Answer the four questions regarding SMH, Inc. They are all "short-answer" questions. This means you should be able to explain yourself in 4 or less concise sentences for each answer. Citations of the ASC 740 rules or the IRC is not necessary.

Facts: SMH (the "Company"), an SEC registrant with a calendar year-end, is a manufacturer and distributor of sports equipment. The Company was created in 1989 and is headquartered in Southern California. The Company has manufacturing operations and numerous sales and administrative locations in the United States. SMH files a consolidated U.S. federal tax return.

SMH does not have the ability to carryback any losses to prior periods. The Company does not have a history of operating losses or tax credit carryforwards expiring unused. The Company has identified the following possible tax-planning strategies:

o Sellingandleasingbackmanufacturingequipmentthatwouldresultinataxablegainof$20 million.

o Sellingtheprimarymanufacturingfacilityatagaintooffsetexistingcapitallosscarryforwards.

What are the four possible sources of future taxable income according to ASC 740?

In evaluating the income that SMH is projecting related to future operations, in an effort to satisfy your

appropriate professional skepticism, what evidence might you ask for to support the Company's

projections?

Would the tax-planning strategy to sell and lease back manufacturing equipment be a tax-planning strategy

that is considered prudent and feasible? Why or why not?

Would the tax-planning strategy to sell but not lease back the primary manufacturing facility be a tax-

planning strategy that is prudent and feasible? Why or why not?