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Accounting/ Taxation Homework




Question;Q1Nick and Jolene are married. Nick is 61 and;retired in 2010 from his job with Amalgamated Company. Jolene is 56 and works;part-time as a special education teacher. Nick and Jolene have a substantial;amount of investment savings and would like to reorganize it to achieve the;best after-tax return on their investments. They give you the following list of;projected cash receipts for 2011;Jolene?s;salary ????????? $13,000;Nick?s;pension?fully taxable ???? 12,500;Interest;income ?????????? 4,000;Dividend;income ?????????.. 2,500;Social;Security benefits ???????. 7,000;Farmer?s;Fund annuity ???????.. 6,000;In;addition, Nick tells you that he owns a duplex that he rents out. The duplex;rents for 2011 are $18,000, and Nick estimates expenses of $22,000 related to;the duplex. The annuity was purchased 18 years ago for $20,000, and pays $500;per month for 10 years. Nick and Jolene?s investments consist of the following;6-month;certificates of deposit (CDs) ????????????. $100,000;1,000;shares of Lardee?s common stock (current market;value;= $7 per share, projected 2011 dividend = $1 per share)?cost ? 10,000;2,000;shares of Corb Company common stock (current;market;value + $20 per share, projected 2011 dividend +;$0.75;per share)?cost ??????????????????? 20,000;a.;Assuming that Nick and Jolene have total allowable itemized deductions of;$12,350 in 2011 and that they have no dependents, determine their 2011 taxable;income and tax liability based on the projections they gave you.;b. The;6-month CDs consist of two $50,000 certificates, both of which yield 4%;interest. One CD matures on January 3, 2011. Nick?s banker tells him that he;can renew the CD for one year at 4%. Nick?s stockbroker tells him that he can;purchase tax-exempt bonds with a yield of 3%. Nick would like you to determine;whether the tax-exempt bonds provide him a better after-tax return than the CD.;c.;Jolene is concerned that they are not getting the best return on their Corb;Company stock. When they purchased the stock in 2000, the $.75 per share;dividend was yielding 10% before taxes. However, the rise in market value has;far outpaced the dividend growth, and it is yielding only 3.75%, based on the;current market value. Jolene thinks they should sell the stock and purchase;either the 3% tax-exempt securities or the 4% CD if it would be a better deal;from an income tax viewpoint. Calculate the tax effect on their 2011 income of;selling the shares, and determine whether they should sell the shares and;invest the after-tax proceeds in tax-exempt securities or the 4% CD. Do this;calculation after you have determined the best option regarding the CD that;matures in January.Q2Carmin Kovach is;single and has two children from her previous marriage. Anika, 9, lives with;Carmin. Julius, 11, lives with his father, Ray. Carmin pays alimony of $400 per;month to Ray. The payments are to continue until Julius reaches age 18, when;they will be reduced to $100.;Carmin is 34 and employed as a nuclear;engineer with Atom Systems Consultants, Inc. (ASCI). Her annual salary is;$80,000, and ASCI has an extensive fringe benefits program for its employees.;ASCI has a qualified pension plan that covers;all employees. Under the plan, ASCI matches any contribution to the plan up to;8% of the employee?s annual salary. Carmin makes the maximum allowable;contribution of $6,400, and it is matched by ASCI.;ASCI provides medical coverage to all;employees but not to their dependents. Carmin?s medical coverage costs ASCI;$3,000 during the current year. She receives $980 in reimbursements for her;medical costs. ASCI also provides employees with a flexible benefits plan.;Carmin pays $3,200 into the plan. She uses $2,400 to purchase medical coverage;for Anika. Her medical, dental, and optometry costs not covered by insurance;total $1,900, the flexible benefits plan reimburses her $800 for these costs.;ASCI also provides employees with group term life;insurance of twice their annual salary, up to a maximum coverage of $150,000.;Carmin?s group term life insurance premiums cost $400. Because of the sensitive;and sometimes dangerous nature of her work, ASCI also provides Carmin with a;$300,000 whole life insurance policy. The whole life insurance policy costs;$490.;Taking advantage of ASCI?s educational;assistance program, during the fall Carmin enrolls in two law school classes at;a local university. ASCI pays her tuition, fees, books, and other course-related;costs totaling $2,300.;Carmin also receives certain other fringe;benefits not available to all employees. She receives free parking in the;company?s security garage that would normally cost $250 per month. In addition;ASCI pays the $1,000 cost of her nuclear engineer?s license and $600 per year;in professional association dues and professional magazine subscriptions. ASCI;also pays Carmin?s $900 dues to a health club that is located in the same;building as her office.;Carmin routinely enters sweepstakes contests.;This year, she is notified that she has won $5,000 in a breakfast cereal;promotion. The prize is to be paid equally over 10 years. She receives the;first payment December 28, although she doesn?t deposit the check in her;checking account until January 3.;In