Oscar is a resident of Country B. Country B does not have a tax treaty with the USA. Oscar is an employee of a private company in country B and his employer sends him to the USA in order to do certain work needed to be done in the USA.
Here are his days of presence in the US:
• September 1, 2018, until April 15, 2019. During this time he made $200,000.
• January 1, 2019 until June 30, 2020. During this time he made $55,000.
• He does not return to the USA after this time.
Other facts:
• During each of 2018-2020 he had $155,000 of country B source interest income (would be subjected to the ordinary income tax rate here in the US if taxed here).
• The tax rates in country B are lower than of the USA by a substantial amount.
• The amounts earned that are US source earnings will not be taxed in country B at the same time.

a. Describe his tax status here in the USA and what taxes he would have to pay here. I am not interested in the computation of tax, but what income is subjected to US tax and what type of US taxes he would be subjected to on that income.

b. Assume that country B does have a tax treaty with the US that uses the terms of the 2016 US Model tax treaty. Discuss how this changes things.

Question1:

The following are account balances of Gadgets Com Pty, Ltd., a company selling gadgets, at the end of financial year 2020

Required:

1. Prepare a classified Income Statement
2. Prepare a classified Balance Sheet
3. Incorporating the additional information below, calculate the Gross Profit Margin (GPM) and the Profit Margin (PM) ratios for GadgetsCom and provide your comment on the company’s profitability and efficiency.

Additional Information

The manager was pleased with the increased sales revenue in the current year. Last year’s ratios are GPM 55% and PM 23%. The following are ratio formula used by the company:

Customer Corp. entered into a five-year lease agreement with Supplier Ltd, on 1 July 2019. The lease is for a number of spa baths. Supplier Ltd acquired the spa baths on 1 July 2019, at the fair value of $1,009,850. Customer Corp. uses the spa baths at a club. The baths are expected to have an economic life of seven years, after which time they will have no residual value. There is a bargain purchase option that Customer Corps will be able to, and is expected to, exercise at the end of the fifth year, for $100,000.

There are to be five annual payments of $250,000, due at the end of each fiscal year (i.e., on 30 June each year). Customer Corp. is responsible for the insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis. The interest rate implicit in the lease is 10% per year. The lease can be cancelled by Customer Corp. upon payment of a penalty of $700,000.

REQUIRED:                                       

(1)    What type of lease is this for Supplier Ltd? Provide justifications for your classification considering the criteria in AASB 16 – ‘Leases’.

(2)    Prepare the journal entries, including narrations, for Supplier Ltd from 1 July 2019 to 30 June 2020 to record the lease arrangement consistent with AASB 16 – ‘Leases’.

(3) For Customer Corp. the contract contains a lease. Prepare the journal entries, including narrations, for Customer Corp. from 1 July 2019 to 30 June 2020 to record the lease arrangement consistent with AASB 16 – ‘Leases’.

Customer Corp. entered into a five-year lease agreement with Supplier Ltd, on 1 July 2019. The lease is for a number of spa baths. Supplier Ltd acquired the spa baths on 1 July 2019, at the fair value of $1,009,850. Customer Corp. uses the spa baths at a club. The baths are expected to have an economic life of seven years, after which time they will have no residual value. There is a bargain purchase option that Customer Corps will be able to, and is expected to, exercise at the end of the fifth year, for $100,000.

There are to be five annual payments of $250,000, due at the end of each fiscal year (i.e., on 30 June each year). Customer Corp. is responsible for the insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis. The interest rate implicit in the lease is 10% per year. The lease can be cancelled by Customer Corp. upon payment of a penalty of $700,000.

REQUIRED:                                       

(1)    What type of lease is this for Supplier Ltd? Provide justifications for your classification considering the criteria in AASB 16 – ‘Leases’.

(2)    Prepare the journal entries, including narrations, for Supplier Ltd from 1 July 2019 to 30 June 2020 to record the lease arrangement consistent with AASB 16 – ‘Leases’.

(3) For Customer Corp. the contract contains a lease. Prepare the journal entries, including narrations, for Customer Corp. from 1 July 2019 to 30 June 2020 to record the lease arrangement consistent with AASB 16 – ‘Leases’

Hurricane Harvey caused a net loss of $127 Billion. Let us assume that in any given year the net loss would be the same for the next 10 years (Jan 1, 2020 to Dec 31, 2029) if a Harvey like hurricane were to recur in Houston and adjoining areas. However, if certain investments are made in 2019 to mitigate risks and enhance resilience in the region, the expected loss can be reduced significantly. Let us assume that scientists, engineers and policy experts have worked together to estimate that if the investments are indeed made in 2019 the net loss would reduce to 10% (i.e., $12.7 Billion expected net loss per year over the period from 2020 to 2029 if a hurricane like Harvey were to recur) but additional investments of $ 6.35 Billion would be needed each year to maintain the investments. At the end of 2029 the salvage value of the investments would be 20% of the cost of the original investment. Other than this salvage value there would be no other costs or gains expected after the 10-year period. According to a Presidential tweet at the time, Harvey was a 500-year event. Assuming this probability assessment to be accurate, what present (2019) investment would be justified from a net present worth perspective? Please feel free to make any appropriate assumptions but try to state them clearly.

