1. Consider the following data.

From these data, calculate the following ratios, showing all work:

Assume that depreciation is included in “Costs”. Using these ratios, calculate the I/S and B/S for 2016.

Assume that the leverage remains constant (at 0.40).

Assume the common stock remains constant (at 800), that is no new common stock is issued.

1. Using these data, calculate the cash flow to be discounted (CF) for 2016.
2. Assuming that this CF increases by 10% per year indefinitely, what is the value of the company? (Use a discount rate (r) of 15%)
3. What is the dividend paid during 2016? What is the dividend yield? What is retained earnings (RE) at the end of 2016?

National Leasing leases equipment to a variety of businesses. The company's primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term leases. National earns interest under these arrangements at a 10% annual rate.

The company leased production equipment it purchased on December 31 2015 for 270000 to a local company, Greenberg Inc. The six year operating lease term commence January 1, 2016, and the lease contract specified annual payments of 24000 beginning December 31, 2016 and each December 31 through 2021. The machine's estimated useful life is 15 years with no estimated residual value.

Greenberg had the option to terminate the lease after 4 years. At the beginning of the lease, there was no reason to believe the lease would be terminated.

Required: Round your answers to the nearest whole dollar amounts.

1. Prepare the appropriate journal entries for National Leasing from the beginning of the lease through the end of 2016. (1/1/2016, 12/31/2016)

2. Prepare the appropriate journal entries pertaining to the lease for National Leasing at December 31, 2017.

Annie is an employee of ABC Ltd., a Canadian controlled private corporation. On April 1, 2015, ABC Ltd. granted Annie stock options to buy 10,000 shares in the company at an exercise price of $25 per share.

On February 16, 2016, she exercised a portion of her options and received 8000 shares. On March 31, 2019, Annie exercised the remainder of her options. On May 1, 2019 she sold all her shares.

ABC Ltd. shares had the following fair market values -

April 1, 2015 $27 per share

February 16, 2016 $42 per share

March 31, 2019 $33 per share

May 1, 2019 $45 per share

a) For each taxation year 2015, 2016 and 2019, indicate the effect of the above transactions on Annie's income from employment.

b) For each taxation year 2015, 2016, and 2019, indicate the effect of the above transactions on Annie's income for income tax purposes.

c) For each taxation year 2015, 2016, and 2019, indicate the effect of the above transactions on Annie's taxable income

Inventories valued on the LIFO basis at December 31, 2016 and 2015 were approximately $47.5 million and $51.8 million, respectively, less than the amounts of such inventories valued at current costs.  As a result of reducing certain inventory quantities valued on the LIFO basis, net income (after tax) increased by $2.2 million, $1.8 million, and $1.3 million in 2016, 2015, and 2014, respectively.

a. By how much would net income (after taxes) have differed for 2016 if Varscom had used FIFO method for valuation of inventory items, instead of LIFO?  Assume a 40% marginal tax rate.  Be sure to indicate whether FIFO income would be higher or lower than LIFO income.  (Hint: By definition, difference between LIFO inventory and current cost inventory is LIFO reserve)

b. What would the LIFO reserve have been on December 31, 2016 if no LIFO liquidation had occurred in 2016? (Hint: without LIFO liquidation, LIFO reserve does not reflect the pretax profit from the liquidation of LIFO layer)

c. What would motivate Varscom management decide to liquidate the LIFO inventory layer?  

(Note this question is 4.3 in the Pre-recorded Tutorial Questions) The financial year end for Riverwood Ltd is 30 June.

a. Prepaid insurance as at 1 July 2015 was $4,000. This represents the cost of one year’s insurance policy that expires on 30 June 2016.

b. Commissions to sales personnel for the five day working week ending 2 July 2016, totaling $9,600, will be paid on 2 July.

c. Sales revenue for the year included $570 of customer deposits for products that have not yet been shipped to them.

d. A total of $900 worth of stationery was charged to the office supplies expense during the year. On 30 June about $490 worth of stationery is still considered useful for next year.

e. The company has a bank loan and pays interest annually (in arrears) on 31 December. The estimated total interest cost for the calendar year ended 31 December 2016 is $500.

Required: (a.) Show the effect of each of the situations above (a. – e.) on the accounting equation on 30 June 2016.

(b.) Provide the adjusting journal entry for each of the situations above (a. – e.) on 30 June 2016.

Research Problem 4. On March 5, 2016, Mr. and Mrs. Horton borrowed $100,000 against the equity in their personal residence with the loan secured by that home. For 2016 and 2017, they were able to deduct the interest expense on this loan as home equity interest expense [an itemized deduction on Schedule A (Form 1040)]. The Tax Cuts and Jobs Act of 2017 disallows this interest expense deduction for 2018 through 2025. The Hortons’ CPA has asked them to review their financial records for February and March of 2016. They discover that they sold Disney stock on February 20, 2016, and used the proceeds to purchase Microsoft stock. Why is their CPA asking them for this information? How might this stock purchase in March 2016 help them obtain a deduction for all or part of the interest paid in 2018 and later on this home equity loan?

• Partial list of research aids:

• Reg. § 1.163–8T.

• Notice 89–35, 1989–1 C.B. 675.

