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6 May 2018

Ron is one of three shareholders in a C corporation called SuperDuper, Inc. He is also an employee of Super Duper, Inc. Describethe tax effects to Ron AND to Super Duper for each of thefollowing:

(a) Super Duper paying him areasonable bonus for work done exceptionally well

(b) Super Duper paying him adividend as a shareholder

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Keith LeannonLv2

9 May 2018

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Related questions

Post-Audit and Reevaluation of Investment Proposal: IRR

Throughout his four years in college, Ronald King worked at the local Beef Burger Restaurant in

College City. Although the working conditions were good and the pay was not bad, Ron believed he

could do a much better job of managing the restaurant than the current owner-manager. In particular,

Ron believed that the proper use of marketing campaigns and sales incentives, such as selling a second

burger for a 25 percent discount, could increase annual sales by 40 percent.

Just before graduation in 2016, Ron inherited $500,000 from his great uncle. He seriously con-

sidered buying the restaurant. It seemed like a good idea because he liked the town and its college

atmosphere, knew the business, and always wanted to work for himself. He also knew that the cur-

rent owner wanted to sell the restaurant and retire to Florida. As part of a small business management

course, Ron developed the following income statement for the restaurantâs 2015 operations:

BEEF BURGER RESTAURANT: COLLEGE CITY

Income Statement

For Year Ended December 31, 2015

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $450,000

Expenses

Cost of food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000

Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Employee expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000

Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000

Property taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000

436,000

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,000

Ron believed that the cost of food and supplies were all variable, the employee expenses and utilities

were one-half variable and one-half fixed in 2015, and all other expenses were fixed. If Ron purchased

the restaurant and followed through on his plans, he believed there would be a 40 percent increase

in unit sales volume and all variable costs. Of the fixed costs, only advertising would increase by

$12,000. The use of discounts and special promotions would, however, limit the increase in sales

revenue to only 30 percent even though sales volume increased 40 percent.

Required

a. Determine

1. The current annual net cash inflow.

2. The predicted annual net cash inflow if Ron executes his plans and his assumptions are correct.

b. Ron believes his plan would produce equal net cash inflows during each of the next 15 years, the

period remaining on a long-term lease for the land on which the restaurant is built. At the end of

that time, the restaurant would have to be demolished at a predicted net cost of $80,000. Assum-

ing Ron would otherwise invest the money in stock expected to yield 12 percent, determine the

maximum amount he should pay for the restaurant.

c. Assume that Ron accepts an offer from the current owner to buy the restaurant for $350,000.

Unfortunately, although the expected increase in sales volume does occur, customers make much

more extensive use of the promotions than Ron had anticipated. As a result, total sales revenues are

8 percent below projections. Furthermore, to improve employee attitudes, Ron gave a 10 percent

raise immediately after purchasing the restaurant. Reevaluate the initial decision using the actual

sales revenue and the increase in labor costs, assuming conditions will remain unchanged over the

remaining life of the project. Was the investment decision a wise one? (Round calculations to the

nearest dollar.)

d. Ron can sell the restaurant to a large franchise operator for $250,000. Alternatively, he believes

that additional annual marketing expenditures and changes in promotions costing $20,000 per

year could bring the sales revenues up to their original projections, with no other changes in costs.

Should Ron sell the restaurant or keep it and make the additional expenditures? (Round calcula-

tions to the nearest dollar.) (Hint: Ron has just bought the restaurant.)

ceruleantermite111

Standards for Nonmanufacturing Expenses

CodeHead Software Inc. does software development. One importantactivity in software development is writing software code. Themanager of the WordPro Development Team determined that the averagesoftware programmer could write 25 lines of code in an hour. Theplan for the first week in May called for 4,650 lines of code to bewritten on the WordPro product. The WordPro Team has fiveprogrammers. Each programmer is hired from an employment firm thatrequires temporary employees to be hired for a minimum of a 40-hourweek. Programmers are paid $32.00 per hour. The manager offered abonus if the team could generate more lines for the week, withoutovertime. Due to a project emergency, the programmers wrote morecode in the first week of May than planned. The actual amount ofcode written in the first week of May was 5,650 lines, withoutovertime. As a result, the bonus caused the average programmer'shourly rate to increase to $40.00 per hour during the first week inMay.

Enter a favorable variance as a negative number using a minussign and an unfavorable variance as a positive number. If an amountis zero, enter "0" and choose "Not applicable" from thedropdown.

Required:

1. If the team generated 4,650 lines of codeaccording to the original plan, what would have been the labor timevariance?
$

2. What was the actual labor time variance as aresult of generating 5,650 lines of code?
$

3. What was the labor rate variance as a resultof the bonus?
$

4. Are there any performance-related issuesthat the labor time and rate variances fail to consider?

The labor rate and time variances the number of errors in thecode from programmer fatigue. A program that has will requiresignificant time for debugging at a later date. Thus, managers theefficiency of doing the work and also the quality of the work.

5. The manager is trying to determine if abetter decision would have been to hire a temporary programmer tomeet the higher programming demand in the first week of May, ratherthan paying out the bonus. If another employee was hired from theemployment firm, what would have been the labor time variance inthe first week?
$

6. Which decision is better, paying the bonusor hiring another programmer?

cerisebee851

johnson Products Inc. has three regional divisions organized asprofit centers. The chief executive officer (CEO) evaluatesdivisional performance, using income from operations as a percentof revenues. The following quarterly income and expense accountswere provided from the trial balance as of December 31, 2014:

Revenues-East $ 1,143,900

Revenues-West 1,321,500

Revenues-Central 2,513,000

Operating Expenses-East 724,900

Operating Expenses-West 786,500

Operating Expenses-Central 1,519,700

Corporate Expenses-Shareholder Relations 174,000

Corporate Expenses-Customer Support 696,000

Corporate Expenses-Legal 154,800

General Corporate Officer's Salaries 384,200

The company operates three service departments: ShareholderRelations, Customer Support, and Legal. The Shareholder RelationsDepartment conducts a variety of services for shareholders of thecompany. The Customer Support Department is the company's point ofcontact for new service, complaints, and requests for repair. Thedepartment believes that the number of customer contacts is anactivity base for this work. The Legal Department provides legalservices for division management. The department believes that thenumber of hours billed is an activity base for this work. Thefollowing additional information has been gathered: