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tax problems - questin and answer,.,. ch 24




Question;38. LO.5, 9 Quinn Corporation is subject to tax in States G, H, and I. Quinn?s compensation expense includes the following:State G State H State I TotalSalaries and wages for nonofficers $200,000 $400,000 $400,000 $1,000,000Officers? salaries ?0? ?0? 500,000 500,000Total $1,500,000Officers? salaries are included in the payroll factor for G and I, but not for H. ComputeQuinn?s payroll factors for G, H, and I. Comment on your results.39. LO.5 Kim Corporation, a calendar year taxpayer, has manufacturing facilities in States A and B. A summary of Kim?s property holdings follows.Beginning of YearState A State B TotalInventory $ 300,000 $ 200,000 $ 500,000Plant and equipment 2,500,000 1,500,000 4,000,000Accumulated depreciation: plant and equipment (1,000,000) (600,000) (1,600,000)Land 600,000 1,000,000 1,600,000Rental property* 900,000 300,000 1,200,000Accumulated depreciation: rental property (200,000) (90,000) (290,000)End of YearState A State B TotalInventory $ 400,000 $ 200,000 $ 600,000Plant and equipment 2,800,000 1,200,000 4,000,000Accumulated depreciation: plant and equipment (1,200,000) (650,000) (1,850,000)Land 600,000 1,200,000 1,800,000Rental property* 1,000,000 300,000 1,300,000Accumulated depreciation: rental property (250,000) (100,000) (350,000) *Unrelated to regular business operations.Determine Kim?s property factors for the two states assuming that the statutes of both A and B provide that average historical cost of business property is to be included in the property factor.40. LO.5 Assume the same facts as in Problem 39, except that nonbusiness income is apportionable in B.41. LO.5, 9 Crate Corporation, a calendar year taxpayer, has established nexus with numerous states. On December 3, Crate sold one of its two facilities in State X. The cost of this facility was $800,000.On January 1, Crate owned property with a cost of $3 million, $1.5 million of which was located in X. On December 31, Crate owned property with a cost of $2.5 million, $700,000 of which was located in X.X law allows the use of average annual or monthly cost amounts in determining the property factor. If Crate wants to minimize the property factor in X, which method should be used to determine the property factor there?42. LO.6, 9 True Corporation, a wholly owned subsidiary of Trumaine Corporation, generated a $400,000 taxable loss in its first year of operations. True?s activities and sales are restricted to State A, which imposes an 8% income tax. In the same year, Trumaine?s taxable income is $1 million. Trumaine?s activities and sales are restricted to State B, which imposes an 11% income tax. Both states use a three-factor apportionment formula that equally weights sales, payroll, and property, and both require a unitary group to file on a combined basis. Sales, payroll, and average property for each corporation are as follows:True Corporation Trumaine Corporation TotalSales $2,500,000 $4,000,000 $6,500,000Property 1,000,000 2,500,000 3,500,000Payroll 500,000 1,500,000 2,000,000True and Trumaine have been found to be members of a unitary business.a. Determine the overall state income tax for the unitary group.b. Determine aggregate state income tax for the entities if they were nonunitary.c. Incorporate this analysis in a letter to Trumaine?s board of directors. Corporate offices are located at 1234 Mulberry Lane, Birmingham, AL 35298.43. LO.6 Chang Corporation is part of a three-corporation unitary business. The group has a water?s edge election in effect with respect to unitary State Q. State B does not apply the unitary concept with respect to its corporate income tax laws. Nor does Despina, aEuropean country to which Saldez paid a $7 million value added tax this year.Saldez was organized in Despina and conducts all of its business there. Given the summary of operations that follows, determine Chang?s and Elena?s sales factors in B and Q.Corporation Customer?s Location SalesChang B $20,000,000Q 60,000,000Elena Q 70,000,000Saldez Despina 50,000,00044. LO.7 Hernandez, which has been an S corporation since inception, is subject to tax inStates Y and Z. On Schedule K of its Federal Form 1120S, Hernandez reported ordinary income of $500,000 from its business, taxable interest income of $10,000, capital loss of $30,000, and $40,000 of dividend income from a corporation in which it owns 30%.Both states apportion income by use of a three-factor formula that equally weights sales, payroll, and the average cost of property, both states treat interest and dividends as business income. In addition, both Y and Z follow Federal provisions with respect to the determination of corporate taxable income. Y recognizes S status, but Z does not.Based on the following information, write a memo to the shareholders of Hernandez, detailing the amount of taxable income on which Hernandez will pay tax in Y and Z. Hernandez corporate offices are located at 5678 Alabaster Circle, Bowling Green, KY 42103.State Y State ZSales $1,000,000 $800,000Property (average cost) 500,000 100,000Payroll 800,000 200,00045. LO.8 Using the following information from the books and records of Grande Corporation, determine Grande?s total sales that are subject to State C?s sales tax. Grande operates a retail hardware store.Sales to C consumers, general merchandise $1,100,000Sales to C consumers, crutches and other medical supplies 245,000Sales to consumers in State D, via mail order 80,000Purchases from suppliers 55,00046. LO.8 Indicate for each transaction whether a sales (S) or use (U) tax applies or whether the transaction is nontaxable (N). Where the laws vary among states, assume that the most common rules apply. All taxpayers are individuals.a. A resident of State A purchases an automobile in A.b. A resident of State A purchases groceries in A.c. A resident of State B purchases an automobile in A.d. A charity purchases office supplies in A.e. An A resident purchases in B an item that will be in the inventory of her business.47. LO.5, 9 Dread Corporation operates in a high-tax state. The firm asks you for advice on a plan to outsource administrative work done in its home state to independent contractors.This work now costs the company $750,000 in wages and benefits. Dread?s total payroll for the year is $8 million, of which $6 million is for work currently done in the home state.48. LO.9 Prepare a PowerPoint presentation (maximum of six slides) entitled ?PlanningPrinciples for Our Multistate Clients.? The slides will be used to lead a 20-minute discussion with colleagues in the corporate tax department. Keep the outline general, but assume that your colleagues have clients operating in at least 15 states. Address only income tax issues.


Paper#38712 | Written in 18-Jul-2015

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