Corporate Tax Return Project

Complete Form 1120 pages 1 and 2, Schedule D, Form 8949 and complete Schedule M-1 on page 5 of a 2018 Form 1120 for the following taxpayer using the information that follows:

• For purposes of this project only, do not attach other forms as required by certain lines of Form 1120.

Taxpayer Information:

Champion, Inc. is an accrual-basis, calendar-year corporation that operates five local “sports merchandise-stores”.  

Champion was incorporated on February 28th, 2017

Champion’s main office is located at 2346 Lake Shore Drive, Chicago, IL 60606

Champion’s employer identification number is 31-0923874.

Champion has total assets as of December 31, 2018 of $3,540,000

• Champion’s receipts for book purposes are as follows:
  • Champion’s gross receipts for the year totaled $1,700,000, which included returns and allowances of $123,000. Total Gross Receipts totaled $1,577,000.
  • Champion received $16,200 of interest income during the year, with $5,120 from City of DeKalb bonds and the balance from BMO Harris certificates of deposit.
  • Champion received dividend income of $4,000 from Disney Corporation.  Champion owns less than 5% of Disney stock.
  • In December 2018, Champion received $13,500 from a company that will lease excess space in Champion’s largest store from January 1 through October 31, 2019.
• Champion’s expenses for book purposes are as follows:
  • Cost of Goods Sold                                                                     $710,000
  • Salaries (including Officers’ Compensation of $123,000)                     230,000
  • Federal income tax                                                                         22,375
  • Depreciation                                                                                180,000
  • State & Local Taxes                                                                        92,300
  • Interest Expense                                                                              3,800
  • Repairs                                                                                         11,500
  • Rent                                                                                             36,750
  • Advertising                                                                                   20,000
  • Contribution to Gov. Rauner’s re-election campaign                               8,750
  • Property/Casualty Insurance Premiums                                               14,000
  • Business Meals                                                                                6,250
  • Business Entertainment                                                                     3,500
  • Hotel and airfare for business                                                             3,250
  • Premiums paid to key employee life insurance policy                        8,950
  • Charitable contributions paid                                                           78,750
• Champion’s total cost recovery for tax purposes was $132,500.
• Champion has a net capital loss carryforward from 2017 of $8,000
• Champion sold IBM stock on 7/4/18 for $4,100.  The shares had been purchased on 12/13/17 for $1,500.
• For its first tax year, Champion generated a $21,000 net operating loss.
• Champion made the following estimated income tax payments to the IRS for 2018:
  • Overpayment in 2017, credited to 2018                                         $1,550
  • 2^ndquarter, 3^rdquarter, 4^thquarter                                         $2,700 each

• Champion does not qualify for any other tax credits in 2018.
• Any overpayment of 2018 tax should be credited to its 2019 estimated taxes.

Black Mountain Ski Resort has been granted a 20 - year permit to develop and operate a skiing operation in a national park. After 20 years the site must be returned to its original condition. The roads may remain, as they can be used for fire prevention purposes. In the spring and summer before the ski hill opened, the following transactions and events occurred:

You must use the following Long-Lived asset accounts

Ski Lift

Ski Chalet

Land improvement

Roads

Parking lot

1. Installed three ski lifts for a total cost of $150,000,000. It is estimated that the scrap metal from the lifts could be sold for $4,000,000 at the end of 20 years.
2. Built a Ski chalet for $70,000,000
3. Removed Trees and cleared the area for ski runs at a cost of $40,000,000
4. Received $ 10,000,000 for the trees that were removed for the ski runs.
5. Put in roads for a cost of $50,000,000.
6. Paved an area at the base of the mountain for a parking lot at a cost of $10,000,000.
7. Estimated that it would cost $20,000,000 to dismantle the ski lifts in 20 years. The chalet could be removed for a cost of $15,000,000. Re-foresting the site would cost $5,000,000. Removing the parking lot will cost $3,000,000. Calculate the PV of Site Restoration using a risk rate of 6% and provide the journal entry.

8. Using Straight Line Depreciation record the depreciation for the first year of operations on the Long-Lived assets and site restoration costs. Put all the depreciation expense in one account and then create accumulated depreciation accounts for each asset that requires depreciation.

9. Allocate the interest expense on the site restoration costs for the first three years

10. Using the table below prepare the balance sheet presentation of all the accounts involved in this question for the end of the third year of operations.

