Question;42. Tim is the vice president of western operations for Maroon Oil Company and is stationed in San Francisco. He is required to live in an employer-owned home, which is three blocks from his company office. The company-provided home is equipped with high-speed Internet access and several telephone lines. Tim receives telephone calls and e-mails that require immediate attention any time of day or night because the company?s business is spread all over the world. A full-time administrative assistant resides in the house to assist Tim with the urgent business matters. Tim often uses the home for entertaining customers, suppliers, and employees. The fair market value of comparable housing is $9,000 per month. Tim is also provided with free parking at his company?s office. The value of the parking is $350 per month. Calculate the amount associated with the company-provided housing and free parking that Tim must include in his gross income.43. LO.2 Does the taxpayer recognize gross income in the following situations?a. Ava is a filing clerk at a large insurance company. She is permitted to leave the premises for lunch, but she usually eats in the company?s cafeteria because it is quick and she is on a tight schedule. On average, she pays $5 for a lunch that would cost $8 at a restaurant. However, if the prices in the cafeteria were not so low and the food was not so delicious, she would probably bring her lunch at a cost of $3 per day.b. Scott is an executive for an international corporation located in New York City. Often he works late, taking telephone calls from the company?s European branch. Scott often stays in a company-owned condominium when he has a late-night work session.The condominium is across the street from the company office.c. Ira recently moved to take a job. For the first month on the new job, Ira was searching for a home to purchase or rent. During this time, his employer permitted Ira to live in an apartment the company maintains for customers during the buying season.The month that Ira occupied the apartment was not during the buying season, and the apartment would not otherwise have been occupied.44. LO.2, 5 Bertha is considering taking an early retirement offered by her employer. She would receive $3,000 per month, indexed for inflation. However, she would no longer be able to use the company?s health facilities, and she would be required to pay her hospitalization insurance premiums of $8,000 each year. Bertha and her husband will file a joint return and take the standard deduction. She currently receives a salary of $55,000 a year. If she retires, she will spend approximately $300 less each month for commuting and clothing.Bertha and her husband have other sources of income and are in and will remain in the25% marginal tax bracket. She currently pays Social Security and Medicare taxes of 7.65% on her salary, but her retirement pay would not be subject to this tax. According to Bertha, she and her husband could live well if her after-tax retirement income was at least 50% of her current income. Provide Bertha with information she will need to make her decision.45. LO.2, 5 Finch Construction Company provides the carpenters it employs with all of the required tools. However, the company believes that this practice has led to some employees not taking care of the tools and to the mysterious disappearance of some tools. The company is considering requiring all of its employees to provide their own tools. Each employee?s salary would be increased by $1,500 to compensate for the additional cost. Write a letter to Finch?s management explaining the tax consequences of this plan to the carpenters. Finch?s address is 300 Harbor Drive, Vermillion, SD 57069.46. LO.2, 5 Bluebird, Inc., does not provide its employees with any tax-exempt fringe benefits.The company is considering adopting a hospital and medical benefits insurance plan that will cost approximately $9,000 per employee. To adopt this plan, the company may have to reduce salaries and/or lower future salary increases. Bluebird is in the 35% (combinedFederal and state rates) bracket. Bluebird is also responsible for matching the SocialSecurity and Medicare taxes withheld on employees? salaries (at the full 7.65% rate for 2013). The hospital and medical benefits insurance plan will not be subject to the SocialSecurity and Medicare taxes, and the company is not eligible for the small business credit for health insurance. The employees generally fall into two marginal tax rate groups:Income TaxSocial Security andMedicare Tax Total.15.0765. 2265.35.0145. 3645The company has asked you to assist in its financial planning for the hospital and medical benefits insurance plan by computing the following:a. How much taxable compensation is the equivalent of $9,000 of exempt compensation for each of the two classes of employees?b. What is the company?s after-tax cost of the taxable compensation computed in part (a)?c. What is the company?s after-tax cost of the exempt compensation?d. Briefly explain your conclusions from the preceding analysis.47. LO.2, 5 Rosa?s employer has instituted a flexible benefits program. Rosa will use the plan to pay for her daughter?s dental expenses and other medical expenses that are not covered by health insurance. Rosa is in the 28% marginal tax bracket and estimates that the medical and dental expenses not covered by health insurance will be within the range of $4,000 to $5,000. Her employer?s plan permits her to set aside as much as $5,000 in the flexible benefits account. Rosa does not itemize her deductions.a. Rosa puts $4,000 into her flexible benefits account, and her actual expenses are $5,000. What is her cost of underestimating the expenses?b. Rosa puts $5,000 into her flexible benefits account, and her actual expenses are only $4,000. What is her cost of overestimating her expenses?c. What is Rosa?s cost of underfunding as compared to the cost of overfunding the flexible benefits account?d. Does your answer in part (c) suggest that Rosa should fund the account closer to the low end or to the high end of her estimates?48. LO.2 Sparrow Corporation would like you to review its employee fringe benefits program with regard to the tax consequences of the plan for the company?s president (Polly), who is also the majority shareholder.a. The company has a qualified retirement plan. The company pays the cost of employees attending a retirement planning seminar. The employee must be within 10 years of retirement, and the cost of the seminar is $1,500 per attendee.b. The company owns a parking garage that is used by customers, employees, and the general public. Only the general public is required to pay for parking. The charge to the general public for Polly?s parking for the year would have been $3,000 (a $250 monthly rate).c. All employees are allowed to use the company?s fixed charge long-distance telephone services, as long as the privilege is not abused. Although no one has kept track of the actual calls, Polly?s use of the telephone had a value (what she would have paid on her personal telephone) of approximately $600.d. The company owns a condominium at the beach, which it uses to entertain customers.Employees are allowed to use the facility without charge when the company has no scheduled events. Polly used the facility 10 days during the year. Her use had a rental value of $1,000.e. The company is in the household moving business. Employees are allowed to ship goods without charge whenever there is excess space on a truck. Polly purchased a dining room suite for her daughter. Company trucks delivered the furniture to the daughter. Normal freight charges would have been $750.f. The company has a storage facility for household goods. Officers are allowed a 20% discount on charges for storing their goods. All other employees are allowed a 10% discount. Polly?s discounts for the year totaled $900.
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