measure was also...
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...CHAPTER 2 FINANCIAL STATEMENTS AND CASH FLOW Answers to Concepts Review and Critical Thinking Questions 1. True. Every asset can be converted to cash at some price. However, when we are referring to a liquid asset, the added assumption that the asset can be quickly converted to cash at or near market value is important. 2. The recognition and matching principles in financial accounting call for revenues, and the costs associated with producing those revenues, to be “booked” when the revenue process is essentially complete, not necessarily when the cash is collected or bills are paid. Note that this way is not necessarily correct; it’s the way accountants have chosen to do it. 3. The bottom line number shows the change in the cash balance on the balance sheet. As such, it is not a useful number for analyzing a company. 4. The major difference is the treatment of interest expense. The accounting statement of cash flows treats interest as an operating cash flow, while the financial cash flows treat interest as a financing cash flow. The logic of the accounting statement of cash flows is that since interest appears on the income statement, which shows the operations for the period, it is an operating cash flow. In reality, interest is a financing expense, which results from the company’s choice of debt and equity. We will have more to say about this in a later chapter. When comparing the two cash flow statements, the financial statement of cash flows...
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...Balance Sheet 2-3 Alphabet Inc. - Assets Assets As of December 31, 2014 As of December 31, 2015 Current assets: Cash and cash equivalents Marketable securities Total cash, cash equivalents, and marketable securities Accounts receivable Receivable under reverse repurchase agreements Income taxes receivable, net Prepaid revenue share, expenses and other assets Total current assets Prepaid revenue share, expenses and other assets, non-current Non-marketable investments Deferred income taxes Property and equipment, net Intangible assets, net Goodwill Total assets $ 18,347 46,048 $ 16,549 56,517 64,395 9,383 11,556 875 450 591 1,903 3,412 3,139 78,656 90,114 3,187 $ 73,066 3,181 3,079 176 23,883 4,607 15,599 129,187 5,183 251 29,016 3,847 15,869 147,461 $ 2-4 Alphabet Inc. –Liabilities and shareholders’ equity As of December 31, 2014 Current liabilities: Accounts payable Short-term debt Accrued compensation and benefits Accrued expenses and other current liabilities Accrued revenue share Securities lending payable Deferred revenue Income taxes payable, net Total current liabilities Long-term debt Deferred revenue, non-current Income...
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...announced his run on June 16, with the slogan, America doesn’t win anymore. When it comes to the issues, taxes have always been in the top five in every election, but recently immigration has been a leading issue. In fact during his announcement, Donald trump was very outspoken about Mexican illegal immigrants and during the first GOP debate, he added that he is openly confronting the severity of the immigration problem that “others won’t publicly acknowledge.” On the immigration issue, Senator Ted Cruz has taken active measures reform the legal immigration system and uphold the rule of law. As for taxes, Cruz believes that major tax reform, is the most important fiscal issue facing the U.S. He believes that the most important tax reform would be to get rid of the IRS. Donald trump has a more liberal tax that slashes taxes for the poor and levies higher taxes on the rich. By April 15, Americans will pay about 2.1 trillion dollars in combined federal taxes. The average American pays an income tax rate of 10.1 percent, although that varies depending on their income. Taxes fund the services provided by the government. The current federal tax system consists of five types of taxes; personal income taxes; social income taxes, which employee and employers pay into social security, Medicare, and unemployment compensation; corporate income taxes; estate and gift taxes; and excise taxes, which...
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...Government Control Versus Independence The debate is whether America is going to have equality and independence of the people or complete government control. Complete government control, sounds familiar, many people read George Orwell’s “1984” while in school. The novel describes the dystopia where an oligarchic government has overwhelming control and surveillance and relentless mind control over the people. The philosophy described allowed “the big brother” or “Party” to control and manipulate humanity. The people were not allowed to have free thought or any expression of individuality. Our own government is not far from that imaginary world. Americans now live in a world where we no longer have the freedom to freely decide what we eat, how our children will be educated, choose healthcare insurance, and even decide what light bulb will illuminate our homes. The government has extended their power through taxation, regulations, and unremitting appeals. At what limit is government control over our daily lives too much. The rights of the people need to prevail and people should be allowed to ascertain their own individuality and independence. The Bill of Rights was ratified in December 1791 as the collective name for the first ten amendments of the Constitution (Bill). The Bill of Rights was written to clarify the limitations on the authority of the federal government, to include protecting the rights of liberty including freedom of speech, freedom of religion, free...
