Answer:
decrease
Explanation:
An increase in the supply of people with college degrees would lead to a rightward shift of the supply curve. This leads to a decrease in equilibrium wages and an increase in labour
A company receives $176, of which $16 is for sales tax. The journal entry to record the sale would include a
Answer:
Explanation:
Cash 176
Sales revenue. 160
Sales tax payable 16
Suppose that when the price of hamburgers rises by 7%, the quantity of ketchup demanded at the current price of ketchup falls by 6%. When income rises by 12%, the quantity of ketchup demanded at the current price increases by 5%. Calculate the income elasticity of demand for ketchup.
Answer:
0.42
Explanation:
Income elasticity of demand measures the responsiveness of quantity demanded to changes in income.
If the absolute value of income elasticity of demand is greater than one, it means demand is elastic.
If the absolute value of income elasticity of demand is less than one, it means demand is inelastic.
Income elasticity of demand = percentage change in quantity demanded / percentage change in income
5/12 = 0.42
Which one is not a main question when you evaluate earnings' quality?
a. Source of revenue and persistent of revenues
b. Gross profit relationship between earnings and the market price of the common stock
c. Debt to equity ratio and total amounts of liabilities.
Answer:
Debt to equity ratio and total amounts of liabilities
Explanation:
Permanent and Temporary components of Earnings
The Permanent components of earnings may continue into future. Example is the sales revenue from regular product lines may continue in the future.
Temporary components of earnings may not continue in the future. Example is the gains or losses from the sale of equipment
Quality of Earnings
This is simply defined as any substance of earnings and their sustainability into future accounting periods.
The Quality of Earnings is influence largely by:
1. Accounting Methods: this entails all methods/means are set up/designed to match revenue and expenses.
2. Accounting estimates: this is when users of financial statement need to be aware of the impact that accounting estimates have on income.
3. One time items: this covers if and when earnings increase/decrease because of a one time items,then that portion of earnings will be sustained in the future.
Components of Earnings quality
1. Proper revenue and expense recognition
2. Declining or stable operating expenses compared to sales
3. High and persistently improving gross margin/ sales ratio etc.
The debt to equity ratio and the total amount of liabilities of a company is not important in evaluating the earnings' quality.
The domestic demand (QD) for wheat in the United States is estimated to be
QDD = 1430 - 55P
where the quantity of wheat is measured in millions of bushels per year. Suppose China also demands U.S. wheat (QDC) and that its demand is given by
QDC = 2100 - 100P
What is the total demand for U.S. wheat, assuming the only two sources of demand are domestic and Chinese?
The total demand for U.S. wheat is:____.
A. QD = 3530 - 155P for all P.
B. QD = 1430 - 55P for all P.
C. QD = 3530 - 155P for P < or = to $26 and QD = 2100 - 100P for P > $26.
D. QD = 3530 - 155P for P < or = to $21 and QD = 2100 - 100P for P > $21.
E. QD = 3530 - 155P for P < or = to $21 and QD = 1430 - 55P for P > $21.
Answer:
E. QD = 3530 - 155P for P < or = to $21 and QD = 1430 - 55P for P > $21.
Explanation:
United States domestic demand function is QDD = 1430 - 55P
Demand for wheat in China is QDC = 2100 - 100P.
The total demand function for U.S. wheat will be given by function:
QD = 3530 - 155P
Moody Farms just paid a dividend of $3.95 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 14 percent for the first three years, a return of 12 percent for the next three years, and a return of 10 percent thereafter. What is the current share price
Answer:
$81.52
Explanation:
The current share price is the present value of future dividends as well as the present value of the terminal value of dividends beyond year 6 as shown thus:
Current dividend=$3.95
Year 1 dividend=$3.95*(1+5%)=$4.15
Year 2 dividend=$4.15*(1+5%)=$4.36
Year 3 dividend=$4.36*(1+5%)=$4.58
The required rate of return(discount rate) for the dividends in the FIRST 3 years above is 14%
Year 4 dividend=$4.58*(1+5%)=$4.81
Year 5 dividend=$4.81*(1+5%)=$5.05
Year 6 dividend=$5.05*(1+5%)=$5.30
The required rate of return(discount rate) for the dividends in the NEXT 3 years above is 12%
Terminal value of dividend=Year 6 dividend*(1+growth rate)/(rate of return-growth rate)
growth rate=5%
rate of return=10%(rate of return thereafter)
terminal value=$5.30*(1+5%)/(10%-5%)
terminal value=$111.30
current share price=$4.15/(1+14%)+$4.36/(1+14%)^2+$4.58/(1+14%)^3+$4.81/(1+12%)^4+$5.05/(1+12%)^5+$5.30/(1+12%)^6+$111.30/(1+10%)^6
current share price=$81.52
Investment A cost 12,000 today and it pays back 15,500 two years from now. Investment B cost $8,000 today and it pays back $6,000 each year for two years. If Interest of 5% is used, which alternate is superior? (Hint: Use present worth your cost is negative and your profits are positive) Group of answer choices
Answer:
Investment "B" is superior.
