Accounting 513



University of Washington

Accounting 513

Professor Terry Shevlin

Sample Final Exam

Question 1. Multinational Tax Planning (30 points)

A. Assume Nike has manufacturing facilities in Indonesia that have generated approximately $US100 million in accumulated earnings. Nike is considering whether to repatriate these earnings or reinvest them in Indonesia. Carefully explain what issues are relevant to this decision. (20 points)

B. Generally in this course, we have argued that implicit and explicit taxes are both taxes and both are equally costly. Is this true in the multinational setting? By way of a numerical example, carefully explain your answer. (10 points)

Question 2. Mergers and Acquisitions (20 points)

The following paragraphs are extracted from the securities registration filing by Boeing in relation to its proposed merger with Rockwell. Carefully explain each part of the transaction referred to in the second paragraph.

On July 31, 1996, the Company, The Boeing Company ("Boeing") and a

subsidiary of Boeing entered into an Agreement and Plan of Merger (the "Merger

Agreement") pursuant to which Boeing will indirectly acquire the Company's

Aerospace and Defense businesses. Among the transactions contemplated by the

Merger Agreement is the contribution of the Company's Automation, Avionics and

Communications, Semiconductor Systems and Automotive businesses to a new company

("New Rockwell"), the shares of which will be distributed to the Company's

shareowners immediately prior to the merger of the Company (then holding only

the Company's Aerospace and Defense businesses) with the Boeing subsidiary (the

"Merger"). Following the Merger, New Rockwell will be renamed "Rockwell

International Corporation" and the Company will be renamed "Boeing North

American, Inc."

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The Contribution and the Distribution are intended to qualify as

transactions described in Sections 351 and 355 of the Internal Revenue Code of

1986, as amended (the "Code"), and/or as a "reorganization" under Section

368(a)(1)(D) of the Code and the Merger is intended to qualify as a

"reorganization" under Section 368(a)(1)(B) of the Code.

Question 3. Estate and Gift Planning (30 points)

Suppose your parents founded a wildly successful business in which they still own 90% of the outstanding stock. The basis in their stock is close to zero. They are nearing retirement age and are now considering their options. Most of your parents’ wealth is in the business. They would like to buy a summer property on Whidby Island and a winter home in Hawaii. They also would like to have sufficient money to travel extensively each year. They also would like to contribute half their wealth to charity (although they are not decided on which charities they want to support) with the remainder of their wealth being divided equally between you and your sister. You have recently graduated from the MBA program at Washington while your very smart sister is about to enter college (she has her choice of any college in the U.S.).

Prepare a plan for your parents’ consideration carefully explaining each part of the plan.

Question 4 Pension plan retirement

Compare and contrast a defined benefit pension plan with a defined contribution pension plan. Which plan might an employee prefer? Which plan might an employer prefer? (20 points)

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