Golden cup case study You were provided with the following balance sheet for Golden Cup firm for the year ended Dec 31st, 2018. Assets Current Assets Cash Accounts Receivables Inventory Total Current Assets Consolidated Balance sheet Golden Cup. As of Dec 31st, 2018 Liabilities + Owners Equity Current Liabilities 40,000 Accounts Payable 12,000 4,000 Notes Payable 6,000 14,000 Accrue Wages 1000 58,000 Total Current Liabilities 19,000 Long term debt 40,000 56,000 Fixed Assets Property, Plant, and Equipment Goodwill Total Fixed Assets 24,000 80,000 Owners' equity Common Shares Retained Earnings Total Owners equity Liabilities + O.E 40,000 39,000 79,000 138,000 Total Assets 138,000 In addition to that, you know the following facts about firm's operations throughout the year: Golden Cup revenues for the year includes the following: Domestic revenues $160,000. International revenues $80,000. Out of Golden Cup's sales, cost of sales and direct labor is 50% of annual revenues. Because of the strong competition that it faces, Golden Cup has a generous marketing plan. Golden Cup signed a contract with the marketing planet Inc. by which the marketing agency will be responsible for Golden Cup marketing for five years period started this year. The contract costs Golden Cup $100,000 that were paid up front, however the company thinks this plan will affect its sales evenly over the five years period. Golden Cup also spends $30,000 in the form of general and administrative expenses per year. Golden Cup depreciable assets historical value is $40,000 and is depreciated on a straight line basis over 10 years. Golden Cup pays interest rate of 10% on its Long-term debt outstanding. Out of the year's net income, Golden Cup is planning to repay $30,000 to its shareholders in the form of cash dividends. The company currently has 60,000 shares outstanding Question 1 a- Please set up income statement for Golden Cup: Consolidated Income Statement Golden Cup As of Dec 31st, 2018 Show your workings here Revenues (-) Cost of goods sold Gross margin Marketing expenses (-) General and administrative expenses (-) Depreciation EBIT Domestic + International = 160,000 + 80,000 = CGS = 50% of 2,400,000 = GM = Revenues - CGS = Accrual Concept - $100,000/5 years = Given Value Final answer here $240,000 ($120,000) $120,000 ($20,000) ($30,000) ($4,000) $66,000 (Interest expenses (Tax expenses Net income Dividends Additions to Retained Earnings = $40,000 / 10 years = = GM-Marketing Expenses - General and Admin Expenses Depreciation = = $40,000 * 10% = = EBIT - Interest Expenses = Tax Rate - 21%; = EBT *(0.21) = = EBT Tax Expenses = Given Value = Net Income - Dividends = (S4,000) $62,000 ($13,020) $48,980 $30,000 $18,980 Taxable Income Tax Rate 0 50,000 15% 50,001- 75,000 25 75,001 100,000 34 100,001 - 335,000 39 335,00110,000,000 34 10,000,00115,000,000 35 15,000,00118,333,333 38 18,333,334+ 35 b- Please use the U.S corporate tax rates to calculate Golden Cup tax liability. Solution: C- What is the marginal tax rate of Golden Cup? Solution: d- What is the average tax rate of Golden Cup? Solution: Question 2 Ms. Janet McInish works as an elementary school teacher and has a taxable income from her job of $35,000. She inherited 10% of Golden Cup shares outstanding, and recently received her annual dividends. a- What is the amount of annual dividends received by Ms. McInish? Solution