Explanation:
Below is the calculation of each investment net present worth.
Net present worth of Investment A = -12000 + 15500(P/F, 5%, 2)
Net present worth of investment A = -12000 + 15500 (0.9070)
Net present worth of investment A = 2058.95
Net present worth of Investment B = -8000+ 6000(P/A, 5%, 2)
Net present worth of investment B = -8000 + 6000 (1.8594)
Net present worth of investment B = 3156.4
Investment "B" is superior because its net present worth is greater.
Consider the following data that gives the quantity produced and unit price for three different goods across two different years. Assume that the base year is 2015.Good 2015 Price 2015 Quantity 2016 Price 2016 QuantityA $2 250 $3 200B $3 300 $ 2 400C $4 400 $5 500What was the real gross domestic product (GDP) in 2016?A. $3,000
B. $3,350
C. $3,600
D. $3,900
E. $8,550
Answer:
C. $3,600
Explanation:
The value of gross domestic product after adjusting the inflation effect in the valuation of the product.
Calculate the real GDP as follow
Real GDP of 2016 = ( $2 x 200 ) + ( $3 x 400 ) + ( $4 x 500 )
Real GDP of 2016 = 400 + 1200 + 2000
Real GDP of 2016 = $3600
Hence, real gross domestic product (GDP) in 2016 is $3,600
On January 1, 2020, Fiscus Company purchased equipment costing $90,000. Fiscus records depreciation expense for the equipment at the rate of $1,000/month. What is the credit balance in FIscus Company's accumulated depreciation account for this equipment at December 31, 2020
Answer:
the credit balance in FIscus Company's accumulated depreciation account for this equipment at December 31, 2020 is $120,000
Explanation:
The computation of the credit balance is shown below:
= Depreciation expense per month × number of months
= $1,000 × 12 months
= $120,000
Hence, the credit balance in FIscus Company's accumulated depreciation account for this equipment at December 31, 2020 is $120,000
Preferred stock is a hybrid security because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity.
Characteristics Debt Equity
Dividends are fixed.
Usually has no specified maturity date
At the present time, Tamin Co. does not have any preferred stock outstanding but is looking to include preferred stock un its capital structure in the future. Tamin has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $13 per share. If the investors pay $130.45 per share, Taemin's cost of preferred stock will _____.
a. 11.5%
b. 10.0%
c. 9.5%
d. 9.0%
Answer:
Dividends are fixed. ⇒ Consistent with Debt
Fixed dividends makes preferred shares consistent with debt because debt repayments are made in equal payments as well.
Usually has no specified maturity date ⇒ Consistent with Equity.
Equity has no set maturity date unlike debt and preferred stock has no maturity date either so is much like equity in this regard.
Cost of preferred stock.
Preferred stock is like a perpetuity. The cost of preferred stock is therefore:
= Constant dividend / Price of stock
= 13 / 130.45
= 9.97%
= 10%
Store Travel Time Each Way (Minutes) Price of a Dress (Dollars per dress)
Local Department Store 15 103
Across Town 30 85
Neighboring City 60 63
Juanita makes $16 an hour at work. She has to take time off work to purchase her dress, so each hour away from work costs her $16 in lost income. Assume that returning to work takes Juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the following questions, ignore the cost of gasoline and depreciation of her car when traveling. Complete the following table by computing the opportunity cost of Juanita's time and the total cost of shopping at each location.
Store Opportunity Cost of Time (Dollars) Price of a Dress (Dollars per dress) Total Cost (Dollars)
Local Department Store 103
Across Town 85
Neighboring City 63
Answer:
Juanita makes $16 an hour at work so every hour away will cost her $16 in lost wages.