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...Why Fairness Matters Progressive Versus Flat Taxes Robert J. Shapiro April 1996 Pro gres s iv e FOUNDATION Why Fairness Matters: Progressive versus Flat Taxes Progressive Foundation The Progressive Foundation works to develop and promote a new progressive political philosophy and governing agenda for America based on individual liberty, equal opportunity, civic responsibility, and nonbureaucratic governance. The substantive work of the Foundation revolves around some of the most difficult challenges facing America in the 1990s: assuring upward mobility for working Americans in the new world economy; resolving the great American dilemma of race; restoring a civil society and strengthening the social ties that foster a sense of community; finding America’s proper role in the post-Cold War world; and rethinking the size, shape, and mission of government in an Information Age. The Foundation explores public controversies over cultural questions—race, ethnicity, gender, religion, morality, and civic education—that are often ignored in conventional political discourse. The Foundation’s Project on Tax Reform and Economic Growth works to develop a tax reform program that is consistent with a progressive distribution of the tax burden, and can help promote stronger job and business formation, greater productivity, and higher family incomes. This report is the first of two new reports outlining the essential features of such a tax reform program. The preface contains more...
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...federal income taxes, (2) payroll taxes, (3) business income taxes, (4) estate/gift taxes, and (5) two new excise taxes. There is variance regarding the amount the plan would generate in a decade but the average is roughly $14.5 trillion. Aside from personal opinions regarding changes, the intrinsic questions seem to be- Will Bernie’s proposed changes to the tax code generate enough revenue to cover his plans? Economists’ predictions along with Sanders’s own estimates state that no, Sander’s tax plan will not be able to generate enough revenues to cover all of his plans as expansively larger taxes and governmental spending will severely damage long-term economic growth. In order to analyze Sander’s plan more in depth, it is beneficial to look at each proposed change to the federal tax code individually. First, increases in federal income taxes. There are many changes Sander’s has proposed in regards to income taxes but according to the Tax Policy Center, the three changes that are expected to generate the biggest portion of revenue over the next decade are: (1) four new surtax brackets for high-income households; (2) taxing of gains/dividends as ordinary income; and (3) raising the net investment income tax to 10 percent. Collectively, the increases to federal income taxes are expected to generate $4.9 trillion over the next ten years. The two primary objectives that are intended to be met with these changes are expanding and extending social security, and a new, government-administered...
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...flows. The incremental-cash-flow rule is that the cash flows relevant in analyzing an investment opportunity are those after-tax cash flows and only those after-tax cash flows directly attributable to the investment. The words incremental, after-tax and cash are critical. The term cash calls attention to the fact that we are interested in cash flow and not accounting profits. Ultimately, financial transactions must be carried out with cash, not profits, so we look to cash as the source of value. As we will see, we are interested in all cash flows affected by a decision under evaluation, no matter how those cash flows are classified for accounting purposes. The term after-tax emphasizes that we are able to keep the cash only after payment of taxes. The word incremental is important because in deciding whether to do something, or whether to pick alternative A or alternative B, differences in outcomes are of interest. What changes as a result of the decision? If a firm replaces a piece of machinery, will the firm’s insurance costs change? If not, we can ignore the insurance premiums in our schedule of cash flows to analyze the decision about replacing the machinery. The concept of incremental analysis has wide applicability in decision-making. Incremental analysis applies not just to investment decisions or to financial-management decisions, but to all decisions faced by...
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...course to prepare taxes. The class was thought by IRS representatives so they are very experienced in the field. I learn a lot of new tips, hints, and pointers to help out when preparing taxes. The class was long but it not drag on because it was very informative and kept me intrigued the whole time. The room was filled with other volunteers and students who were looking to prepare taxes as well. A lot of the other students there were asking a lot questions with good points which made me feel like I didn’t know what I got myself into because none of these questions came to mind. But, come realize I was very knowledgeable of everything that was beating taught because the instructor was asking me a lot of questions and I was getting them right. After training course was over were instructed to take a couple of exams to become IRS certified which will make able to prepare taxes at our respected internship sites. Week 3 Today I took my basic exam and my intermediate exam. I was nervous going in to it because you only get two attempts at it and if you fail both you won’t be able to try it again. I studied for a whole week and it paid off. I got a 100 on my basic exam and a 90 on intermediate exam. You can take an advance exam but you only needed to get to the intermediate level to become an intern. I called my internship right away and let my supervisor know the good news. I set up my schedule and they told me I will be at three different sites preparing taxes. The Organization...
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