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1 Canary Corporation, an accrual method C corporation, uses the calendar year for tax purposes
1 Canary Corporation, an accrual method C corporation, uses the calendar year for tax purposes. Leticia, a cash method taxpayer, is both a shareholder of Canary and the corporation's CFO. On December 31, 2020, Canary has accrued a $75,000 bonus to Leticia. Leticia owns 75% of Canary Corporation's stock and the corporation pays the bonus to Leticia on April 7, 2021. In which year (2020 or 2021) is Canary allowed to deduct the bonus?
2
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The Balance sheet for a company shows a book value of stockholders equity (book value per share x total shares outstanding) of $23,500,000. Furthermore, the firm's income statement for the year just ended has net income of $500,000, which is $0.25 per share of common stock outstanding. the P/E ratio for firm similar to this company is 20. |
| Q1. What price would you expect this company share to sell for |
| Q2. what is the book value per share for this company |
Expert Solution
1 Answer: 2021
Under § 267(a)(2), For purposes of this limitation, a more-than-50% shareholder of the corporation is a related party
Leticia is a cash method related party who does not include the bonus in her income until its receipt in 2021; thus, Canary’s deduction for the bonus is deferred until 2021
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Solution:
Answer 1. As P/E Ratio for similar company given as 20. So P/E Ratio of this company is same as similar company that is 20.
P/E Ratio = Market price per share / Earning per share
20 = Market price per share / $0.25
Market price per share = 20 * $ 0.25
Market price per share = $ 5
So the expected market price is $ 5.
Answer 2. Total shares outstanding = Total earnings / Earning per share
= $ 500,000 / $ 0.25
Total shares outstanding = $ 2,000,000
Book value per share = Book value of stockholders equity / Total shares outstanding
= $ 23,500,000 / $ 2,000,000
Book value per share = $ 11.75
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