Local store
Opportunity costs would be the lost wages:
= ( Number of hours spent travelling * Wage per hour) + (Number of hours spent shopping * Wage per hour)
= ( 15/60 hours * 16 * 2 for the round trip) + (30/60 mins * 16)
= $16.00
Total cost = Opportunity cost + Price of dress
= 16 + 103
= $119
Across TownOpportunity cost
= ( 30/60 hours * 16 * 2 for the round trip) + (30/60 mins * 16)
= $24.00
Total cost:
= 24 + 85
= $109
Neighboring cityOpportunity cost:
= ( 60/60 hours * 16 * 2 for the round trip) + (30/60 mins * 16)
= $40.00
Total cost:
= 40 + 63
= $103
The Down and Out Co. just issued a dividend of $2.91 per share on its common stock. The company is expected to maintain a constant 6 percent growth rate in its dividends indefinitely. If the stock sells for $35 a share, what is the company's cost of equity?
Answer:
14.81%
Explanation:
Cost of equity = (Dividend for next period / Current price) + Growth rate
Cost of equity = (($2.91*1.06) / $35) + 0.06
Cost of equity = $3.0846/$35 + 0.06
Cost of equity = 0.08813143 + 0.06
Cost of equity = 0.14813143
Cost of equity = 14.81%
In 2010 the Federal Reserve Board (the Fed) reported that nonfinancial companies in the United States had around $2 trillion in cash and short-term liquid assets. As the U.S. economy was still struggling, consumer spending remained low, and companies resisted in investing in new projects that would create value for their stakeholders.
As the economy improves, uncertainty in the markets decreases, and companies will start investing in projects. However, the challenge of analyzing and selecting projects that would generate cash flows and returns and add value to the firm would remain.
The assumptions in the analysis about cost of equity and debt—overall and for projects—have a significant impact on the type and the value of investments that a company makes.
According to the Association of Finance Professionals’ report, published in 2011 on current trends in estimating and applying the cost of capital, companies use a discount rate that is usually above or below 1% of the company’s true rate. Using this information and certain inputs from the Fed, Michael Jacobs and Anil Shivdasani estimated that a 1% drop in the cost of capital leads U.S. companies to increase their investment by about $150 million over three years.
Based on your understanding of the concept of cost of capital, which of the following statements are valid?
a. Companies always use the weighted average cost of capital (WACC) as the discount rate to analyze the financial viability of projects.
b. A company’s estimate of cost of capital impacts its application in the analysis of new investments that, consequently, affects the value of the firm and shareholders’ wealth.
c. Investors care about the incremental value addition that new projects are making; they are least concerned with the discount rates that the company uses.
d. Companies incorporate the required rate of return in the cost of capital to compensate investors for the components’ risks.
Answer:
b. A company’s estimate of cost of capital impacts its application in the analysis of new investments that, consequently, affects the value of the firm and shareholders’ wealth. d. Companies incorporate the required rate of return in the cost of capital to compensate investors for the components’ risks.Explanation:
A company's estimate of cost of capital, is serious because it is used in the calculations of the returns from a new investment which is used to calculate the value of the firm and its shareholders. They therefore need to make these estimates as accurate as possible.
Companies also incorporate the required rate of return in the cost of capital so that the investors who provided this capital, can be ensured of a return on their investment because it would be accounted for in analysis of new investments.
The calculation of WACC involves calculating the weighted average of the required rates of return on debt and equity, where the weights equal the percentage of each type of financing in the firm's overall capital structure.
(rstd, rps, rs, rd)
_______ is the symbol that represents the required rate of return on short-term debt in the weighted average cost of capital (WACC) equation.
Co. has $2.3 million of debt, $1 million of preferred stock, and $2.2 million of common equity. What would be its weight on debt?
a. 0.42
b. 0.18
c. 0.40
d. 0.16
Answer:
a. 0.42
Explanation:
Calculation to determine What would be its weight on debt?
First step is to calculate the Total firm capital
Total firm capital= $2.3 + $1 + $2.2
Total firm capital= 5.50 million.
Now let determine the weight on debt using this formula
Weight on debt= Debt in the firm/ Total firm capital
Let plug in the formula
Weight on debt = $2.3 million/ 5.50 million
Weight on debt = 0.4182.
