Problem 4-47 (LO. 4, 5)Roy decides to buy a personal residence and goes to the bank for a $150,000 loan. The bank tells him that he can borrow the funds at 4% ifhis father will guarantee the debt. Roy's father, Hal, owns a $150,000 CD currently yielding 3.5%. The Federal rate is 3%. Hal agrees to eitherof the following:• Roy borrows from the bank with Hal's guarantee to the bank.Hal cashes in the CD (with no penalty) and lends Roy the funds at 2% interest.Hal is in the 32% marginal tax bracket. Roy, whose only source of income is his salary, is in the 12% marginal tax bracket. The interest Roypays on the mortgage will be deductible by him.Considering only the tax consequences, answer the following.a. The loan guarantee:Hal's interest income from the CDs would be $before taxes and $6,000 ✓ before taxes and $Roy's interest expense from the bank loan would be $This arrangement would produce an overall negative ✓ cash flow after taxes to the family of $b. The loan from Hal to Roy:Hal's tax on the imputed interest income from the loan to Roy would be $Roy's tax benefit from the imputed interest expense from Hal's loan would be $2,640 X.This arrangement would produce an overall negative cash flow after taxes to the family of $c. Which option will maximize the family's after-tax wealth?The loan from Hal to Roy X5,2502,040 X.3,360 X after taxes.5,280✔ after taxes.1,553 X.4,328 X.

The tax consequences over the interest income and expenses is required to be computed based upon the…

Answered: a. The loan guarantee: Hal's interest…

Individual Income Taxes

43rd Edition

ISBN:9780357109731

Author:Hoffman

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Chapter5: Gross Income: Exclusions

Section: Chapter Questions

Problem 56P

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LO.4 Vic, who was experiencing financial difficulties, was able to adjust his debts as follows: a. Vic is an attorney. Vic owed his uncle 25,000. The uncle told Vic that if he serves as the executor of the uncles estate, Vics debt will be canceled in the uncles will. b. Vic borrowed 80,000 from First Bank. The debt was secured by land that Vic purchased for 100,000. Vic was unable to pay, and the bank foreclosed when the liability was 80,000, which was also the fair market value of the property. c. The Land Company, which had sold land to Vic for 80,000, reduced the mortgage on the land by 12,000. Determine the tax consequences to Vic.
LO.4 Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is not a principal purpose of any of the loans. Assume that the relevant Federal rate is 5% and that the loans were outstanding for the last six months of the year. What are the effects of the imputed interest rules on these transactions? Compute Elizabeths gross income from each loan: a. Richard b. Woody c. Irene
Roy decides to buy a personal residence and goes to the bank for a $150,000 loan. The bank tells him that he can borrow the funds at 4% if his father will guarantee the debt. Roy's father, Hal, owns a $150,000 CD currently yielding 3.5%. The Federal rate is 3%. Hal agrees to either of the following: Roy borrows from the bank with Hal's guarantee to the bank. Hal cashes in the CD (with no penalty) and lends Roy the funds at 2% interest. Hal is in the 32% marginal tax bracket. Roy, whose only source of income is his salary, is in the 12% marginal tax bracket. The interest Roy pays on the mortgage will be deductible by him.
Roy decides to buy a personal residence and goes to the bank for a $150,000 loan. The bank tells him that he can borrow the funds at 4% if his father will guarantee the debt. Roy's father, Hal, owns a $150,000 CD currently yielding 3.5%. The Federal rate is 3%. Hal agrees to either of the following: Roy borrows from the bank with Hal's guarantee to the bank. Hal cashes in the CD (with no penalty) and lends Roy the funds at 2% interest. Hal is in the 32% marginal tax bracket. Roy, whose only source of income is his salary, is in the 12% marginal tax bracket. The interest Roy pays on the mortgage will be deductible by him. Considering only the tax consequences, answer the following. a. The loan guarantee:Hal's interest income from the CDs would be $ before taxes and $ after taxes. Roy's interest expense from the bank loan would be $ before taxes and $ after taxes. This arrangement would produce an overall cash flow after taxes to the family of $. b. The loan from Hal to Roy:Hal's tax…
3. Zafri decides to borrow RM25,000 from a bank that charges 4.7% discount rate for 6 years to set up his business. Calculate the proceeds he receives from the bank.
B6 Which of the following taxpayers will have an adjustment on their Schedule CA (540), Part I, Section A, line 1? Abdul earned $40,000 of wages while working at the local pharmacy. Dana won $2,000 from the California Lottery. Milo cashed U.S. Savings Bonds yielding $300 of interest. Sasha received ridesharing fringe benefits that were excluded from income on her federal return.
2. A couple borrowed P 4,000 from a lending company for 6 years at 12%. At the end of 6 years, it renews the loan for the amount due plus P 4,000 more for 3 years at 12%. What is the lump sum due? ANSWER: 16,382.60
4-54. Kris borrows some money during her senior year to buy a new car. The car dealership allows her to defer payments for 12 months and Kris makes 60 end-of-month payments thereafter. If the original note (loan) is for $25,000 and interest is 0.75% per month on the unpaid balance, how much will Kris' payment be? (4.9)
Jino sold his house. In addition to cash, he took a mortgage on the house. The mortgage will be paid off by monthly payments of P12, 345 for 10 years. He decided to sell the mortgage to a local bank. The bank will buy the mortgage, but requires a 1% per month interest rate on their investment. How much will the bank pay for the mortgage? a) P 138,943.93 b) P 860,452.94 c) P 116,923.25 d) P 717,431.69
On March 31, year 1, Mary borrowed $240,000 to buy her principal residence. Mary paid 3 points to reduce her interest rate from 6 percent to 5 percent. The loan is for a 30-year period. What is Mary's year 1 deduction for her points paid? Multiple Choice ___ $60. ___ $180. ___ $5,400. ___ $7,200.
1.Three years ago, Morris loaned Alma $5,000 (Year 1) with the understanding that the loan would be repaid in two years. Last year (Year 3) Alma filed for bankruptcy, and Morris learned that he would receive $0.10 on the dollar. In the current year, Year 4, the final settlement was made, and Morris received $300. Assuming the loan is a nonbusiness bad debt, how should Morris account for the loan? a. $4,700 ordinary loss in the current year. b. $3,000 ordinary loss last year and $1,700 ordinary loss in the current year c. $4,700 short-term capital loss in the current year. d. $3,000 short-term capital loss last year and $1,700 short-term capital loss in the current year.
6 A father wants to set aside money for his 5-year old son's future college education. Money can be deposited in a bank account that pays 8.27 % per year, compounded annually. What equal deposits should be made by the father on his son's 6th through 17th birthday, in order to provide Php 5778 on the son's 18th, 19th, 20th, and 21st birthday? Round off to two decimal places.

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