On January 1, 2021, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $330,000. The Cortland bonds have a stated interest rate of 5%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market yield on particular dates is as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):

Required:
1. Calculate the price Ithaca would have paid for the Cortland bonds on January 1, 2021 (ignoring brokerage fees), and prepare a journal entry to record the purchase.
2. Prepare all appropriate journal entries related to the bond investment during 2021, assuming Ithaca accounts for the bonds as a held-to-maturity investment. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds.
3. Prepare all appropriate journal entries related to the bond investment during 2021, assuming that Ithaca chose the fair value option when the bonds were purchased, and that Ithaca determines fair value of the bonds semiannually. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds.

You are analyzing a proposal to build a new plant. Use the following information, a cost of capital of 14%, a capital gains tax rate of 5%, and an income tax rate of 40%. Land for the plant will be purchased today for $500. At the beginning of the second year (one year from today), $1,000 will be spent for the construction of the building. The equipment will be purchased at the beginning of the third year at a cost of $1,500. Operations will begin at the beginning of the fourth year, at which time a working capital investment of $500 will be required. Cash flows from operations will occur for 10 years and will be received at the end of each year. The building construction cost and the equipment will be depreciated on a straight-line basis, with zero expected salvage for each. Assume that you can't depreciate the building and equipment until you use them in operations. After 10 years of operation, you expect to sell the land for $600. Annual incremental revenue will be $2,000 for the first 5 years of operation, and $2,500 for the last 5 years of operation. Fixed operating costs (excluding depreciation) will be $200 each year. Annual variable operating costs will be 25% of annual revenue. The building and equipment both qualify for a 10% investment tax credit that can be received at the time each is purchased. This investment tax credit will not affect the amount you can depreciate.

1. Calculate the NPV

2. Calculate the IRR

Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made.

The pizzeria’s cost formulas appear below:

In November, the pizzeria budgeted for 2,010 pizzas at an average selling price of $14 per pizza and for 210 deliveries.

Data concerning the pizzeria’s actual results in November appear below:

Required:

1. Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made.

The pizzeria’s cost formulas appear below:

In November, the pizzeria budgeted for 1,770 pizzas at an average selling price of $14 per pizza and for 210 deliveries.

Data concerning the pizzeria’s actual results in November appear below:

Required:

1. Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

The Moto Hotel opened for business on May 1, 2017. Here is its trial balance before adjustment on May 31.

Other data:

Robin Hood and his Merry Men are now in trouble because wealthy travelers (their source of revenue) are avoiding the forest. As is often common in an entrepreneurial organization, the Merry Men were highly motivated by Robin Hood’s leadership. Therefore, Robin had previously relied on informal communication to organize and implement operations. Robin is pleased with the growing size and influence of his organization. However, growth has meant that specialized duties have begun taking up most of the men’s time, leaving a command vacuum between Robin and the first line recruits. In addition, they are now all located in a large encampment that can be seen for miles. This creates the probability of a surprise attack on their position. Growth has also put great pressures on resources, so now they must harvest the forest more thoroughly. Where will additional revenue come from? Rich travelers are avoiding the forest, so in desperation Robin is considering robbing the poorer travelers, which means his lieutenants must now tell their men to rob their brothers and fathers. What started as a rebellion is in danger of being routinized into banditry. Robin must therefore begin to evaluate the Merry Men’s mission in view of the changing environment.

1. What business is Robin Hood’s organization in?

2. What strategic problems does Robin Hood have?

3. What issues need to be addressed?

4. What decisions need to be made?

5. What strategy should Robin Hood implement?

The following is a partial trial balance for General Lighting Corporation as of December 31, 2018:

200,000 shares of common stock were outstanding throughout 2018. Income tax expense has not yet been recorded. The income tax rate is 40%.

Required:
1. Prepare a single-step income statement for 2018, including EPS disclosures.
2. Prepare a multiple-step income statement for 2018, including EPS disclosures.
  

Required 1

Required 2

Prepare a single-step income statement for 2018, including EPS disclosures. (Round EPS answer to 2 decimal places.)

2

Required 2

Prepare a multiple-step income statement for 2018, including EPS disclosures. (Round EPS answer to 2 decimal places. Amounts to be deducted should be indicated with a minus sign.)

Suppose the inverse demand for gasoline is given by p=10-QD/2.
a. Find the equilibrium price and quantity assuming supply is perfectly elastic and given by
MC=3.

In the U.S., gasoline is taxed on a per gallon basis, and the tax is paid by suppliers. Suppose the
tax is $0.5 per gallon of gasoline.

b. After the tax is imposed, what is the new equilibrium price and quantity? How much revenue
is raised by the tax?

c. What is the tax burden on consumers and producers? (in other words, what portion of the tax
is borne by consumers, what portion is born by producers?) How do these compare and why?
Calculate the deadweight loss of the tax.

d. Suppose the tax is increased from $0.5 to $1 per gallon. What is the new equilibrium, and
how much revenue is raised? What is the extra deadweight loss associated with this tax increase?
How does the deadweight loss of the tax increase from $0.5 to $1 compare to the deadweight
loss from a tax increase from $0 to $0.5? Why is this the case?

e. Repeat parts (b) and (c) assuming that the tax, rather than being collected from suppliers, is
actually collected from gasoline consumers.

f. Repeat parts (a)-(c) assuming that the marginal cost curve is instead given by MC = Q/2. How
does the incidence of the tax compare to what you found in (c)? Why?

I, an individual formed X corporation on January 1 of year 1 by contributing $100 of manager’s service and a stock in Y corporation (representing 1% ownership in Y) with a FMV of $500 and adjusted basis of $600 and an ordinary asset with a FMV of $500 and an adjusted basis of $450 to X in exchange for 11 shares of X stock. I was the only shareholder. In addition to the above, during Year 1, the following transactions occurred. During year 1, you may assume X is a qualified small business corporation at all times

Year 1

X earned $250 revenue.

On July 1, X received a $50 dividend from Y Corp.

On January, X purchase section 179 asset for $100.00.

On October 31, X distributed $50 cash to I

Year 2

X earned $100 revenue

X received a $50 dividend distribution from Y Corp.

On May 5 X distributed $100 cash to I

On July 1 I sold his shares to J for $650

On October 31 X distributed $100 cash to J

On December 30 X sold Y Corp stock for $450.

Question:

1. What income, gain or loss, including character, does I recognize as a result of the sale of X’s stock for $650?

2. What income, gain or loss, if any does J recognize as a result of the $100 distribution in Year 2?