Posted: October 20th, 2022

Accounting/ Taxation Homework

.0001pt;”>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
Helpance 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.

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