Christian, the President and Sole Shareholder of Venture Corporation, Is

question 161

Essay

Christian, the president and sole shareholder of Venture Corporation, is paid an annual salary of $150,000. Christian would like to draw additional funds from the corporation but is concerned that an increased salary might cause the IRS to contend that his salary is unreasonable. Further, Christian does not want the corporation to pay any dividends. He would like to contribute $40,000 to his alma mater to establish scholarships for needy students. If Christian makes a pledge to the university to provide $40,000 for scholarships, would there be a problem if Venture Corporation paid the pledge on his behalf? Explain.

Recognize the importance and requirements of published data on mutual fund returns.

Comprehend and compare the historical volatility and returns of different asset classes.

Calculate effective annual rates of return on investments such as Treasury bills.

Identify and compute various measures of investment performance, including Holding Period Return (HPR).

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Definitions:

Variable Expense Ratio

A financial metric that represents the proportion of variable expenses to sales revenue, indicating how much variable costs change in response to sales activity.

Break-even Point

The level of production or sales at which total costs equal total revenue, resulting in no net loss or gain.

Degree of Operating Leverage

A measure indicating how much sales revenue will translate into changes in operating income due to the proportion of fixed and variable costs.

Contribution Format Income Statement

An income statement format that segregates fixed and variable costs, directly showing the contribution margin.