Description
PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY
The purpose of this assignment is to help students understand the concept of the so-called "trapped cash." The topic of trapped cash or cash permanently reinvested overseas to avoid tax upon repatriation has become a hot topic in accounting, finance, and policy circles over the past few years. This case study considers trapped cash at two major technology firms, Microsoft and Apple. The focus to examine the reporting of cash balances and related tax impacts and to identify and evaluate the strategies utilized by Microsoft and Apple to manage offshore cash.
Requirements:
Download the attached file for detailed instructions, and upload your responses by the deadline. Do your own research and then answer all the questions. You are required to follow the APA style format. Make your responses clear, legible, and free from typos and grammar mistakes.
Your response should:
- Summarize for non-sophisticated investors the "trapped cash" issue (That is, summarize what is trapped cash, what are the potential reasons for the cash to be "trapped," what is the consequences of trapped cash, etc).
- Examine the differences in the financial disclosure of Apple and Microsoft (see appendices) and compare how each firm utilized excess cash (ie. not core business uses such as capital expenditures or investment in working capital).
- On December 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act, which cut the corporate tax rate from 35% to 21%. The corporate cuts are permanent and presumably will affect the business decisions of the companies, including the decisions on permanently reinvested earnings. Discuss the potential reactions of Apple and Microsoft to the tax cut with respect to the trapped cash.
Required Text:
Financial Accounting (2016), University of Minnesota Libraries Publishing, ISBN: 9781946135100
Sample Solution