Dillon, a U.S. citizen, resides in Country K for all of 2010

C:16-44 Foreign-Earned Income Exclusion. Dillon, a U.S. citizen, resides in Country K for all of 2010. Dillon is married, files a joint return and claims two personal exemptions. The following items pertain to his 2010 activities:

Salary and allowances (other than for housing) a $175,000
Housing allowance 28,000
Employment-related expenses b 7,500
Housing costs 30,000
Other itemized deductions 4,000
Country K income taxes 12,000

a) All of Dillon’s salary and allowances are attributable to services performed in Country K.
b) Dillon claims the employment-related expenses as itemized deductions.
What is Dillon’s net U.S. tax liability for 2010 (assume that Dillon excludes his earned income and housing cost amount)?


Click here for the solution: Dillon, a U.S. citizen, resides in Country K for all of 2010

Arnie, a U.S. citizen who uses the calendar year as his tax year and the cash method of accounting, operates a sole proprietorship in Country Z

C:16-39 Translation of Foreign Tax Payments.

Arnie, a U.S. citizen who uses the calendar year as his tax year and the cash method of accounting, operates a sole proprietorship in Country Z. In Year 1, he reports 500,000 doubles of pretax profits. On June 1 of Year 2, he pays Country Z income taxes of 150,000 doubles for calendar Year 1. Double-U.S. dollar exchange rates on various dates in Year 1 and Year 2 are as follows:

December 31, Year 1 4.00 doubles $1 (U.S.)
Year 1 average 3.75 doubles $1 (U.S.)
June 1, Year 2 4.25 doubles $1 (U.S.)

a. What is the U.S. dollar amount of Arnie’s foreign tax credit? In what year can Arnie claim the credit?
b. How would your answer to Part a change if Arnie elected to accrue his foreign income taxes on December 31 of Year 1, and filed his Year 1 U.S. income tax return on April 15 of Year 2?
c. What adjustment to the credit claimed in Part b would Arnie have to make when he pays his Country Z taxes on June 1 of Year 2?


Click here for the solution: Arnie, a U.S. citizen who uses the calendar year as his tax year and the cash method of accounting, operates a sole proprietorship in Country Z

Assume that a country estimates its M1 money supply at $20 million

8. Assume that a country estimates its M1 money supply at $20 million. A broader measure of the money supply, M2, is $50 million. The country’s gross domestic product is $100 million. Production or real output for the country is 500,000 units or products.

a. Determine the velocity of money based on the M1 money supply.
b. Determine the velocity of money based on the M2 money supply.
c. Determine the average price for the real output.

Click here for the solution: Assume that a country estimates its M1 money supply at $20 million

Norma’s Cat Food of Shell Knob ships cat food throughout the country

Norma’s Cat Food of Shell Knob ships cat food throughout the country. Norma has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by two and one-half days. Furthermore, the cash management department of her bank has indicated to her that she can defer her payments on her accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Iowa.

a. If the company has $5 million per day in collections and $3 million per day in disbursements, how many dollars will the cash management system free up?
b. If the company can earn 8 percent per annum on freed-up funds, how much will the income be?
c. If the annual cost of the new system is $800,000, should it be implemented?

Click here for the solution: Norma’s Cat Food of Shell Knob ships cat food throughout the country

You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country

Case 9-30 Master Budget with Supporting Schedules

EARRINGS UNLIMITED

Minimum ending cash balance $50,000
Selling price $10

Recent and forecast sales: January (actual) 20,000 February (actual) 26,000 March (actual) 40,000 April 65,000 May 100,000 June 50,000 July 30,000 August 28,000 September 25,000

Desired ending inventories (percentage 40% of next month's sales)
Cost of earrings 4

Purchases paid as follows: In month of purchase 50% In following month 50% Collection on sales: Sales collected current month 20% Sales collected following month 70% Sales collected 2nd month following 10% Variable monthly expenses: Sales commissions (% of sales) 4% Fixed monthly expenses:
Advertising 200,000
Rent 18,000
Salaries 106,000
Utilities 7,000
Insurance (12 months paid in November) 3,000
Depreciation 14,000
Equipment purchased in May 16,000
Equipment purchased in June 40,000
Dividends declared each quarter 15,000

Balance sheet at March 31:
Assets Cash $74,000
Accounts receivable 346,000
Inventory 104,000
Prepaid insurance 21,000
Property and equipment (net) 950,000
Total assets $1,495,000

Liabilities and Stockholders' Equity
Accounts payable $100,000
Dividends payable 15,000
Capital stock 800,000
Retained earnings 580,000
Total liabilities and stockholders' equity $1,495,000

Agreement with Bank:
Borrowing increments $1,000
Interest rate per month 1%
Repayment increments $1,000
Total of interest paid each quarter 100%
Required minimum cash balance $50,000

Required:
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchase, by month and in total.
2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.
3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.XX

Click here for the solution: You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country