Donna Jamison, a 2010 graduate of the University of Florida, with 4 years of banking experience, was recently brought in as assistant to the chairperson of the board of DLeon Inc., a small food producer that operates in north Florida and whose specialty is high-quality pecan and other nut products sold in the snack foods market. DLeons president, Al Watkins, decided in 2014 to undertake a major expansion and to go national in competition with Frito-Lay, Eagle, and other major snack foods companies. Watkins believed that DLeons products were of higher quality than the competitions; that this quality differential would enable it to charge a premium price; and that the end result would be greatly increased sales, profits, and stock price. The company doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. DLeons results were not satisfactory, to put it mildly. Its board of directors, which consisted of its president, vice president, and major stockholders (all of whom were local businesspeople), was most upset when directors learned how the expansion was going. Unhappy suppliers were being paid late; and the bank was complaining about the deteriorating situation and threatening to cut off credit. As a result, Watkins was informed that changes would have to be madeand quickly; otherwise, he would be fired. Also, at the boards insistence, Donna Jamison was brought in and given the job of assistant to Fred Campo, a retired banker who was DLeons chairperson and largest stockholder. Campo agreed to give up a few of his golfing days and help nurse the company back to health, with Jamisons help. Jamison began by gathering the financial statements and other data given in Tables IC 3.1, IC 3.2, IC 3.3, and IC 3.4. Assume that you are Jamisons assistant. You must help her answer the following question for Campo. (Provide clear explanations.)

k. Explain briefly the tax treatment of (1) interest and dividends paid, (2) interest earned and dividends received, (3) capital gains, and (4) tax loss carry-backs and carry-forwards. How might each of these items affect DLeons taxes?

11/5/14 03 Case model 11/18 12:28 Chapter 3. Financial Statements, Cash Flow, and Taxes This spreadsheet model is designed to be used in conjunction with the chapters integrated case EXHIBITS: INPUT DATA (for D'Leor) Table IC3.1 Balance Sheets 2015 2014 Assets Cash Accounts receivable nventories $7,282 57,600 632,160 351,200 715,200 1,926,802 $1,124,000 1,202,950 491,000 146.200 $939,790 $ 344,800 $ 2,866,592 $ 1,468,800 1,287,360 Total current assets Gross fixed assets Less: accumulated depreciation 263,160 Net fixed assets Total assets Liabilities and equity Accounts payable Accruals Notes payable $524,160 $145,600 489,600 136,000 200,000 1,650,568 $ 481,600 723,432 323,432 $ 2,374,000 $ 805,032 460,000 460,000 203.768 $492,592 663,768 $2,866,592 $1,468,800 636.808 Total current liabilities Long-term debt Total liabilities Common stock (100,000 shares) Retained earnings 32,592 Total common equity Total liabilities and equity Table IC3.2 Income Statements 2015 2014 Cost of goods sold Other expenses Total operating exp. excl, depreciation and amortizatiorn Depreciation and amortization Earnings before interest and taxes (EBIT) interest expense Earnings before taxes (EBT) Taxes (40%) Net incoma 6,034,000 $3,432,000 5,528,000 2,864,000 358,672 6,047,988 $3,222,672 18.900 (130.948) 190,428 43,828 $(266,960) $ 146,600 58,640 160,176) 87,960 519,988 116,960 35 413 106,784 EPS DPS (1.602) S 0.880 $0.22 4.926 6.638 $0.11