In January 2004, Mr. Pandit decided to buy a residential property and rent to various tenants. On 1st January 2004, he borrowed Rs. 30 Lakhs from a housing bank on a condition of repaying the loan in 10 annual installments with an interest @10% per annum. He put in his own savings of Rs. 15 Lakhs and bought a property having 5 flats in a fast developing locality. The cost of the property was Rs. 30 Lakhs comprising land valued at Rs. 15 lakhs and building values at Rs. 15 lakhs.

The entire year of 2004 was spent in repairing and repainting the property. The cost of one-time repairs was Rs. 5 lakhs and that of repainting, which was completed on 31st December 2004, was Rs. 1.2 lakh. Mr. Pandit expected that this paint would last for 3 years before it was repainted. The life of the property after repairs was expected to be 20 years. Mr. Pandit was informed that cost of repairs and first year's interest on the bank loan had to be added to the cost of building as it were incurred in bringing asset to a position of generating revenue.On December 31st of 2004, Mr. Pandit paid the first installment of loan together with interest @10%.

The flats were ready to let out on 1st January 2005. 5 tenants signed the agreement and paid interest free deposit equivalent to 10 months rent. The monthly rent of each flat was Rs. 8000. The three tenants paid their rent regularly on the last day of the month during 2005. One tenant Mr. Khanna, had indicated that he would vacate the flat on 31st december 2005 and had not paid his rent for November and december, requesting Mr. Pandit to adjust the same against his deposit. Though Mr. Khanna vacated the flat on the decided date, Mr. Pandit had yet to pay his balance deposit amount. Another tenant, Mr. Khan went abroad in December 2005 but had promised to pay the rent on return. Mr. Pandit had already found a tenant for the flat vacated by Mr. Khanna and the new tenant paid a deposit of Rs. 80000 on 31st December 2005. Mr. Pandit paid the second installment of loan together with interest on 31st December 2005. Mr. Pandit had made the following payments during 2005:

Taxes - Rs 20000

Electricity - Rs 10000

Telephone - Rs 10000

Fire Insurance was taken on January 1, 2005 for 4 years - premium Rs 60000

The closing cash/bank balance was Rs. 546000 on 31st December 2005.

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Prepare the income statement and balance sheet of Samavya Building as on 31st December 2005 and show each step in detail.

1.) Explain the process of stock redemption.

2.) Why do non-corporate shareholders prefer stock redemptions to qualify for sale treatment? (tax implications)

3.) Describe the difference between liquidating and non-liquidating distributions from a partnership.

4.) The primary purpose of taxation is to create revenue for the federal government. What are three secondary purposes?

5.) What is the purpose of Domestic Production Activities Deduction (DPAD)?

PLS NO MORE THAN 150 WORDS

A bank manager notices that by the time customers get to the teller, they seem irritated and impatient. She wants to investigate the problem further, so she hires you to design a research project to figure out what is bothering the customers. The bank wants three studies? (a) several focus groups of their customers, (b) observation using a hidden camera, and (c) an online survey of 500 customers. Identify which studies are qualitative, and which are quantitative? If you were to recommend only one study which of the three would you recommend and why. Be specific.

The following figure shows the yield curve on November 11, 2006. Your mother asks you to explain this yield curve. She suspects something is wrong but is not sure. What do you tell her? And what explanations do you have for why her suspicions are right?

Figure: The Yield Curve, November 11, 2006

The Clarke Co. acquired a machine on May 1, 2006, at a cost of $60,000. The machine is expected to have a ten-year life and a residual value of $5,000. The estimated lifetime output from the machine is expected to be 55,000 units. Under which of the following depreciation methods would the depreciation charge be the greatest in 2006, if 9,100 units were produced in that year?

17. On December 31st 2005, the book value of Luther Corp’s equity is $63.6 million and debt is $205.8 million. On December 31st 2006, book value of equity is $126.6 million and book value of debt is $290.1 million. Additionally on Dec 31st, 2006 Luther Corp had 10.2 million shares outstanding and these shares are trading at $16 per share. Further on Dec 31st, 2005 the company had 8 million shares outstanding and they were trading at $15 per share. Using this data, answer the questions below.

    1. What is Luther's market-to-book ratio on Dec 31st, 2005? What is this ratio on Dec 31st, 2006? What potentially reasons can explain the change in this ratio for Luther Corp?

    2. When using the book value of equity, what is the debt ratio for Luther on Dec 31st, 2006? Using the market value of equity, what is the debt ratio?

    3. What are the reasons to calculate debt ratios based on both book value and market value of equity when evaluating a firm’s solvency?

On January 1st 2001, Patterson Inc. issued bonds with a total face value of $4,000,000 (4 million), a 9% coupon rate and a life of 12 years. The market rate of interest for these bonds is 10% per year on the date of issue. The coupon payment is made annually on December 31. (a) What is the bond payable balance that Patterson should report on its balance sheet dated January 1st 2002? (b) What is the interest expense that Patterson should report on its calendar year 2002 income statement? (c) On January 1st 2006 Patterson buys back from the market 30% of the bonds that it had issued i.e. it buys back bonds with a face value of 1.2 million. The market rate of interest on January 1st 2006 for Patterson’s bonds is 12% per year. Prepare the journal entry that Patterson should record on January 1st 2006. (d) What is the amount of interest expense that Patterson should report on its 2006 income statement?

The town of Ballymarcove has three mobile phone providers ONE, TWO and THREE and every resident of Ballymarcove is a customer of exactly one provider. • Every year 10% of ONE customers switch to TWO and 20% switch to THREE (with 70% remaining with ONE). • Every year 30% of TWO customers switch to ONE and 20% switch to THREE (with 50% remaining with TWO). • Every year 30% of THREE customers switch to ONE and 30% switch to TWO (with 40% remaining with THREE). (a) [9 marks] Write down the transition matrix for this Markov process. (b) [8 marks] Explain why the transition matrix has 1 as an eigenvalue. (c) [8 marks] TWO is a relative newcomer to Ballymarcove and in the long term it aims to have a third of the market. Currently ONE has 60% of the market, TWO has 10% and THREE has 30%. If current trends continue, can TWO expect to achieve their aim?