Ms. Zelda has decided to invest $75,000 in state bonds. She could invest in State A bonds paying 5 percent annual interest or in State R bonds paying 5.4 percent annual interest. The bonds have the same risk, and the interest from both is exempt from federal income tax. Because Ms. Zelda is a resident of State A, she wouldn't pay State A's 8.5 percent personal income tax on the State A bond interest, but she would pay this tax on the State R bond interest. Ms. Zelda can deduct any state tax payments in the computation of her federal taxable income, and her federal marginal rate is 32 percent.

Required:

2. Compute Ms. Zelda's after-tax return from State A and State R bonds.
4. Should Ms. Zelda invest in the State A or the State R bonds?

Q2

Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $27,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($3,700). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Q3

Buyeo's Barbeques manufactures portable barbeques. The controller of Buyeo's is reviewing the year end variances and has asked for your preliminary advice on the following variances:

• Direct materials rate variance, $8,000 unfavourable
• Direct manufacturing labour efficiency variance, $6,000 favourable.

Required:

2. Provide the company's controller with an underlying reason why each of these variances may have occurred.
4. For example:for a price variance it is not sufficient to say the price of materials changed. Instead, give an example of what could have caused the change.
6. For each of the reasons you gave in part (a) identify who would most likely be responsible for explaining these variances and why they could be held responsible.

Answer rating: 100% (QA)

Q1 a Aftertax return from State A bonds State A bonds yield 5 State tax rate 85 Federal tax rate 32 ... View the full answer