The following list includes all of the account balances from Blue and White Company's general ledger on December 31, 2020, after all the adjusting entries have been posted. The accounts are listed in alphabetical order, and all accounts have a normal balance. This was Blue and White Company's first year in business.

Instructions: Using the information provided above, prepare a multiple-step income statement, statement of owner's equity, and classified balance sheet for Blue and White Company for the fiscal year ending December 31, 2020. Enter your answer in the space provided below on Connect. The accounts in your financial statements should be in the proper format, but you do not need to align amounts in neat columns. DO NOT ABBREVIATE ACCOUNT TITLES.

FIN 503

Fall 2020

Chapter 3

Assignment 3

Please answer all questions. Do not leave any question unanswered. Show your calculations. Submit the homework through LMS only. Typed answers are preferred but not required. Assignment is due on 11/10/2020 at 11:55 PM

Project X involves a new type of graphite composite in-line skate wheel. We think we can sell 6,000 units per year at a price of $1,000 each.

Variable costs will run about $400 per unit, and the product should have a four-year life.    

Fixed costs for the project will run $450,000 per year. Further, we will need to invest a total of $1,250,000 in manufacturing equipment. This equipment is seven-year MACRS property for tax purposes. In four years, the equipment will be worth about half of what we paid for it. We will have to invest $1,150,000 in net working capital at the start. After that, net working capital requirements will be 25 percent of sales.

First prepare a pro forma income statement for each year.

Next calculate operating cash flow.

Finish the problem by determining total/project cash flow and then calculating NPV assuming a 28 percent required return.

Use a 34 percent tax rate throughout.

Case study 5:

Scenario 1:

ABC S.A.O.G was incorporated with an authorized capital of 300 million shares, ordinary shares of 500 baiza each. The company has in issue 100 million shares. On 15-january-2017 the company has repurchased 8 million shares at the rate of 3.250 each after the completion of all the requirements posed by capital market Authority-CMA. The company re issued such shares in the march 2018 @ rate of 4.000 R.O per share. The general rules set by CMA is that the company cannot repurchase more than 10% of its share capital at one time and there should be a minimum gap of 2 years between any repurchase. On 13-february-2020, the company again has repurchased 10 million shares at the rate of R.O 4.550 each.

Analyse the above situation and answer the following questions:

1. Explain in your own words impact of each repurchase on company’s share capital? Justify it with proper calculations? (1.5 marks-Min 75 words)
2. Has the company carried out the procedure of repurchase within the guidelines of CMA or not? Justify your answer with necessary data? (1.5 marks-Min 75 words)
3. What is the impact on corporation’s financial statements if all of such repurchased stock is reissued in the year 2020 @ R.O 4.000 each (2 marks-Min 100 words)

PBO Calculations, Service Costs & Gains/Losses on PBO (Adapted from Chapter 17, P2-P5)
Sachs Brands defined benefit pension plan specifies annual retirement benefits equal to:
1.5% * Service Years * Final Year’s Salary
Payable at the end of each year. Trom Specht was hired by Sachs at the beginning of 2004 and
is expected to retire at the end of 2038, after 35 years’ of service. Her retirement is expected to
span 18 years. Specht’s salary is $120,000 at the end of 2020 and the company’s actuary
projects her salary to be $210,000 at retirement. The actuary’s discount rate is 8%.
Instructions:
5. What is the 2020 PBO for with respect to Specht?
At the beginning of 2021, the pension formula was amended to:
1.75% * Service Years * Final Year’s Salary
6. What is the company’s prior service cost at the beginning of 2021, with respect to
Specht?
7. How much of the prior service cost should be amortized during 2021 (remember that
the change was at the beginning of 2021)?
8. What is the service cost for 2021 with respect to Specht?
9. What is the interest cost for 2021 with respect to Specht?
10. What is the 2021 PBO for with respect to Specht?
At the end of 2021 (beginning of 2022), changing economic conditions caused the actuary to
reassess the applicable discount rate. It was decided that 7% is the appropriate rate.
11. What is the effect of this change in the discount rate?

The following three defense stocks are to be combined into a stock index in January 2019 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million; that is, if the total value of all firms in the market is $5 billion, the index would be quoted as 500.

PART 1

a. Calculate the initial value of the index if a value-weighting scheme is used. (Round your answer to 2 decimal places.)

b. What is the rate of return on this index for the year ending December 31, 2019? For the year ending December 31, 2020? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

PART 2

You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.5, a debt-to-equity ratio of .4, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryn’s?