12-26 Tom, a calendar year taxpayer, informs you that duringthe year, he incurs expenditures of $40,000 that qualify for the incremental research activities credit. In addition, Tom's research base amount for the year is $32,800. Fill in the following:

A.

B. Tom is in the 25% tax bracket. Determine which approach to the research expenditures and the research activities credit (other than capitalization and subsequent amortization) would provide the greater tax benefit.

Choice 1: reduce the deduction by 100% of the credit and claim the full credit. Fill in the table.

Choice @: Claim the full deduction, and reduce the credit by the product of 100% of the credit times the max corp. rate. Fill in the table:

Consider the following table for an eight-year period:

Calculate the average return for Treasury bills and the average annual inflation rate (consumer price index) for this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
  

Calculate the standard deviation of Treasury bill returns and inflation over this time period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

(a)Calculate the real return for each year. (A negative answer should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

(c)What is the average real return for Treasury bills? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Average real return for Treasury bills             %

Carl Rogers is a 67-year-old African American male with a 20-year history of type II diabetes mellitus. On Tuesday at 1530, he was directly admitted from his physician’s office to the medical unit with a stage II nonhealing ulcer on his right heel. The nursing admission paperwork has been completed, and pain medication has been administered. Additional orders for a dressing change and insulin administration have been written but not yet implemented. The scenario takes place on Tuesday at 1700.

Golden Corp.'s current year income statement, comparative balance sheets, and additional information follow. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. Purchased equipment for $36,000 cash. Issued 12,000 shares of common stock for $5 cash per share. Declared and paid $89,000 in cash dividends.

Doyle Company issued $480,000 of 10-year, 5 percent bonds on January 1, Year 2. The bonds were issued at face value. Interest is payable in cash on December 31 of each year. Doyle immediately invested the proceeds from the bond issue in land. The land was leased for an annual $57,000 of cash revenue, which was collected on December 31 of each year, beginning December 31, Year 2.

Required
a. Organize the transaction data in accounting equation for Year 2 and Year 3. (Enter any decreases to account balances with a minus sign. Select "NA" if there is no effect on the "Accounts Titles for Retained Earnings".)

b. Prepare the income statement, balance sheet, and statement of cash flows for Year 2 and Year 3.

Burbank Corporation (calendar-year end) acquired the following property this year:

a. Assuming no bonus or §179 expense, what is Burbank’s maximum cost recovery deduction for this year?

b. Assuming Burbank would like to maximize its cost recovery deductions by electing bonus and §179 expense, which assets should Burbank immediately expense? Assume the 2014 §179 expense limits and bonus depreciation are extended to this year.

c. What is Burbank’s maximum cost recovery deduction this year assuming it elects §179 expense and bonus depreciation?

3. One year treasuries yield 5% and two year Treasuries yield 5.50%. You have a two year time horizon. You are considering a one year roll of Treasuries. What would you have to get in the second year to beat just holding the two year Treasury? (Carry your answer out three decimal places.)
4. What are the components of a bond?
5. Assume Capital Inc has an outstanding 15 year bond with a 10% coupon (annual pay) with a par value of $1000. The market yield for this bond is 15%. What is the price/present value of the bond? If the bond is callable in ten years at 102 what would the yield to the call be given the price you calculated above.

A company issues $17,200,000, 5.8%, 20-year bonds to yield 6% on January 1, Year 7. Interest is paid on June 30 and December 31. The proceeds from the bonds are $16,802,426. Using straight-line amortization, what is the interest expense in Year 8 and what is the carrying value of the bonds on December 31, Year 9?

Record journal entries as well

CMOS Chips is hedging a 20-year, $18 million, 9% bond payable with a 20-year interest rate swap and has designated the swap as a fair value hedge. The agreement called for CMOS to receive payment based on a 9% fixed interest rate on a notional amount of $18 million and to pay interest based on a floating interest rate tied to LIBOR. The contract calls for cash settlement of the net interest amount on December 31 of each year.

At December 31, 2021, the fair value of the derivative and of the hedged bonds has increased by $108,000 because interest rates declined during the reporting period.

Required:
1-a. Does CMOS have an unrealized gain or loss on the derivative for the period?
1-b. Does CMOS have an unrealized gain or loss on the bonds?
1-c. Will earnings increase or decrease due to the hedging arrangement?
2. Suppose interest rates increased, rather than decreased, causing the fair value of both the derivative and of the hedged bonds to decrease by $108,000.
a. Would CMOS have an unrealized gain or loss on the derivative for the period?
b. Would CMOS have an unrealized gain or loss on the bonds?
c. Would earnings increase or decrease due to the hedging arrangement?
3. Suppose the fair value of the bonds at December 31, 2021, had increased by $136,000 rather than $108,000, with the additional increase in fair value due to investors’ perceptions that the creditworthiness of CMOS was improving.
a. Would CMOS have an unrealized gain or loss on the derivative for the period?
b. Would CMOS have an unrealized gain or loss on the bonds?
c. Would earnings increase or decrease due to the hedging arrangement?
4. Suppose the notional amount of the swap had been $20 million, rather than the $18 million principal amount of the bonds. As a result, at December 31, 2021, the swap’s fair value had increased by $136,000 rather than $108,000.
a. Would CMOS have an unrealized gain or loss on the derivative for the period?
b. Would CMOS have an unrealized gain or loss on the bonds?
c. Would earnings increase or decrease due to the hedging arrangement?
5. Suppose BIOS Corporation is an investor, having purchased all $18 million of the bonds issued by CMOS as described in the original situation above. BIOS is hedging its investment, classified as available-for-sale, with a 20-year interest rate swap and has designated the swap as a fair value hedge. The agreement called for BIOS to make payment based on a 9% fixed interest rate on a notional amount of $18 million and to receive interest based on a floating interest rate tied to LIBOR.
a. Would BIOS have an unrealized gain or loss on the derivative for the period due to interest rates having declined?
b. Would BIOS have an unrealized gain or loss on the bonds?
c. Would earnings increase or decrease due to the hedging arrangement?