1. You are the Chief Financial Officer of a hospital. You have been approached by the Director of Radiology who has made the case for acquiring a pair of mobile x-ray machines. There are four options for this acquisition:
1) Purchase by using cash reserves
2) Purchase by financing
3) Lease by using cash reserves
4) Lease by financing
List the one (1) option you would select and your rationale (including assumptions).
2. Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in year 1 and elected to be taxed as an S corporation beginning in year 2. Johnstone’s earnings and profits at the end of year 1 were $10,780. Marcus is Johnstone’s sole shareholder, and he has a stock basis of $43,000 at the end of year 1. Johnstone Corporation Income Statement December 31, Year 2 Year 2 (S Corporation) Sales revenue $ 162,000 Cost of goods sold (38,000 ) Salary to owners (63,000 ) Employee wages (53,500 ) Depreciation expense (7,000 ) Miscellaneous expenses (4,300 ) Interest income 11,520 Overall net income $ 7,720 What is Johnstone's accumulated adjustments account at the end of year 2, and what amount of dividend income does Marcus recognize on the year 2 distribution in each of the following alternative scenarios? (Leave no answer blank. Enter zero if applicable.)
a) Johnstone distributed $6,600 to Marcus in year 2.
b) Johnstone distributed $10,600 to Marcus in year 2.
c) Johnstone distributed $16,600 to Marcus in year 2.
d) Johnstone distributed $26,600 to Marcus in year 2.