Amy, a self employed US customs broker, obtained a customs broker’s license from US Customs and Border Protection in 1991. Since 2003 Amy has operated a customs brokerage business, Atlantic Air Express, LLC, (Atlantic Air), from her home. For 2004 Amy reported self employment income of $45,649. From this activity, Amy reported a net profit on Schedule C, Profit or Loss From Business, for each year from 2005 to 2011. For 2007 the year in issue, Amy reported a net profit of $130,872 on Schedule C.

Amy began breeding Great Pyrenees dogs in 1994 on a half acre of property in New York, where she sets up kenneling facilities. Amy incurred expenses to set up the kennel and to purchase dogs, food, grooming supplies and equipment, a vehicle to transport the animals, and advertising. From 1994 to 1999 Amy sought to build the prestige and reputation of the dog breeding operation, Impyrial Great Pyrenees (Impyrial), by producing a robust stock of Great Pyrenees dogs and showing the dogs at dog shows. She spoke with experienced Great Pyrenees breeders and visited various successful kennels to gather information for developing a breeding program.  Amy’s dog breeding activity sustained losses every year until 2010, for which she reported a small net profit.

In 1999, when Amy owned five dogs, she moved Impyrial to a 15-acre farm in Orange County, New York. The purpose of the move was to accommodate a large breeding program. Amy also obtained a purbred dog license from the New York State Department of Agriculture and Markets, which is available only for kennels that maintain more than 10 dogs. By 2007 Amy owned 26 dogs.

Amy’s main source of income from the dog breeding activity is the sale of puppies. Amy typically charges $1,200 for a puppy but charges as much as $4,000 for a puppy sired from one of her top winning show dogs. Amy sold approximately six puppies between 1994 and 1999. During 2000 and 2001 Amy’s dogs produced six litters. In 2002 the dogs began to have fertility problems. Amy’s dogs had other health problems that also disrupted the breeding program, including Lyme disease, bacterial infections, and thyroid problems. From 2002 to 2009 Amy attempted to breed 46 female dogs, resulting in 17 pregnancies.  The pregnancies produced 13 litters. In 2009 after consultations with veterinarians and fertility specialists Amy administered a month long antibiotic treatment to all of the dogs and treated some of the female dogs with thyroid medication. Amy’s dogs produced two litters shortly after the medical treatment. These were the first pregnancies in nearly 18 months.  Amy sold 18 puppies in 2010.

In addition to selling puppies, Amy sells semen from the male dogs to breeders and charges stud fees ranging from $1,200 to $2,500 for top winning show dogs.

Amy reported profit or loss on Schedule C for Impyrial as follows:

Year             Income                   Expenses      Gain or (loss)

2005             $4,729                    $76,590        ($71,861)

2006               6,900                    96,996          (90,096)

2007               4,600                    71,116         (66,516)

2008               4,500                     69,340         (64,840)

2009               6,800                    30,790           (23,990)

2010             33,600                    30,120          3,480

2011                8,320                    27,369          (19,049)

Amy reported the income and expenses attributable to Impyrial on a Schedule C attached to her 2007 Federal income tax return.  Amy asserts that (1) she engaged in the activity with the intent to make a profit and (2) that her return for taxable year 2002 was examined and that the Commissioner of Revenue allowed her to treat Impyrial as a trade or business.

Commissioner of Revenue determined that Amy did not engage in the dog breeding activity for profit and disallowed Amy’s expense deductions claimed in excess of the reported income.

Please note that Amy began Impyrial in 1994. Impyrial sustained losses every year from 1994 to 2009. The record does not reflect the amounts of Impyrial’s income, expenses, and losses between 1994 and 2004.

QUESTIONS

1)Based on the facts presented do you believe that Amy's activity constitute a trade or business. ? EXPLAIN

2) Assume that you work as an agent of the IRS and you are challenging Amy's tax position.  What argument will you present against Amy?