Weight on debt=0.42 (Approximately)
Therefore What would be its weight on debt is 0.42
onsider the market for purple potatoes below and assume that a price ceiling of $30 is imposed by the government. Calculate the deadweight loss:
Answer:
Deadweight loss is $5000
Explanation:
Calculation to determine what deadweight loss is
First step is to calculate the Change in quantity
Change in quantity =2500-2000
Change in quantity=500 unit
Now let determine the Deadweight loss
Using this formula
Deadweight loss =0.5* Change in quantity *(Willingness to pay at the price ceiling -Price ceiling)
Let plug in the formula
Deadweight loss =0.5*500*(50-30)
Deadweight loss=250*20
Deadweight loss =5000
Therefore the deadweight loss is $5000
Julio purchased a stock one year ago for $27. The stock is now worth $32, and the total return to Julio for owning the stock was 37 percent. What is the dollar amount of dividends that he received for owning the stock during the year
Answer:
$5
Explanation:
Calculation to determine the dollar amount of dividends that he received for owning the stock during the year
First step is to calculate the total profit earned
Total profit=$27*37%
Total profit=$10
Second step is calculate the Value of stock with profits earned
Value of stock=$27+$10
Value of stock=$37
Now let calculate the the dollar amount of dividends
Dividend=$37-$32
Dividend=$5
Therefore the dollar amount of dividends that he received for owning the stock during the year is $5
If 2 percent growth is your break-even point for an investment project, under which outlook for the economy would you be more inclined to go ahead with the investment: (1) A forecast for economic growth that ranges from 0 to 4 percent, or (2) a forecast of 2 percent growth for sure, assuming the forecasts are equally reliable? What core principle does this illustrate?
Answer: (2) a forecast of 2 percent growth for sure, assuming the forecasts are equally reliable.
Core principle 5 - Stability improves welfare.
Explanation:
Based on the information given, I'll be more inclined to go ahead with the investment whereby there is a forecast of 2 percent growth for sure, assuming the forecasts are equally reliable.
It should be noted that when there's uncertainty about the future, it leads to the unattractiveness of investment. Here, the core principle illustrated is Core principle 5 - Stability improves welfare.
Blitz Corp. had total sales of $3,130,000 last year and has 109,000 shares of stock outstanding. The benchmark PS is 1.66 times. What stock price would you consider appropriate
Answer:
$47.68
Explanation:
Calculation to determine stock price would you consider appropriate
Using this formula
Stock price=(Total sales/Shares of stock outstanding)*Benchmark PS
Let plug to determine
Stock price=($3,130,000/109,000) ×1.66
Stock price=28.72x 1.66
Stock price= $47.68
Therefore the stock price that you would
consider Appropriate is $47.68
At the start of the year, your firm's capital stock equaled $10 million, and at the end of the year it equaled $15 million. The average depreciation rate on your capital stock is 20%. Net investment during the year equaled:________
a. $7 million
b. $4 million
c. $5 million
d. $3 million
Answer:
c. $5million
Explanation:
Net investment = Gross investment - Depreciation
Also, Net investment equals investment at the beginning of the year minus investment at the end of the year
Net investment = $15million - $10million
Net investment = $5million
Therefore, net investment during the year equals $5million
The free trade pact known as Mercosur has been successful at creating a full customs union between Brazil and Argentina. True False
Answer:
The given statement is "True".
Explanation:
An agreement for reducing obstacles to exporters and importers amongst two or even more organizations is determined as Free trade pact.Commodities could be purchased as well as transferred crossing international boundaries mostly under free markets having minimal or no governmental taxes restrictions or subsidies to prevent interchange.
A spurious regression refers to a situation where:____.
a. the direction of the relationship between the dependent variable and the explanatory variables is uncertain.
b. even though two variables are independent, the OLS regression of one variable on the other indicates a relationship between them.
c. a few important and necessary explanatory variables are left out of a regression equation, thus leading to inefficient and inconsistent forecasts.
d. at least one of the variables used in a regression equation does not have a unit root and the error terms are heteroskedastic.
Answer:
b. even though two variables are independent, the OLS regression of one variable on the other indicates a relationship between them.
Explanation:
An experiment can be defined as an investigation which typically involves the process of manipulating an independent variable (the cause) in order to be able to determine or measure the dependent variable (the effect).