    	Cost	Accumulated Depreciation	Net Carrying Amount
    Property Plant and Equipment
    Ski Lift
    Ski Chalet
    Land Improvement
    Roads
    Parking Lot
    Site Restoration Costs
    Total Property Plant and Equipment

    Long Term Liabilities

    Obligation for future restoration =

11. At the end of the project the actual cost of restoring the site is $43,000,000, as originally estimated. Prepare the journal entry to record the payment of these costs at the end of the project

    Date	Explanation/ Account	Debit	Credit

    what would be the total expenses associated with the site restoration in the first, second and 20^th year?

    Year	Depreciation of Site Restoration Costs	Interest expense accrual on obligation for future site restoration	Total Expense relating to site restoration
    1
    2
    20

    Calculations

Staci Sutter works as an analyst for Independent Investment Bank Shares (IIBS), which is a large investment banking organization. She has been evaluating an initial public offering (IPO) that IIBS is handling for a technology company named ProTech Incorporated. Staci is essentially finished with her analysis, and she is ready to estimate the price for which the stock should be offered when it is issued next week. According to her analysis, Staci has concluded that ProTech is financially strong and is expected to remain financially strong long into the future. In fact, the figures provided by ProTech suggest that the firm’s growth will exceed 30% during the next 5 years. For these reasons, Staci is considering assigning a value of $35 per share to ProTech’s stock.

Staci, however, has an uneasy feeling about the validity of the financial figures she has been evaluating. She believes that Protech’s CFO has given her what he believes are “quality financial statements”. Yesterday Staci received an email from a friend, who was an executive at ProTech until he was fired a few months ago, that suggests that the company has been artificially inflating its sales by selling products to an affiliate company and then repurchasing the same items a few months later. At the same time, Staci received a memo from her boss, Mr. Baker, who has made it clear that he thinks the ProTech IPO can be extremely profitable to top management “if it is handled correctly.” In his memo, Mr. Baker indicates that the issue price of ProTech’s stock must be at least $34 per share for the IPO to be considered successful by IIBS.

Part of Staci’s uneasiness stems from the fact that a coworker confided that she had seen the CEO of ProTech and his wife at an amusement park with Mr. Baker and his wife last month. If she discovers that ProTech’s sales figures are inflated, Staci surely would assign a different value to the company’s stock for the IPO. But it will take her at least two weeks to completely reevaluate the company using different data. Staci knows that if she stays with her current analysis and she is wrong, the consequences can destroy IIBS because reputation is important in the investment banking business.

If you were in Staci’s situation, what would you do? (Please address in your initial post the following: (1) What is the ethical dilemma? (2) Should IIBS delay the Protech’s IPO until more information can be gathered about “information” Staci received recently and (3) What action do you think Staci, IIBS, or both should take? Please be detailed in your response.

The WIZARD system at Avis

It is possible to rent cars at almost every major airport and city centre in the world, and there is

invariably intense competition to attract and keep customers. Since the hire companies all offer

similar ranges of relatively new vehicles, and the reliability of these cars is taken for granted by

most customers, competition is generally on service and/or price. The most critical service

factor is the availability of the desired category (size and specification) of car, and the speed

with which all the hire contract paperwork can be completed, so that the customer is not

unnecessarily delayed. This depends on the effectiveness of the hire company’s planning and

control system. One of the most important Avis sites in Belgium is the operation at Brussels

National Airport at Zaventem, which deals predominantly with business customers, and hires

out up to 200 cars on a busy day. Avis’s advertisement, targeted at the business market,

emphasizes its ability to process customers quickly and efficiently. The objective is to complete

the transaction in less than two minutes and this is facilitated by Avis’s well-developed

computer system, known as WIZARD, which handles all reservations, preparation of hire

contracts at the service desks, inventory management and invoicing systems. WIZARD is a

globally integrated system, with over 15,000 terminals in Avis branches worldwide, allowing

international reservations to be made with accuracy and certainty, and helping to maximize the

utilization of vehicles throughout the network.

Regular customer surveys and analyses of actual demand patterns are carried out to determine

the customers’ preferences in terms of type and category of vehicles, providing a guide to the

Belgian fleet composition, which is managed from the central ‘clearing house’ at Machelen.