3) Assume that Amy is your client and was audited by the IRS.  What arguments will         
you present to defend your Client

Amy, a self employed US customs broker, obtained a customs broker’s license from US Customs and Border Protection in 1991. Since 2003 Amy has operated a customs brokerage business, Atlantic Air Express, LLC, (Atlantic Air), from her home. For 2004 Amy reported self employment income of $45,649. From this activity, Amy reported a net profit on Schedule C, Profit or Loss From Business, for each year from 2005 to 2011. For 2007 the year in issue, Amy reported a net profit of $130,872 on Schedule C.

Amy began breeding Great Pyrenees dogs in 1994 on a half acre of property in New York, where she sets up kenneling facilities. Amy incurred expenses to set up the kennel and to purchase dogs, food, grooming supplies and equipment, a vehicle to transport the animals, and advertising. From 1994 to 1999 Amy sought to build the prestige and reputation of the dog breeding operation, Impyrial Great Pyrenees (Impyrial), by producing a robust stock of Great Pyrenees dogs and showing the dogs at dog shows. She spoke with experienced Great Pyrenees breeders and visited various successful kennels to gather information for developing a breeding program. Amy’s dog breeding activity sustained losses every year until 2010, for which she reported a small net profit.

In 1999, when Amy owned five dogs, she moved Impyrial to a 15-acre farm in Orange County, New York. The purpose of the move was to accommodate a large breeding program. Amy also obtained a purbred dog license from the New York State Department of Agriculture and Markets, which is available only for kennels that maintain more than 10 dogs. By 2007 Amy owned 26 dogs.

Amy’s main source of income from the dog breeding activity is the sale of puppies. Amy typically charges $1,200 for a puppy but charges as much as $4,000 for a puppy sired from one of her top winning show dogs. Amy sold approximately six puppies between 1994 and 1999. During 2000 and 2001 Amy’s dogs produced six litters. In 2002 the dogs began to have fertility problems. Amy’s dogs had other health problems that also disrupted the breeding program, including Lyme disease, bacterial infections, and thyroid problems. From 2002 to 2009 Amy attempted to breed 46 female dogs, resulting in 17 pregnancies. The pregnancies produced 13 litters. In 2009 after consultations with veterinarians and fertility specialists Amy administered a month long antibiotic treatment to all of the dogs and treated some of the female dogs with thyroid medication. Amy’s dogs produced two litters shortly after the medical treatment. These were the first pregnancies in nearly 18 months. Amy sold 18 puppies in 2010.

In addition to selling puppies, Amy sells semen from the male dogs to breeders and charges stud fees ranging from $1,200 to $2,500 for top winning show dogs.

Amy reported profit or loss on Schedule C for Impyrial as follows:

Year             Income                   Expenses      Gain or (loss)

2005             $4,729                    $76,590        ($71,861)

2006             6,900                  96,996          (90,096)

2007             4,600                   71,116         (66,516)

2008             4,500                  69,340         (64,840)

2009             6,800                  30,790           (23,990)

2010             33,600                  30,120          3,480

2011                8,320                    27,369          (19,049)

Amy reported the income and expenses attributable to Impyrial on a Schedule C attached to her 2007 Federal income tax return. Amy asserts that (1) she engaged in the activity with the intent to make a profit and (2) that her return for taxable year 2002 was examined and that the Commissioner of Revenue allowed her to treat Impyrial as a trade or business.

Commissioner of Revenue determined that Amy did not engage in the dog breeding activity for profit and disallowed Amy’s expense deductions claimed in excess of the reported income.

Please note that Amy began Impyrial in 1994. Impyrial sustained losses every year from 1994 to 2009. The record does not reflect the amounts of Impyrial’s income, expenses, and losses between 1994 and 2004.

QUESTIONS

Based on the facts presented and information presented in chapter 6, do you believe that Amy's activity constitute a trade or business. EXPLAIN

Assume that you work as an agent of the IRS and you are challenging Amy's tax position. What argument will you present against Amy?

     3) Assume that Amy is your client and was audited by the IRS. What arguments will         

           you present to defend your Client?