This ultimately implies that, an experiment can be used by scientists to show or demonstrate how a condition causes or gives rise to another i.e cause and effect, influence, behavior, etc in a sample.
In an experiment , the variable being manipulated by an experimenter is known as an independent variable while the dependent variable is the event expected to change when the independent variable is manipulated
A spurious regression refers to a situation where even though two (2) variables are independent, the ordinary least squares (OLS) regression of one independent variable on the other variable indicates a relationship between them.
An ordinary least squares (OLS) regression is typically designed to be used in estimating unknown variables or parameters in a linear regression model.
Sansa, Cercei, and Tyrion have just finished their team's project and are waiting for their supervisor's feedback. Cercei has been mostly unengaged and quiet ever since the project started. While this was not her best work, neither was her work bad. Her mood would be categorized as Group of answer choices deactivated. negative activated. intense negative. intense positive. positive activated.
Answer:
Cercei's mood would be categorized as:
negative activated.
Explanation:
Moods do not last longer than emotions. Like Cercei's that unengaged and quiet mood during the project duration, it starts and ends within some period of time. However, a person's mood can be described as either negative or positive. Since Cercei's mood was negative from the commencement of the project to its ending, one can conclude that she activated her negative mood during the period.
Paul, the Director of Recruitment at an insurance company, finds that the company has a disparate impact on the proportion of Hispanic employees compared to the proportion of Hispanics in the labor market. Which of the following steps should Paul take to solve the problem most efficiently?
a) He should lower the job specifications for Hispanic applicants.
b) He should continue using the current recruiting practices because only organizations with affirmative action plans are required to meet EEO guidelines.
c) He should start advertising for job openings on the local Spanish radio station.
d) He should freeze the hiring process until qualified Hispanics apply for vacant positions
Answer: c) He should start advertising for job openings on the local Spanish radio station.
Explanation:
This realization by Paul should make him want to hire more Hispanics into the company and the best way to do so would be to advertise it in such a way that Hispanics have a better chance of hearing about job openings.
Advertising on Spanish radio would ensure that Hispanics hear the advertisements because they are the main ethnicity that speaks Spanish. This will give them an edge in learning about job openings and enable Paul to hire more Hispanics.
A company using the FIFO method had beginning work in process inventory of 10,000 units and completed 75,000 units. They also had 5,000 units in ending work in process inventory. The number of units started and completed equals_________
Answer:
the number of units started and completed is 65,000 units
Explanation:
The computation of the number of units started and completed is given below:
= Units completed - beginning work in process inventory units
= 75,000 units - 10,000 units
= 65,000 units
Hence, the number of units started and completed is 65,000 units
On January 1, 2014, P Company purchased an 80% interest in S Company for $616,800, at which time S Company had retained earnings of $295,600 and common stock of $340,300. Any difference between book value and the value implied by the purchase price was entirely attributable to a patent with a remaining useful life of 10 years. Assume that P and S Companies reported net incomes from their independent operations of $199,900 and $95,700, respectively. Calculate the controlling interest and noncontrolling interest in consolidated net income for the year ended December 31, 2014.
Answer:
For the year ended December 31, 2014, we have:
Controlling interest in consolidated net income = $76,560
Noncontrolling interest in consolidated net income = $19,140
Explanation:
This can be calculated as follows:
Net income of S Company = $95,700
Controlling interest percentage = P Company percentage interest in S Company = 80%
Noncontrolling interest percentage = 100% - Controlling interest percentage = 100% - 80% = 20%
Therefore, we have:
Controlling interest in consolidated net income of S Company = Controlling interest percentage * Net income of S Company = 80% * $95,700 = $76,560
Noncontrolling interest in consolidated net income of S Company = Noncontrolling interest percentage * Net income of S Company = 20% * $95,700 = $19,140
Therefore, for the year ended December 31, 2014, we have:
Controlling interest in consolidated net income = $76,560
Noncontrolling interest in consolidated net income = $19,140
Inventory turnover measures a.the relationship between cost of goods sold and the amount of inventory carried during the period. b.the times purchases are turned into inventory during the period. c.the efficiency and effectiveness of costing management. d.the average amount of inventory sold.
Answer:
a. the relationship between cost of goods sold and the amount of inventory carried during the period.
Explanation:
An inventory turnover can be defined as a measure of the relationship between cost of goods sold (COGS) and the amount of inventory carried during the period the goods were purchased by the consumers or customers of a business firm.
