Carleton Corporation distributes investment securities to each of its individual shareholders. The total basis of these securities is $60,000 and the total fair market value of them is $90,000. However, these securities were used as collateral for a loan to the corporation and $30,000 of that loan still encumbers the securities and is assumed by the shareholders. How much is the dividend income to the shareholders?
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Carleton Corporation distributes investment securities to each of its individual shareholders. The total basis of these securities is $60,000 and the total fair market value of them is $90,000. However, these securities were used as collateral for a loan to the corporation and $30,000 of that loan still encumbers the securities and is assumed by the shareholders. How much is the dividend income to the shareholders?
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- Assume these are the only securities Martin owns and that the company accounts for them as trading securities. How will changes in the prices of the securities affect net income? What would the effect on net income be if the Nichols Inc. securities were worth $463,000 at year-end (instead of $558,000)This comment appeared in the annual report of Mac-Cloud Inc.: “The Company could pay cash or propertydividends on the Class A common stock without payingcash or property dividends on the Class B common stock.But if the Company pays any cash or property dividendson the Class B common stock, it would be required to payat least the same dividend on the Class A common stock.”How is a property dividend accounted for in the financialrecords?ABC Corporation has an investment of 4,000,000 shares in XYZ Corporation. On December 31, 2021, ABC distributes, to its shareholders, the shares of XYZ in the form of a dividend. This distribution is an example of a dividend: a. in stock (stock dividend). b. owned (property dividend). c. in liquidation (liquidating dividend).
- Assume a corporation winds up its operations and is left with cash on hand of $1,700,000 to distribute to shareholders. The corporation has a capital dividend account of $325,000 and PUC of $300,000. The corporation has one shareholder, who holds 32,000 shares with an adjusted cost base of $240,000. How will the proceeds be taxed to the shareholder? Choose the correct answer. A.Taxable dividend of $1,400,000 & capital gain of $60,000 В. Taxable capital gain of $835,000 C.Taxable dividend of $1,075,000 & taxable capital gain of $30,000 D. Taxable capital gain of $240,000This comment appeared in the annual report of MacCloud Inc.: “The Company could pay cash or property dividends on the Class A common stock without paying cash or property dividends on the Class B common stock. But if the Company pays any cash or property dividends on the Class B common stock, it would be required to pay at least the same dividend on the Class A common stock.” How is a property dividend accounted for in the financial records?A Corporation owns 10 percent of D Corporation. D Corporation earns a total of $201.9 million before taxes in the current year, pays corporate tax on this income, and distributes the remainder proportionately to its shareholders as a dividend. In addition, A Corporation owns 40 percent of Partnership P. Partnership P earns $501.9 million in the current year. Given this fact pattern, answer the following questions:a. How much cash from the D Corporation dividend remains for A Corporation after A pays the tax on the dividend, assuming A Corporation is eligible for the 50 percent dividends received deduction? b. If Partnership P distributes all of its current-year earnings in proportion to the partner's ownership percentages, how much cash from Partnership P does A Corporation have after paying taxes on its share of income from the partnership? c. If you were to replace A Corporation with Individual A [marginal tax rate on ordinary income is 37 percent and on qualified dividends is 23.8…
- a.Draw a picture illustrating the following fact pattern involving trust-preferred securities. Bank Z sets up a trust (a subsidiary entity) and owns 100% of the common stock in the trust. That trust issues preferred securities to investors (in exchange for cash) and the investors earn periodic fixed dividend payments on their preferred shares. Using the funds from the sale of preferred stock, the trust purchases junior subordinated debt from Bank Z and this debt pays periodic fixed interest payments equal to the dividend payments made by the trust. The trust has a call option, allowing it to call back the preferred shares from investors at its option. Additionally, Bank Z has a call option allowing it to call back its debt from the trust at its option. Bank Z guarantees to the trust’s investors that the trust will use its available cash to make interest payments.Valiant Corp is a C corporation that earned $5.2 per share before it paid any taxes. Valiant Corp. retained $1 of after-tax earnings for reinvestment and distributed what remained in dividend payments. Assume that the corporate tax rate was 32% and dividend earnings were taxed at 12.2%. The value of the dividend earnings received after- tax by a holder of 99,960 shares of Valiant Corp. is $_______.(round your answer to two decimal places) Answer: 222 571.74Texas Tools Inc. has $20 million in earnings, pays $2.75 million in interest to bondholders, and pays $1.80 million in dividends to preferred stockholders. A. What are the common stockholders' residual claims to earnings? B. What are the common stockholders' legal, enforceable claims to dividends?
- ABC Company and XYZ Company are identical firms in all respects except for their capital structure. ABC is all-equity financed with $575,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $287,500 and the interest rate on its debt is 8.5 percent. Both firms expect EBIT to be $64,000. Ignore taxes. a. Rico owns $34,500 worth of XYZ's stock. What rate of return is he expecting? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Suppose Rico invests in ABC Company and uses homemade leverage to match his cash flow in part (a). Calculate his total cash flow and rate of return. (Do not round intermediate calculations and enter your return answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the cost of equity for ABC and XYZ? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) d. What is the WACC for ABC and XYZ?…ABC Co. and XYZ Co. are identical firms in all respects except for their capital structures. ABC is all-equity financed with $500,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $250,000 and the interest rate on its debt is 8 percent. Both firms expect EBIT to be $51,000. Ignore taxes. a. Richard owns $25,000 worth of XYZ's stock. What rate of return is he expecting? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Suppose Richard invests in ABC Co. and uses homemade leverage to match his cash flow in part (a). Calculate his total cash flow and rate of return. (Enter your return answer as a percent. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the cost of equity for ABC and XYZ? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) d. What is the WACC for ABC and…ABC Company and XYZ Company are identical firms in all respects except for their capital structure. ABC is all-equity financed with $725,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $362,500 and the interest rate on its debt is 8.2 percent. Both firms expect EBIT to be $74,000. Ignore taxes. a. Rico owns $54,375 worth of XYZ’s stock. What rate of return is he expecting? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Suppose Rico invests in ABC Company and uses homemade leverage to match his cash flow in part (a). Calculate his total cash flow and rate of return. (Do not round intermediate calculations and enter your return answer as a percent rounded to 2 decimal places, e.g., 32.16.)