Sunshine Company is a calendar year accrual-basis taxpayer and is in its first year of operations. Sunshine Company had the following income, expense, and loss items for the current year:

Furthermore, Sunshine’s liabilities (all recourse) increased from $0 on 1/1 to $300,000 on 12/31 of the current year.

Note: Take into consideration how Capital losses are treated for C corporations. Notice how Interest from municipal bonds affect or not your taxable income.

Special deductions may be necessary for dividends.

1. Assume that Sunshine Company is a c corporation. Alvin contributed $60,000 to purchase 60% of the stock while his wife’s best friend, Ann, contributed $40,000 to purchase the remaining 40% of the stock when the corporation was formed this year. Alvin received a $2,400 per month salary ($28,800 in total). Ann doesn’t work for the company so she received no salary. The company distributed some profits at the end of the year by paying out a $55,000 dividend.
   1. Calculate Sunshine Corporation’s taxable income and income tax liability to be reported on Form 1120.
   2. What amount and type of income must Alvin report on his individual Form 1040 tax return?
   3. What amount of Alvin’s income will be subject to self-employment tax?
   4. What is Alvin’s basis in his Sunshine stock at the end of this year?

Note that you do not need to complete Form 1120, but this form and related schedules will be a useful guide in completing this portion of the assignment.

IMPORTANT - All information is provided, form 1120 is a tool that might help you solve the problem. The related schedules that are linked to form 1120 are useful as well, but not entirely necessary to solve the exercise. Form 1120 can be found on IRS official site.

Meganol Company is a calendar year accrual-basis taxpayer and is in its first year of operations. Meganol Company had the following income, expense, and loss items for the current year:

Furthermore, Meganol's liabilities (all recourse) increased from $0 on 1/1 to $300,000 on 12/31 of the current year.

1. Assume that Meganol Company is owned by Thomas as a sole proprietorship. Thomas received $2,400 per month ($28,800 in total) from Meganol Company as an owner’s draw. Additionally, Thomas took $55,000 out of Meganol Company near the end of the year as a partial distribution of profits. (11 points)
   1. Calculate the net business income of Meganol Company/Thomas that would be reported on Schedule C of Thomas Form 1040.
   2. How much of the $2,400 per month ($28,800 total) and the $55,000 distribution would Thomas include as taxable income on his Form 1040?
   3. What amount of Thomas's income will be subject to self-employment tax?
   4. Note that you do not need to complete Schedule C or other forms, but these form will be a useful guide in completing this portion of the assignment.                       

Acme Corporation uses the calendar year as their fiscal year for reporting purposes. Acme Corporation is owned 100% by Jesse Smith.   Jesse Smith is quite wealthy - he has over $3 million in a personal savings account which is currently earning 2 one hundredths of 1% interest (or .0002 rate resulting in $600 per year). He also has many other investments. Acme Corporation has $300,000 of current assets. Acme has Accounts Payable of $40,000 and various Payroll liabilities totaling $109,000. Acme also has a Note Payable in the amount of $800,000. There are no other liabilities. Interest has been paid every year when due on December 31. The Note Payable is due in $200,000 installments on June 30 of each year for the next 4 years. The current interest rate on the note is 4%. However, according to the loan terms, if Acme's current ratio falls below 2, the interest rate will automatically increase to 7%. Since the note is due in installments over the next 4 years, management is presenting the Note on the balance sheet as a long term liability. Is Acme's management reporting their balance sheet appropriately? What recommendations do you have for management? How do these recommendations impact the current ratio?

Selected data pertaining to Lore Co. for the Year 4 calendar year is as follows: Net cash sales $ 3,000 Cost of goods sold 18,000 Inventory at beginning of year 6,000 Purchases 24,000 Accounts receivable at beginning of year 20,000 Accounts receivable at end of year 22,000 What was Lore’s inventory turnover for Year 4?

The following transactions apply to Jova Company for Year 1, the first year of operation:

1. Issued $14,000 of common stock for cash.
2. Recognized $214,000 of service revenue earned on account.
3. Collected $166,400 from accounts receivable.
4. Paid $129,000 cash for operating expenses.
5. Adjusted the accounts to recognize uncollectible accounts expense. Jova uses the allowance method of accounting for uncollectible accounts and estimates that uncollectible accounts expense will be 2 percent of sales on account.

The following transactions apply to Jova for Year 2:

1. Recognized $324,000 of service revenue on account.
2. Collected $339,000 from accounts receivable.
3. Determined that $2,350 of the accounts receivable were uncollectible and wrote them off.
4. Collected $1,200 of an account that had previously been written off.
5. Paid $209,000 cash for operating expenses.
6. Adjusted the accounts to recognize uncollectible accounts expense for Year 2. Jova estimates uncollectible accounts expense will be 1.0 percent of sales on account.

Complete the following requirements for Year 1 and Year 2. Complete all requirements for Year 1 prior to beginning the requirements for Year 2.

c-1. Record the Year 1 transactions in general journal form and post them to T-accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

Journal entry worksheet

• Record entry for issuance of common stock.

Note: Enter debits before credits.

The following events apply to Gulf Seafood for the Year 1 fiscal year:

1. The company started when it acquired $60,000 cash by issuing common stock.
2. Purchased a new cooktop that cost $40,000 cash.
3. Earned $72,000 in cash revenue.
4. Paid $25,000 cash for salaries expense.
5. Adjusted the records to reflect the use of the cooktop. Purchased on January 1, Year 1, the cooktop has an expected useful life of four years and an estimated salvage value of $4,000. Use straight-line depreciation. The adjusting entry was made as of December 31, Year 1.

Required
a. Record the events in general journal format and post to T-accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

An investment pays $2,050 per year for the first 3 years, $4,100 per year for the next 3 years, and $6,150 per year the following 7 years (all payments are at the end of each year). If the discount rate is 8.75% compounding quarterly, what is the fair price of this investment?

An investment pays $2,050 per year for the first 3 years, $4,100 per year for the next 3 years, and $6,150 per year the following 7 years (all payments are at the end of each year). If the discount rate is 8.75% compounding quarterly, what is the fair price of this investment?

If the firm’s expected future free cash flows in year 1 is $1.2 million, in year 2 it is expected to equal $1.6 million, in year 3 it is expected to equal $2.0 million and then the expected future free cash flows are expected to increase at a constant rate of 3%/year into perpetuity. Assume the firm’s WACC is 8%/year. Provide an equation, including all of the inputs, to calculate the present value of the expected future free cash flows of this firm.

A proposed project will generate £150,000 in revenue a year for 20 years (starting next year), but will cause another product line to lose £60,000 in revenue a year during that time. The project will make use of 50% of an already leased warehouse with total annual rent of£50,000 (the contract does not prohibit sub-leasing). The discount rate for this project is 6%. Should the firm undertake this project if the required investment is £250,000? What is the Payback Period for this project?