Help With Assignments Covering Corporate Income Tax, Finance ✓ Solved

Help with Assignments Covering Corporate Income Tax, Financial Statements, and Earnings Analysis

Retrieve and analyze information related to corporate income tax calculation, balance sheet and income statement preparation, net working capital assessment, and evaluation of earnings quality based on provided financial data. The instructions are to perform specific calculations, generate financial statements, interpret financial health, and assess earnings quality.

Sample Paper For Above instruction

Analysis of Corporate Income Tax Liability for Meyer Inc.

Meyer Inc. has a taxable income of $300,000. To calculate the federal income tax liability, we employ the progressive tax rate table provided:

• $0 - $50,000: 15%
• $50,001 - $75,000: 25%
• $75,001 - $100,000: 34%
• $100,001 - $335,000: 39%

Calculating Meyer’s tax liability:

1. First $50,000 taxed at 15%: $50,000 × 0.15 = $7,500
2. Next $25,000 ($75,001 - $50,000) taxed at 25%: $25,000 × 0.25 = $6,250
3. Next $25,000 ($100,001 - $75,000) taxed at 34%: $25,000 × 0.34 = $8,500
4. Remaining $200,000 ($300,000 - $100,000) taxed at 39%: $200,000 × 0.39 = $78,000

Total tax liability = $7,500 + $6,250 + $8,500 + $78,000 = $100,250

The company's average tax rate is calculated as total tax liability divided by taxable income:

Average tax rate = $100,250 / $300,000 ≈ 33.42%

The marginal tax rate is the highest rate applicable to Meyer Inc.'s taxable income, which is 39%.

Summary: Meyer’s federal income tax liability is approximately $100,250. Its average tax rate is approximately 33.42%, and the marginal tax rate is 39%.

Financial Position and Net Working Capital for Caraway Seed Company

The firm’s current assets are $50,000, net fixed assets are $250,000, current liabilities are $30,000, and long-term debt is $100,000.

A. Calculating Stockholders’ Equity:

Using the balance sheet equation:

Assets = Liabilities + Equity

Total assets = current assets ($50,000) + net fixed assets ($250,000) = $300,000

Liabilities = current liabilities ($30,000) + long-term debt ($100,000) = $130,000

Therefore, stockholders’ equity = assets - liabilities = $300,000 - $130,000 = $170,000

B. Calculating Net Working Capital (NWC):

NWC = Current Assets - Current Liabilities = $50,000 - $30,000 = $20,000

C. Given that current liabilities include $50,000 in accounts payable and $10,000 in short-term debt:

New current liabilities = $50,000 + $10,000 = $60,000

Recalculated NWC = Current assets - updated current liabilities = $50,000 - $60,000 = -$10,000

Thus, the net working capital is negative $10,000, indicating potential liquidity concerns.

Financial Statement Analysis of Belmond, Inc.

Given Data:

• Inventory: $6,470
• Common Stock: $45,100
• Cash: $16,510
• Operating Expenses: $1,340
• Short-Term Notes Payable: $550
• Interest Expense: $910
• Depreciation Expense: $460
• Sales: $12,870
• Accounts Receivable: $9,590
• Accounts Payable: $4,810
• Long-Term Debt: $55,140
• Buildings and Equipment: $122,280
• Accumulated Depreciation: $33,650
• Taxes: $1,410
• General and Administrative Expenses: $830
• Retained Earnings: To be calculated

A. Net Working Capital (NWC):

NWC = Current Assets - Current Liabilities

Current assets include cash ($16,510), receivables ($9,590), inventory ($6,470):

Current assets = $16,510 + $9,590 + $6,470 = $32,570

Current liabilities consist of accounts payable ($4,810) and notes payable ($550):

Current liabilities = $4,810 + $550 = $5,360

NWC = $32,570 - $5,360 = $27,210

B. Income Statement and Balance Sheet:

Income Statement:

Sales: $12,870

Cost of Goods Sold (assumed as inventory change or specific cost): $5,710

Gross Profit: $12,870 - $5,710 = $7,160

Operating Expenses (excluding depreciation): ($1,340 + $830 = $2,170)

Depreciation Expense: $460

Interest Expense: $910

Tax Expense: $1,410

Net Income: Calculated as follows:

Net Income = (Gross Profit - Operating Expenses - Depreciation - Interest - Taxes)

Net Income = $7,160 - $2,170 - $460 - $910 - $1,410 = $212

Balance Sheet Highlights:

Assets:

• Cash: $16,510
• Accounts Receivable: $9,590
• Inventory: $6,470
• Buildings and Equipment (net): $122,280 - $33,650 = $88,630

Total Assets: $16,510 + $9,590 + $6,470 + $88,630 = $121,200

Liabilities:

• Current liabilities: $5,360
• Long-term debt: $55,140

Total Liabilities = $60,500

Shareholders’ Equity:

Retained Earnings = Previous retained earnings + net income = (assumed starting point) + $212.

C. Financial Condition Summary:

Based on our calculations, Belmond Inc. shows a positive net working capital of $27,210, indicating good short-term liquidity. The firm’s total assets surpass its liabilities, and the net income suggests profitability, although further detailed analysis of cash flow and debt management would be essential for comprehensive assessment.

Assessment of Earnings Quality for Kabutell, Inc.

A. Earnings Quality Ratio Calculation:

Earnings quality ratio = Cash Flow from Operations / Net Income

= $575,000 / $750,000 ≈ 0.767 or 76.7%

This ratio indicates the proportion of net income backed by cash flows from operations. A high ratio suggests high-quality earnings, while a low ratio may point to earnings management or non-cash revenue recognition.

B. Capital Acquisition Ratio and Interpretation:

Average capital expenditures over three years:

• 2011: $459 million
• 2012: $447 million
• 2013: $456 million

Average Capex = (459 + 447 + 456) / 3 ≈ $454 million

The average capital acquisitions ratio is calculated as:

Capex / Average Net Income (assuming consistent net income), but specific net income data is not provided; thus, an approximate interpretation implies moderate reinvestment in assets consistent with growth.

Summary of Earnings Analysis:

Kabutell’s earnings quality ratio of approximately 76.7% suggests that a significant portion of reported earnings are supported by actual cash flows, indicating high earnings quality. The steady capital expenditures further support ongoing investment and operational stability.

References

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• Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013). Corporate Finance (10th Edition). McGraw-Hill Education.
• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice (15th Edition). Cengage Learning.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
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