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 2004 by two talented engineers with little business training. In 2016, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2016 before any adjusting entries or closing entries were prepared. The income tax rate is 40% for all years.

a. A five-year casualty insurance policy was purchased at the beginning of 2014 for $34,000. The full amount was debited to insurance expense at the time.

b. Effective January 1, 2016, the company changed the salvage value used in calculating depreciation for its office building. The building cost $592,000 on December 29, 2005, and has been depreciated on a straightline basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000.

c. On December 31, 2015, merchandise inventory was overstated by $24,000 due to a mistake in the physical inventory count using the periodic inventory system.

d. The company changed inventory cost methods to FIFO from LIFO at the end of 2016 for both financial statement and income tax purposes. The change will cause a $950,000 increase in the beginning inventory at January 1, 2017

. e. At the end of 2015, the company failed to accrue $15,300 of sales commissions earned by employees during 2015. The expense was recorded when the commissions were paid in early 2016.

f. At the beginning of 2014, the company purchased a machine at a cost of $700,000. Its useful life was estimated to be ten years with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December 31, 2015, was $448,000. On January 1, 2016, the company changed to the straight-line method.

g. Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.75% is a better indication of the actual cost. Management effects the change in 2016. Credit sales for 2016 are $3,800,000; in 2015 they were $3,500,000. Required: For each situation:

You are trying to estimate the share price for A&T Inc. You know that A&T will have EBITDA of $50million at the end of the year. In addition, you know that A&T Inc. has $10 million in outstanding debt, no excess cash, and 60 million outstanding shares. You have collected the following information on publicly traded comparable firms (see table below). Using the average Enterprise Value to EBITDA ratio of comparable firms, what is the best estimate of A&T's share price? Select one.

McCann Catching, Inc. has 2.00 million shares of stock outstanding. The stock currently sells for $12.98 per share. The firm’s debt is publicly traded and was recently quoted at 89.00% of face value. It has a total face value of $16.00 million, and it is currently priced to yield 8.00%. The risk free rate is 2.00% and the market risk premium is 8.00%. You’ve estimated that the firm has a beta of 1.18. The corporate tax rate is 38.00%.

The firm is considering a $44.17 million expansion of their production facility. The project has the same risk as the firm overall and will earn $12.00 million per year for 7.00 years.

What is the NPV of the expansion? (answer in terms of millions, so 1,000,000 would be 1.0000)

McCann Catching, Inc. has 2.00 million shares of stock outstanding. The stock currently sells for $12.80 per share. The firm’s debt is publicly traded and was recently quoted at 88.00% of face value. It has a total face value of $14.00 million, and it is currently priced to yield 10.00%. The risk free rate is 4.00% and the market risk premium is 8.00%. You’ve estimated that the firm has a beta of 1.30. The corporate tax rate is 39.00%. The firm is considering a $48.08 million expansion of their production facility. The project has the same risk as the firm overall and will earn $11.00 million per year for 8.00 years.

What is the NPV of the expansion? (answer in terms of millions, so 1,000,000 would be 1.0000)

DATA:

QUESTIONS:

1) Donnelly's Business Statistics has a data set concerning the revenue from a set of Nigerian cell phone customers. Use that data which is here to answer this question. What is the average revenue per customer? Answer to at least two decimal places.

2)Donnelly's Business Statistics has a data set concerning the revenue from a set of Nigerian cell phone customers. Use that data which is here to answer this question; the data set values are the revenue from the customers. What is the test statistic for the hypothesis that average revenue per customer is $11? Answer to at least two decimal places.

3) Donnelly's Business Statistics has a data set concerning the revenue from a set of Nigerian cell phone customers. Use that data which is here to answer this question; the data set values are the revenue from the customers. What is the positive version of the critical value for the hypothesis that average revenue per customer is $11 at the .05 level of significance? Answer to at least two decimal places.

How does a public company purchase another company that isn't trading publicly?

Please respond with a 500 typed response with sources.