February, Carmin?s father dies. Social;Security pays her $600 as a survivor?s benefit. She also receives stock valued;at $30,000 and her father?s house, which has a value of $90,000, as her share;of her father?s estate.;Carmin rents out her father?s house on August;1. The monthly rent is $400, and the lease agreement is for one year. The lease;requires the tenant to pay the first and last months? rent and a $400 security;deposit. The security deposit is to be returned at the end of the lease if the;property is in good condition. On August 1, Carmin receives $1,200 from the;tenant per the terms of the lease agreement. In November, the plumbing freezes;and several lines burst. The tenant has the repairs made and pays the $300;bill. In December, he reduces his rental payment to $100 to compensate for the;plumbing repairs. Carmin pays other deductible costs for the rental that total;$2,680. The allowable depreciation on the rental house is $1,080.;Carmin owns several other investments. She;receives the following amounts (all in cash) from the stocks and bonds she;owns;General Dynamics common stock ?????? $ 300;City of Toronto bonds ??????????? 1,600;State of Nebraska bonds ??????????. 400;New Jersey economic development bonds ???. 300;Grubstake Mining Development stock ????..;1,000;Carmin owns 1,000 shares of Grubstake Mining;Development common stock. Grubstake is organized as an S corporation and has;100,000 shares outstanding. Grubstake reports taxable income of $200,000 during;the current year.;Carmin sells the following securities during;2011;Carmin purchased 500 shares of General;Dynamics stock on July 22, 2008, at a cost of $2,200. On June 15, 2011, she;receives 50 shares of General Dynamics stock as a dividend. The fair market;value of General Dynamics stock on June 15, 2011, was $3.50 per share.;Carmin slips on a wet spot in front of a;computer store during the current year.;She breaks her ankle and is unable to work for;two weeks. She incurs $1,300 in medical costs, all of which are paid by the;owner of the store. The store also gives her $1,000 for pain and suffering;resulting from the injury. ASCI continues to pay her salary during the two;weeks she misses because of the accident. ASCI?s plan also pays her $1,200 in;disability pay for the time she is unable to work.;Calculate Carmin?s adjusted gross income on;her 2011 tax return. Then do one or both of the following, according to your;professor?s instructions;a. Include a brief explanation of how you;determined each item that affected adjusted gross income and any items you;excluded from gross income. Your solution to the problem should contain a list;of each item included in adjusted gross income and its amount, with the;explanations attached.;b. Write a letter to Carmin explaining how you;determined each item that affected adjusted gross income and any items you;excluded from gross income. You should include a list of each item included in;adjusted gross income and itsamount.Q3During the current year;the Harlow Corporation, which specializesDuring;the current year, the Harlow Corporation, which specializes in commercial;construction, has the following property transactions;a. In April, a tornado damages a crane and a dump truck at one of its;construction;sites. The crane was acquired in 2009 for $120,000 and has an adjusted;basis of $39,650. The dump truck was acquired in 2007 for $70,000 and has;an adjusted basis of $33,880. The insurance company reimburses Harlow;$35,000 for the crane and $42,000 for the dump truck. The company decides;not to replace the dump truck and uses the insurance proceeds to purchase a;new crane for $110,000.b. The;company trades a road grader;with a fair market value of $72,000 for abulldozer;worth $60,000. Harlow receives $12,000 in the exchange. The road;grader originally cost $90,000 and has an adjusted basis of $50,000. The;bulldozer;cost $85,000, and its adjusted basis is $37,000.;c. A fire destroys the company?s supply warehouse. The warehouse originally;cost;$300,000 and has an adjusted basis of $200,000. Its fair market value before;the fire was $250,000. The insurance company pays Harlow $230,000, which;it uses to acquire a warehouse costing $280,000.;d. The city of PeaceDale condemns land that Harlow had acquired in 1978 for;$22,000 and held as an investment. The city pays Harlow the $195,000 fair;market value of the land. Harlow uses the proceeds to acquire a commercial;office park for $350,000.;e. Harlow sells an automobile used by its president for business purposes for;$10,000 to a local car dealership. The car originally cost $32,000, and its;adjusted basis is $15,000. The company had an agreement to replace the;automobile;with a customized four-wheel-drive vehicle from a company that specializes;in custom cars. However, the day the company sells the automobile, it;is informed that the custom car company will not be able to deliver the vehicle;for at least 10 weeks. Harlow terminates its contract with the custom car;company;and buys a new automobile from the local car dealership for $55,000.;Determine the realized and recognized gain or loss on each of Harlow?s property;transactions and the basis of any property acquired in each transaction.;="msonormal">


Paper#40230 | Written in 18-Jul-2015

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