This ultimately implies that, an inventory turnover is a measure of the amount of times an inventory is used or sold by an organization at a specific period of time.
Basically, the inventory turnover is calculated by dividing cost of goods sold by average inventory.
Additionally, the Expense Account selected by a manufacturer or a producer for inventory parts would normally comprise of the account type Cost of Goods Sold.
Mabel is a single 40-year-old who has borrowed money on numerous occasions. Her payment record has been good, except she has been delinquent in paying a few bills. Which of the following is true regarding credit information gathered on Mabel?
a. Since Mabel has been delinquent, she waives her right to see the credit files.
b. If Mabel is rejected for a loan because of the consumer report, the lender must tell her the source of the report.
c. Mabel has a right to have the information regarding her delinquency in paying a few loans stricken from her credit record because her record has generally been good.
d. Mabel's only legal remedy, if there is erroneous information in her credit file, is to report the problem to the FTC for enforcement.
Answer:
b. If Mabel is rejected for a loan because of the consumer report, the lender must tell her the source of the report.
Explanation:
The best answer to this question is option b, given that it gives the best description of the situation at hand. If she is turned down for a loan due to the fact that she has been delinquent in paying bills, the the agency from which she seeks this loan has to tell her the source of the report. A credit report gives a summarized statement of a persons financial state. It has such important information like the particulars of the person , address as well as the person SSN,
The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $107 each. Each trailer incurs $44 of variable manufacturing costs. The Trailer division has capacity for 24,000 trailers per year and incurs fixed costs of $560,000 per year. Required: 1. Assume the Assembly division of Baxter Bicycles wants to buy 5,600 trailers per year from the Trailer division. If the Trailer division can sell all of the trailers it manufactures to outside customers, what price should be used on transfers between Baxter Bicycles's divisions
Answer: $107
Explanation:
When a division is able to sell all of its products to consumers outside the company, the transfer price within the company should be at the same price that the good would be sold to outside consumers.
This is to ensure that the division does not suffer an economic loss by selling to another division instead of selling to an outside customer. In this case therefore, the Trailer division should transfer the trailers at the retail price of $107 that it would have made from selling to outside customers.
If there is a greater quantity supplied than the quantity demaded ( an excess supply of a good or service) you are most likely dealing with:_______.
A- price ceiling set below the equilibrium price
B- price floor set above equilibrium price
Stan’s Sporting Goods is a competitor that can manufacture seven soccer balls out of a possible ten, if it makes one soccer net. Which statement correctly compares the two businesses?
Sabrina’s Soccer has a comparative advantage over Stan’s Sporting Goods because Sabrina’s Soccer has a lower opportunity cost.
Stan’s Sporting Goods has a comparative advantage over Sabrina’s Soccer because Stan’s Sporting Goods has a lower opportunity cost.
Sabrina’s Soccer has an absolute advantage over Stan’s Sporting Goods because Sabrina’s Soccer has a lower production cost.
Stan’s Sporting Goods has an absolute advantage over Sabrina’s Soccer because Stan’s Sporting Goods has a lower production cost.
Answer:
Sabrina’s Soccer has a comparative advantage over Stan’s Sporting Goods because Sabrina’s Soccer has a lower opportunity cost.
Answer: A
Explanation: PogChamp
In 2020, Susan had interest expense of $58,500 from her investments. Susan's has investment income of $46,500. Of this amount, interest is $15,000, qualified dividends are $9,000, and a net capital gain on the sale of securities is $22,500. What is the maximum amount of Susan's investment interest expense deduction for the current year if she decides to give up the capital gain preferential treatment
Answer:
Susan
The maximum amount of Susan's investment interest expense deduction for the current year if she decides to give up the capital gain preferential treatment is:
= $46,500.
Explanation:
a) Data and Calculations:
Investment interest expense = $58,500
Investment income = $46,500
Makeup of investment income:
Interest = $15,000
Dividends = $9,000
Net capital gain on the sale of securities = $22,500
b) Susan's investment interest expense is the interest amounting to $58,500 that she paid on the money she borrowed to purchase the taxable investments. The amount that Susan can deduct is capped at her net taxable investment income for the year, which totaled $46,500 since she gives up the capital gain preferential treatment. The remaining $12,000 in interest expense can be carried forward to the next fiscal year to reduce her future taxes.