Because each of the Belgian branch offices has access to a pool of cars held at Machelen, their

local buffer stock requirements can be minimized. The requirements for the movement of car

inventory between branches and between countries is centralized in this way, allowing the

branches to concentrate on the task of providing good customer service. Each regular business

customer has a unique reference number in WIZARD, allowing reservations to be made and

rental contracts to be completed quickly, with only three pieces of information: the customer’s

number, the type of car required and the duration of the hire. This type of transaction is usually

completed within two minutes, after which the customer goes directly to the car park and

collects the car.

Questions

1. What do you see as the main planning and control tasks of the Wizard system?

2. How would you evaluate the effectiveness of the planning and control activity at Avis?

Define the class HotelRoom. The class has the following private data members: the room number (an integer) and daily rate (a double). Include a default constructor as well as a constructor with two parameters to initialize the room number and the room’s daily rate. The class should have get/set functions for all its private data members [20pts]. The constructors and the get/set functions must throw an invalid_argument exception if either one of the parameter values are negative. The exception handler should display the message “Negative Parameter” [20pts]. Include a toString() function that nicely formats and returns a string that displays the information about the hotel room [10pts].

1. Write a main function to test the class HotelRoom, create a HotelRoom object. Try to set the room rate to an invalid value to generate an exception. Invoke the toSting() function to display the HotelRoom object. [20pts]
2. Derive the classes GuestRoom form the base class HotelRoom. The GuestRoom has private data fields and public functions:
   1. The private data field capacity (an Integer) that represents the maximum number of guests that can occupy the room. [5pts]
   2. The private data member status (an integer), which represents the number of guests in the room (0 if unoccupied). [5pts]
   3. An integer data field days that represents the number of days the guests occupies the room. [5pts]
   4. Add constructors and get/set functions to the GuestRoom class. The set function for the status data member must throw an out_of_range exception if it tries to set status to value greater than the capacity. [30pts]
   5. The function calculateBill() that returns the amount of guest’s bill. [10pts]
   6. Redefine the function toString() that formats and returns a string containing all pertinent information about the GuestRoom. [15pts]
3. Derive the classes MeetingRoom form the base class HotelRoom. The class has the following private data filed sand public functions:
   1. A private data field seats, which represents the number of seats in the room. [5pts]
   2. An integer data field status (1 if the room is booked and 0 otherwise). [5pts]
   3. Add constructors and get/set functions to the GuestRoom class. [10pts]
   4. Redefine the function toSting() to format and return a string containing all pertinent information about the MeetingRoom. [20pts]
   5. The function CalculateBill(), which returns the amount of the bill for renting the room for one day. The function calculates the bill as follows: the number of seats multiplied by 10.00, plus 500.00. [20pts]
4. Write a main function to test the classes GuestRoom and MeetingRoom. Invoke the calculateBills and toStirng() in each of the objects. [40pts]

Case Study 5–5 All in a Day’s Work

Sarah Goodman, senior manager of network development for Holy Managed Care Company, looked over her calendar for the day and sighed deeply. It seemed as if there would be no time at all to work on the project she’d been putting off for most of the week. Circumstances seemed to be such that she simply didn’t have any control over her own time anymore.

Well, first things first, she determined. At 9:00 she was due at a meeting of senior managers who were involved in trying to devise a strategy for counteracting a threatened unionization drive by the company’s nonexempt employees. As Sarah thought about the people working for her, she began to wonder exactly what they wanted. They had a pleasant working space, good benefits package, and secure employment. She heard the laughter and chatter drifting into her office as people came into work and thought what a pleasant and congenial group they were. What more could they want?

Then at 10:30 there was another meeting. This one could be very exciting! In six months Sarah’s office was scheduled to be moved to a new industrial park on the west side of town. The plans she’d seen so far had all kinds of great perks for employees: on-site day-care center, fitness center, ample parking, great facilities for training. The company was certainly spending a lot of money on this new site. Sarah certainly hoped it would help increase productivity; it certainly would make the employees happier
and make recruitment easier.

She’d have to hurry to her lunch meeting with the adviser for the MHA program at Saint Thomas University. Sarah had decided as a part of her New Year’s resolution that she was finally going to begin her graduate degree. She felt she was simply stagnating in her job and, after looking around at positions in her company that looked interesting, she realized she needed a graduate degree if she were going to progress. The only problem was that she wasn’t sure how enthusiastic Richard, her husband, would be about the whole idea. And her mother certainly wouldn’t be happy! The hints about grandchildren had become an outright discussion over the holidays.

