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ra1l [238]
3 years ago
5

Nancy sold three capital assets that were held for investment. She sold stock in ABC Corporation for a gain of $10,000; stock in

XYZ Corporation for a gain of $2,000; and corporate bonds for a loss of $20,000. Assuming all of the investments had a long-term holding period, how will the transactions be treated for tax purposes
Business
1 answer:
wlad13 [49]3 years ago
6 0

Answer:

D) $3,000 deduction against ordinary income with a $5,000 capital loss carried forward to offset income for next year

Explanation:

Note: This question is not complete as it does not include the options. The complete question is therefore presented before answering the questions follows:

Nancy sold three capital assets that were held for investment. She sold stock in ABC Corporation for a gain of $10,000; stock in XYZ Corporation for a gain of $2,000; and corporate bonds for a loss of $20,000. Assuming all of the investments had a long-term holding period, how will the transactions be treated for tax purposes?

A) Gain of $12,000 taxed at 15% and a loss of $20,000 deductible against ordinary income

B) Net loss of $8,000 that is fully deductible against ordinary income in the current year

C) Net loss of $8,000 that results in no deduction in the current year, but can be carried forward to offset capital gains for the next year

D) $3,000 deduction against ordinary income with a $5,000 capital loss carried forward to offset income for next year

The explanation to the answer is therefore presented as follows:

The first step is to compute the net capital gain (loss) is as follows:

Particulars                                                                            $  

Gain from the sale of stock in ABC Corporation          10,000

Gain from the sale of stock in XYZ Corporation            2,000

Loss from the sale of corporate bonds                     <u>  (20,000)  </u>

Net capital gain (loss)                                              <u>     (8,000)  </u>

In the US, individuals are allowed to use up to $3,000 to reduce their taxable income in the first year of the loss, while the remaining capital losses will be carried over to the next years.

From the net capital gain computed above, the correct option is D. That is, the $8,000 loss will be treated for tax purposes as a $3,000 deduction against ordinary income in the current year with the remaining $5,000 capital loss carried forward to offset income for next year.

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Sue sells authentic Amish quilts on her website. Suppose Sue expects to sell 3 comma 000 quilts during the coming year. Her aver
e-lub [12.9K]

Answer:

(A) 1,200 Margin of Safety_{units}

(B) 330,000 Margin of Safety_{usd}

(C) Margin of Safety 40% of Sales

Explanation:

(A)

Sales \: Revenue - Variable \: Cost = Contribution \: Margin

275 - 150 = <u>125 CM per unit</u>

\frac{Fixed\:Cost}{Contribution \:Margin} = Break\: Even\: Point_{units}

\frac{225,000}{125} = 1,800 = Break\: Even\: Point_{units}

{units \: sold- BEP_{units} = margin \: of \: safety_{units}

3,000 - 1,800 = 1,200 Margin of Safety_{units}

HOW? we Calculate the contribution per unit. Then the BEP in units and with that the margin of safety in units.

(B)

\frac{Contribution Margin}{Sales Revenue} = $Contribution Margin Ratio

125/275 = 0.45454545 = <u>5/11 CM ratio</u>

\frac{Fixed\:Cost}{Contribution \:Margin \:Ratio} = Break\: Even\: Point_{dollars}

225,000/(5/11) = 495,000 BEP USD

{current \:sales - BEP_{USD} = margin \: of \: safety

825,000-495,000 = 330,000 Margin of Safety_{usd}

HOW? we Calculate the contribution ratio by dividing CM over sales. Then the BEP in dollars and with that the margin of safety in dollars.

<em><u>Important:</u></em> When posible to avoid rounding errors express as fraction iof posible

(C)

\frac{current \:sales - BEP_{USD}}{current \:sales} \times 100 = margin \: of \: safety

\frac{330,000}{825,000} \times 100 = margin \: of \: safety

Margin of Safety 40%

8 0
2 years ago
XYZ, Inc. just paid an annual per share dividend of $3.50. Dividends are expected to grow at a rate of 3% per year from here on
Agata [3.3K]

Answer:

P0 = $42.4117 rounded off to $41.41

Explanation:

Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,

P0 = D0 * (1+g) / (r - g)

Where,

D0 is the dividend paid  recentl

D0 * (1+g) is dividend expected for the next period /year

g is the growth rate

r is the required rate of return or cost of equity

First we need to calculate the required rate of return on this stock using CAPM.

Using the CAPM, we can calculate the required rate of return on a stock. This is the minimum return required by the investors to invest in a stock based on its systematic risk, the market's risk premium and the risk free rate.

The formula for required rate of return under CAPM is,

r = rRF + Beta * (rM - rRF)

Where,

rRF is the risk free rate

rpM is the market return

r = 0.025 + 2 * (0.07 - 0.025)

r = 0.115 or 11.5%

Using the constant growth of dividend formula,

P0 = 3.5 * (1+0.03)  /  (0.115 - 0.03)

P0 = $42.4117 rounded off to $41.41

3 0
3 years ago
A project has cash flows of −$161,900, $60,800, $62,300, and $75,000 for Years 0 to 3, respectively. The required rate of return
Degger [83]

Answer:

Therefore, the internal rate of return is lower than the expected return, for this the project must be rejected

Explanation:

Solution

Given that

The cash flow of a project consists of the following amount from year 0 to 3 = −$161,900, $60,800, $62,300, and $75,000

The rate of return required = 13%

Now,

Let the Internal rate of return be y%

Thus,

At internal rate of return, the value of present inflows is the same as the value of present outflows.

So,

Internal rate of return = Value of present inflows = Value of present outflows

=161900 =60800/1.0y +62300/1.0 y ^2 + 75000/ 1,0 y^3

Therefore, y = internal rate of return 10.41%

7 0
3 years ago
Maria is flagged as a special customer at your firm because she is a satisfied customer, returns to your company to buy, puts he
KIM [24]

Answer:   Advocate

                     

Explanation: In simple words, advocate level is the topmost stage in the loyalty ladder. In this stage, the customer gets used to for the brand and along with repurchasing it he or she also works as a promotional toll for the brand.

In the given case, Maria has been repurchasing the products from the firm and is also praising the brand online. Hence we can conclude that she is on the advocate rung.

4 0
3 years ago
In most transactions, the buyer is accepting the condition of the property at what point in time:_________
Dmitriy789 [7]

Answer:

b. At the signing of the contract

Explanation:

A contract can be defined as an agreement between two or more parties (group of people) which gives rise to a mutual legal obligation or enforceable by law.

Mutual assent is a legal term which represents an agreement by both parties to a contract. When two parties to a contract both have an understanding of the parameters, terms and conditions surrounding a contract, it ultimately implies that they are in agreement; this is generally referred to as mutual assent and it is at this point they (buyer and seller) sign the contract. Therefore, mutual assent connotes agreement, acceptance and consent to a contract by both parties.

<em>Hence, in most transactions, the buyer is accepting the condition of the property at the signing of the contract as an approval or consent to the terms and conditions. </em>

7 0
3 years ago
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