Use internet tax resources to address the following questions. Look for reliable websites and blogs of the IRS and other government agencies, media outlets, businesses, tax professionals, academics, think tanks, and political outlets.

Harmony Audio Company manufactures two models of speakers, DL and XL. Based on the following production and sales data for September 2016, prepare (a) a sales budget and (b) a production budget.

a. Prepare a sales budget.

b. Prepare a production budget.

Knowledge Check 01

The data provided here is of Stevenson Company. The tax rate is 30%. From this data, compute the gross margin percentage for the year 2016.

• 66.0%

• 64.7%

• 35.3%

• 34.0%

Knowledge Check 02

The data provided here is of Stevenson Company. The tax rate is 30%. From this data, compute the net profit margin percentage for the year 2016.

• 8.0%

• 10.8%

• 9.7%

• 9.0%

Knowledge Check 03

The data provided here is of Stevenson Company. The tax rate is 30%. From this data, compute the return on total assets for the year 2016.

• 38.5%

• 39.7%

• 41.9%

• 40.9%

Knowledge Check 04

The data provided here is of Stevenson Company. The tax rate is 30%. From this data, compute the return on equity for the year 2016.

• 37.6%

• 44.1%

• 38.9%

• 45.5%

14. 8. Read the story below from NPR and then identify the very important concept . How does it relate to correlation and Chi-Square

Analysis Finds Geographic Overlap In Opioid Use And Trump Support In 2016

June 23, 20188:02 AM ET

Paul Chisholm, NPR

In 2016, Donald Trump captured 68 percent of the vote in West Virginia, a state hit hard by opioid overdoses.

BRENDAN SMIALOWSKI/AFP/Getty Images

The fact that rural, economically disadvantaged parts of the country broke heavily for the Republican candidate in the 2016 election is well known. But Medicare data indicate that voters in areas that went for Trump weren't just hurting economically — many of them were receiving prescriptions for opioid painkillers.

The findings were published Friday in the medical journal JAMA Network Open. Researchers found a geographic relationship between support for Trump and prescriptions for opioid painkillers.

It's easy to see similarities between the places hardest hit by the opioid epidemic and a map of Trump strongholds. "When we look at the two maps, there was a clear overlap between counties that had high opioid use ... and the vote for Donald Trump," says Dr. James S. Goodwin, chair of geriatrics at the University of Texas Medical Branch in Galveston and the study's lead author. "There were blogs from various people saying there was this overlap. But we had national data."

Goodwin and his team looked at data from Census Bureau, the 2016 election and Medicare Part D, a prescription drug program that serves the elderly and disabled.

To estimate the prevalence of opioid use by county, the researchers used the percentage of enrollees who had received prescriptions for a three-month or longer supply of opioids. Goodwin says that prescription opioid use is strongly correlated with illicit opioid use, which can be hard to quantify.

"There are very inexact ways of measuring illegal opioid use," Goodwin says. "All we can really measure with precision is legal opioid use."

Goodwin's team examined how a variety of factors could have influenced each county's rate of chronic opioid prescriptions. After correcting for demographic variables such as age and race, Goodwin found that support for Trump in the 2016 election closely tracked opioid prescriptions.

In counties with higher-than-average rates of chronic opioid prescriptions, 60 percent of the voters went for Trump. In the counties with lower-than-average rates, only 39 percent voted for Trump.

A lot of this disparity could be chalked up to social factors and economic woes. Rural, economically-depressed counties went strongly for Trump in the 2016 election. These are the same places where opioid use is prevalent. As a result, opioid use and support for Trump might not be directly related, but rather two symptoms of the same problem – a lack of economic opportunity.

To test this theory, Goodwin included other county-level factors in the analysis. These included factors such as unemployment rate, median income, how rural they are, education level, and religious service attendance, among others.

These socioeconomic variables accounted for about two-thirds of the link between voter support for Trump and opioid rates, the paper's authors write. However, socioeconomic factors didn't explain all of the correlation seen in the study.

"It very well may be that if you're in a county that is dissolving because of opioids, you're looking around and you're seeing ruin. That can lead to a sense of despair," Goodwin says. "You want something different. You want radical change."

For voters in communities hit hard by the opioid epidemic, the unconventional Trump candidacy may have been the change people were looking for, Goodwin says.

Dr. Nancy E. Morden, associate professor at the Dartmouth Institute for Health Policy and Clinical Practice, agrees. "People who reach for an opioid might also reach for ... near-term fixes," she says. "I think that Donald Trump's campaign was a promise for near-term relief."

Goodwin's study has limitations and can't establish that opioid use was a definitive factor in how people voted.

"With that kind of study design, you have to be cautious in terms of drawing any causal conclusions," cautions Elene Kennedy-Hendricks, an assistant scientist in the Department of Health Policy and Management at the Johns Hopkins Bloomberg School of Public Health. "The directionality is complicated."

Goodwin acknowledges that the study has shortcomings.

"We were not implying causality, that the Trump vote caused opioids or that opioids caused the Trump vote," he cautions. "We're talking about associations."

Still, the study serves as an interesting example highlighting the links between economic opportunity, social issues and political behavior.

"The types of discussions around what drove the '16 election, and the forces that were behind that, should also be included when people are talking about the opioid epidemic," Goodwin says.