Faculty of Business Administration
Advanced Accounting_
Final Exam
Group 8- Nour Montaleb and Farah Monla
Exercise 1
Stilt Corporation estimates its income by calendar quarter as follows for 2007:
1st 2nd 3rd 4th 2007
Quarter Quarter Quarter Quarter Total
Estimated
Income $ 30,000 $ 40,000 $ 40,000 $ 50,000 $ 160,000
Income tax rates applicable to Stilt:
From: $ 0 to $50,000 15%
From: $50,001 to $75,000 25%
Over: $75,000 35%
Required:
Determine Stilt’s effective tax rate.
SOLUTION:
1st quarter:
30,000*0.15 =$ 4,500.
2nd quarter:
(20,000*0.15) + (20,000*0.25) = $8,000
3rd quarter:
(5,000*0.25) + (35,000*0.35) = $13,500
4th quarter:
(50,000*0.35) = $17,500
Total estimated tax rate= $43,500
Effective tax rate= total estimated taxes/ total estimated income
= 43,500/160,000
=27.19%
Exercise 2
The balance sheet of the Jody, Kane, and Lark partnership on May 1, 2006 (before
commencement of partnership liquidation) was as follows:
Cash $ 54,000 Accounts payable $ 28,000
Inventory 60,000 Notes payable 60,000
Loan to Jody 10,000 Jody, capital (30%) 32,000
Loan to Lark 16,000 Kane, capital (45%) 90,000
Plant assets-net 110,000 Lark, capital (25%) 40,000
Total assets $ 250,000 Total liab./equity $ 250,000
Liquidation events in May were as follows:
- The inventory was sold for $6,000 below book value;
- Plant assets with a book value of $50,000 were sold for $60,000.
Required:
Determine how the available cash on April 30, 2006 should be distributed.
Solution:
Jody, Kane, and Lark partnership LIQUIDATION SCHEDULE:
Assets debts 30% jody 45% kane 25% lark
Balance, May $250,000 $88,000 $32,000 $90,000 $40,000
Inventory 6,000 1,800 2,700 1,500
sold
Sale of plant 10,000 3,000 4,500 2,500
Balance 266,000 88,000 36,800 97,200 44,000
before
distribution
Loans (26,000) (10,000) (16,000)
Pay creditors (88,000) 88,000
Partner 152,000 26,800 97,200 28,000
equity
Possible loss:
Plant assets (6,000) (1,800) (2,700) (1,500)
Distribution $146,000 $25,000 $94,500 $26,500
Cash distribution: 54,000 + 110,000 + 28,000 – 88,000= $104,000