Spring 2016 #18
For c, can you help me understand the answers? We are given the discount rate for 2012 to be 0.87, why need the avg discount factors for tax year 2011 & 2012? Why'd we need the AY breakout of reserves and the discount factors for AY 2011 and 2012? We already calculate the statutory income in b, therefore to calculate federal tax I thought we just need the corporate tax rate? Why would we be missing information?
Comments
We are looking into this and will let you know soon.
Note that a significant portion of the details on tax calculations was in the old Feldblum reading which has been removed from the syllabus and may have shed more light on this problem than Chapter 26 from the current Odomirok text.
But in any case, the discount rate of 0.87 applies only to AY 2012. All the other AYs would have their own discount factors and you don't have those. You can't just multiply the the statutory income you calculated in (b) by the tax rate. You would have to do a separate calculation where you split out all the AYs, discount them with their own appropriate discount factor then add them back together before applying the tax rate.
You would also need the AY breakout of reserves for calendar 2012 to complete the tax calculation (again because each AY has its own discount factor) but you are not given that breakout for CY 2012.
Alternate Calculation: If you were given an average discount factor for CY 2012 (one that reflected an average discount for all AYs together) then you could just multiply that by the given CY 2012 reserves to get the discounted reserves, but you don't have that.