Discuss the various motivation theories reflected in this case study.

These include:

Maslow's Hierarchy of Needs Theory

Alderfer's ERG Theory

Herzberg's Two-Factor Theory

Hackman and Oldham's Job Design Theory

McClelland's Three-Needs Theory

Linda is a 60-year-old woman with moderate mental retardation who has recently been diagnosed with congestive heart failure. Her doctor has recommended that Linda lose weight, get regular exercise, and eat low sodium, low cholesterol diet. She lives in an adult living facility. Linda works at a local shelter. She is required to bring lunch to the shelter every day and she always brings a bologna and cheese sandwich, a bag of pretzels and a chocolate chip cookie. During her morning break, she always gets a Coke and a bag of potato chips from the vending machine for a snack. Linda has eaten this same diet every day for at least 25 years and is very resistant to the idea of changing what she eats for lunch every day. After work Linda has staff that supports her in cooking dinner and she has tried a variety of foods. On the weekends her favorite thing to do is to go to Burger King for a Whopper with cheese and a large French fries. Linda has support with going grocery shopping. She is willing to pick out a variety of foods, but she always insists on buying pretzels and potato chips. She becomes very angry when staff suggest that she leave the store without the two items. Linda had had no trouble taking medication as she has staff who remind her in the morning and at night that she needs to do this. She also has support with monitoring her weight every day. She must monitor her weight to assure that she is not retaining water. Linda does not get any regular exercise. She has trouble climbing the set of stairs to her second-floor apartment. A couple of weeks ago one of the staff that supports her tried taking her for an hour walk in a near-by park. She had to turn around after 15 minutes because she was exhausted, and declared that she would never go walking again. Linda is fascinated by machines. One of the staff on weekends noted that she watched several infomercials about treadmills, rowing machines, and other types of exercise equipment. What are the behaviors that need to be changed? What health promotion actions would help? What additional supports or information might motivate Linda? Do you believe Linda can follow her doctor's recommendations? Why or why not?

Bell Brands USA would like to predict the sales of their Babybel cheese product. They have gathered data on monthly sales of the cheese. They have also gathered information related to the average price of all cheeses in the market, the monthly advertising expenditures they expend promoting their product, and the disposable income per household in the areas surrounding the stores that sell their cheese. Below you will find output from the stepwise regression analysis. The p-value method was used with a cutoff of 0.05.

Regression coefficients

(A) Summarize the findings of the stepwise regression method using this cutoff value.

(B) When the cutoff value was increased to 0.10, the output below was the result. The table at top left represents the change when the disposable income variable is added to the model and the table at top right represents the average price variable being added. The regression model with both added variables is shown in the bottom table. Summarize the results for this model.

(C) Which model would you recommend using? Why?

7.3 Part D

Bank Balance Sheet

Item                             Amount            Duration       Interest Rate       

Cash-type Securities       $50m                1.2 year             2.25%

Commercial Loans          $100m             2.4 years           4.50%

Mortgages                     $350m             8.0 years           6.50%

Core Deposits                $270m             1.0 year             2.00%

Notes Payable                $180m             2.0 years           4.50%

3. Off-Balance sheet futures hedge (Use balance sheet information above, 8 points)

T-Bond futures contracts for the delivery of $100,000 face value are trading at 102-16, and have a duration of 9.50 years.

a. What is the total dollar price of each futures contract (P_F)?

b. For this bank to achieve complete immunization, solve for F (total dollar value of futures contracts to immunize). Note: We don’t know the number of contracts yet or a specific interest rate change, so that information should not be used to solve for the dollar value F. Use only the information provided above to solve for F.

c. Using F from part b above, solve for the number of T-Bond futures contracts needed by this bank to hedge the interest rate risk (round to the nearest whole number of contracts).

Answers A-C below

The contract size for Treasury future is usually $100,000. Each contract trades in handles of $1,000,

but these handles are split into thirty-seconds, or increments of $31.25 ($1,000/32)

a)$ Price of Futures Contract = $102.5

b)$ Value of futures Contract = $100000+$2000+($1000*16/32) = $102500

c) 1000 Future Contracts

Please assist with D below

D. Explain in a full essay what risk this bank faces, what position this bank would take on the T-Bond futures contracts to hedge against the interest rate risk it faces, why it would take that position, and graph that position in a fully-labeled futures payoff diagram.