Posted: October 20th, 2022

Homework Assignments: Chapter 12 24. North Inc. is a calendar-year, accrual-basis taxpaye

Homework Assignments: Chapter 1224. North Inc. is a calendar-year, accrual-basis taxpayer. At the end of the year 1, North accruedand deducted the following bonuses for certain employees for financial accounting purposes.$7,500 for Lisa Tanaka, a 30 percent shareholder.$10,000 for Jared Zabaski, a 35 percent shareholder.$12,500 for Helen Talanian, a 20 percent shareholder.$5,000 for Steve Nielson, a 0 percent shareholder.Unless stated otherwise, assume these shareholders are unrelated.How much of the accrued bonuses can North Inc. deduct in year 1 under the followingalternative scenarios?a. North paid the bonuses to the employees on March 1 of year 2.b. North paid the bonuses to the employees on April 1 of year 2.c. North paid the bonuses to employees on March 1 of year 2 and Lisa and Jared arerelated to each other, so they are treated as owning each other’s stock in North.d. North paid the bonuses to employees on March 1 of year 2 and Lisa and Helen arerelated to each other, so they are treated as owning each other’s stock in North.27. Marcus is the CEO of publicly traded ABC Corporation and earns a salary of $1,500,000.Assume ABC has a 35 percent marginal tax rate.a. What is ABC’s after-tax cost of paying Marcus’s salary?b. Now assume that Marcus, in addition to the $1.5 million salary, earns a performancebased bonus of $500,000. What is ABC’s after-tax cost of paying Marcus’s salary?129. Cammie received 100 NQOs (each option provides a right to purchase 10 shares of MNLstock for $10 per share) at the time she started working for MNL Corporation four years agowhen MNL’s stock price was $8 per share. Now that MNL’s stock price is $40 per share, sheintends to exercise all of her options. After acquiring the 1,000 MNL shares with her options,she held the shares for over one year and sold them at $60 per share.a. What are Cammie’s tax consequences on the grant date, the exercise date, and the dateshe sold the shares assuming her ordinary marginal rate is 30 percent and her capitalgains rate is 15percent?b. What are MNL Corporation’s tax consequences on grant date, exercise date, and dateof sale assuming its marginal tax rate is 35 percent?c. Complete Cammie’s Schedule D for the year of sale.32. Mark received 10 ISOs at the time he started working for Hendricks Corporation five yearsago when Hendricks’s price was $5 per share (each option gives him the right to purchase 10shares of Hendricks Corporation stock for $5 per share). Now that Hendricks’s share price is$35 per share, he intends to exercise all options and hold all of his shares for more than year.Assume that more than a year after exercise, Mark sells the stock for $35 a share.a. What are Mark’s tax consequences on the grant date, the exercise date, and the date hesells the shares assuming his ordinary marginal rate is 30 percent and his long-termcapital gains rate is 15 percent?b. What are Hendricks’s tax consequences on these dates assuming its marginal tax rate is25 percent?237. On January 1, year 1, Jessica received 10,000 shares of restricted stock from her employer,Rocket Corporation. On that date, the stock price was $10 per share. On receiving therestricted stock, Jessica made the §83(b) election. Jessica’s restricted shares will all vest at theend of year 4. After the shares vest, she intends to sell them immediately to fund an aroundthe-world cruise. Unfortunately, Jessica decided that she couldn’t wait four years and quit herjob to start her cruise on January 1, year 3.a. What are the year 1 tax consequences of these transactions to Jessica, assuming hermarginal tax rate is 33 percent and her long-term capital gains rate is 15 percent?b. What are the year 3 tax consequences of these transactions to Jessica, assuming hermarginal tax rate is 33 percent and her long-term capital gains rate is 15 percent?42. Lars Osberg, a single taxpayer with a 35 percent marginal tax rate, desires health insurance.The health insurance would cost Lars $8,500 to purchase if he pays for it himself (Lars’s AGIis too high to receive any tax deduction for the insurance as a medical expense). Volvo,Lars’s employer, has a 40 percent marginal tax rate. Answer the following questions aboutthis benefit (ignore FICA taxes in your analysis).a. What is the maximum amount of before-tax salary Lars would give up to receive healthinsurance from Volvo?b. What would be the after-tax cost to Volvo to provide Lars with health insurance if it couldpurchase the insurance through its group plan for $5,000?c. Assume that Volvo could purchase the insurance for $5,000. Lars is interested in gettinghealth insurance and he is willing to receive a lower salary in exchange for the healthinsurance. What is the least amount by which Volvo would be willing to reduce Lars’ssalary while agreeing to pay his life insurance?d. Will Volvo and Lars be able to reach an agreement by which Volvo will provide Lars’shealth insurance?348. Sharmilla works for Shasta Lumber, a local lumber supplier. The company annuallyprovides each employee with a Shasta Lumber shirt so that employees look branded andadvertise for the business while wearing the shirts. Are Shasta’s employees required toinclude the value of the shirts in income?4

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