PRINCIPLES OF TAXATION F/BUS...(LL)
23rd Edition
ISBN: 9781260433197
Author: Jones
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 15AP
a.
To determine
Compute any increase or decrease in the tax of Person V as a result of the conclusion of the agent.
b.
To determine
Compute any increase or decrease in the tax of Company T as a result of the conclusion of the agent.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Watanabe Corporation is selling one of its assets for $1,700. The asset originally cost $10,000. It has been depreciated under MACRS using a five-year recovery period, and it has been depreciated for four full years. Assume that the tax rate is 40 percent on both ordinary income and capital gains. What are the tax effects of this transaction?
Jellibean Corporation will replace one of its existing assets with a newer type. The existing asset was purchased two years ago at a cost of $30,000 and was being depreciated under MACRS using a five-year recovery period. This existing asset can be sold for $25,000. The new asset that they plan to buy will cost $75,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on both ordinary income and capital gains, the initial investment will be equal to what amount after adjusting for taxes?
Calculate the initial purchase price for an asset that has a book value of $34,800 and has…
Forward Corporation is owned by a group of 15 shareholders. During the current year, Forward pays $550,000 in salary and bonuses to Alvin,
its president and controlling shareholder. The corporation's tax rate is 21%, and Alvin's marginal tax rate is 37% for ordinary income and 23.8%
(20% + 3.8% on net investment income) for long-term capital gains. The IRS audits Forward's tax return and determines that reasonable
compensation for Alvin is $350,000. Forward agrees to the adjustment.
Read the requirement.
Requirement
What effect does the disallowance of part of the salary and bonus deduction have
on Forward's and Alvin's respective tax positions? Ignore payroll taxes, such as
FICA.
Print
Done
X
Mrs. Oliver is negotiating to purchase a tract of land from DC Company, a calendar year taxpayer. DC bought this land six years ago for $480,000. According to a recent appraisal, the land is worth $800,000 in the current real estate market. According to DC’s director of tax, the company’s profit on the sale will be taxed at 35 percent if the sale occurs this year. However, this tax rate will definitely decrease to 21 percent if the sale occurs next year. Mrs. Oliver is aware that DC would prefer the sale close next year. However, Mrs. Oliver needs the land immediately to begin construction of a new retail outlet. She offers to pay $875,000 for the land with the stipulation that the sale close by December 31.
Required:
Calculate the amount of after-tax cash for the each of the following alternatives.
Should DC accept Mrs. Oliver’s offer?
Chapter 12 Solutions
PRINCIPLES OF TAXATION F/BUS...(LL)
Ch. 12 - Mr. and Mrs. Velotta are self-employed...Ch. 12 - Prob. 2QPDCh. 12 - Ms. Johnson is eager to create a family...Ch. 12 - Discuss the tax and nontax reasons why the stock...Ch. 12 - Mr. Eros operates an antique store located on the...Ch. 12 - Prob. 6QPDCh. 12 - Prob. 7QPDCh. 12 - Prob. 8QPDCh. 12 - Prob. 9QPDCh. 12 - Prob. 10QPD
Ch. 12 - Prob. 11QPDCh. 12 - Ms. Knox recently loaned 20,000 to her closely...Ch. 12 - Explain the logic of the tax rate for both the...Ch. 12 - Prob. 14QPDCh. 12 - Prob. 15QPDCh. 12 - Prob. 16QPDCh. 12 - Mr. Tuck and Ms. Under organized a new business as...Ch. 12 - Grant and Marvin organized a new business as a...Ch. 12 - Prob. 3APCh. 12 - Ms. Kona owns a 10 percent interest in Carlton...Ch. 12 - Mrs. Franklin, who is in the 37 percent tax...Ch. 12 - Prob. 6APCh. 12 - Prob. 7APCh. 12 - Prob. 8APCh. 12 - Prob. 9APCh. 12 - Prob. 10APCh. 12 - Prob. 11APCh. 12 - Prob. 12APCh. 12 - Prob. 13APCh. 12 - Ms. Xie, who is in the 37 percent tax bracket, is...Ch. 12 - Prob. 15APCh. 12 - In 1994, Mr. and Mrs. Adams formed ADC by...Ch. 12 - Prob. 17APCh. 12 - Prob. 18APCh. 12 - Prob. 19APCh. 12 - Prob. 20APCh. 12 - Prob. 21APCh. 12 - Prob. 1IRPCh. 12 - Prob. 2IRPCh. 12 - Prob. 3IRPCh. 12 - REW Inc. is closely held by six members of the REW...Ch. 12 - Prob. 5IRPCh. 12 - Prob. 6IRPCh. 12 - Prob. 7IRPCh. 12 - Prob. 8IRPCh. 12 - Prob. 9IRPCh. 12 - Prob. 10IRPCh. 12 - Prob. 2TPCCh. 12 - Prob. 3TPC
Knowledge Booster
Similar questions
- Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $450,000. Of this sum, $55,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the company will need to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company could depreciate the $55,000 straight-line over five years. How will the tax authority’s decision affect the after-tax cost of the kiln? The tax rate is 25%, and the opportunity cost of capital is 5%. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)arrow_forwardThe finance director of Hyden Ltd is unsure about the deferred tax implications for two of the items in the company’s statement of financial position. Item 1: Hyden Ltd has a balance of $100,000 in its prepaid insurance account. The insurance is deductible when the payment to the insurance is made. Item 2: Hyden Ltd purchased an item of property, plant and equipment (PPE) 5 years ago for $1,000,000. The depreciation expense for accounting purpose is $50,000 per annum, resulting an accumulated depreciation of $250,000 for the year. The taxation office allows this type of PPE to be depreciated at $25,000 per annum. Required: (a) Calculate the deferred tax implication (deferred tax asset or deferred tax liability) for each of the above items, in accordance with IAS 12 / AASB 112 Income Taxes. Assume a tax rate of 30%. ANSWER HERE: Carrying Amount TaxBase Taxable Temp Diffs DeductibleTemp Diffs Prepaid insurance…arrow_forwardCompany X incurred the following transactions in the current year. For each transaction, explain whether each transaction is tax deductible under the ITAA. Depreciation on the buildings The company incurred legal expenses opposing an application by its competitor to extend its patent on a brand of mower. If the patent was not extended, then Company X could produce a similar mower. The company borrowed money to cover the purchase of a new plant. The loan is repayable in 10 years. Because of a shortage of working capital, the company was forced to sell off some land. The land had originally been bought in October 1995 The company also purchased a new car for the managing directorarrow_forward
- Green Co. was preparing its year-end financial statements. Green had a pending lawsuit against a competitor for $5,000,000 in damages. Green's attorneys indicate that obtaining a favorable judgment was probable and the amount of damages is reasonably estimated. Green incurred $100,000 in legal fees. The income tax rate was 30%. What amount, if any, should Green recognize as a contingency gain in its financial statements? A B. C. D. $0 $4,900,000 $3,500,000 $3,430,000arrow_forwardMs. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $510,000. Of this sum, $61,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the company will need to treat this cost as a tax- deductible current expense or as a capital investment. In the latter case, the company could depreciate the $61,000 straight-line over five years. How will the tax authority's decision affect the after-tax cost of the kiln? The tax rate is 25%, and the opportunity cost of capital is 6%. Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. Installation cost is expensed at the end of year 1 If installation cost is capitalized and depreciated over 5 years PV Tax shieldarrow_forwardMs. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $580,000. Of this sum, $68,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the company will need to treat this cost as a tax- deductible current expense or as a capital investment. In the latter case, the company could depreciate the $68,000 straight-line over five years. How will the tax authority's decision affect the after-tax cost of the kiln? The tax rate is 25%, and the opportunity cost of capital is 8%. Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. > Answer is complete but not entirely correct. PV Tax shield 15,741✔ After-tax cost is smaller 13,575X After-tax cost is larger Installation cost is expensed at the end of year 1 If installation cost is capitalized and depreciated over 5 years $ $ 33arrow_forward
- Forward Corporation is owned by a group of 15 shareholders. During the current? year, ForwardForward pays $550,000 in salary and bonuses to AlvinAlvin?, its president and controlling shareholder. The? corporation's marginal tax rate is 34?%, and AlvinAlvin?'s marginal tax rate is 39.6?%. The IRS audits ForwardForward?'s tax return and determines that reasonable compensation for Alvin is $350,000. ForwardForward agrees to the adjustment. What effect does the disallowance of part of the salary and bonus deduction have on Forward?'s and Alvin?'s respective tax? positions? Ignore payroll? taxes, such as FICA. ?(Assume a? 23.8% capital gains tax? rate, if?necessary.)arrow_forwardFlowers Corp. has a tax rate of 25% in all years. Information relating to Year 10: During Year 10, Flowers decided to sell the Bulbs Division (Bulbs) of its business. Bulbs met the qualifications of a discontinued component in Year 10; however, the component was not expected to be sold until Year 11. Management estimates it will cost $108,000 to sell Bulbs and that Bulbs' has a current fair value of $870,000. In Year 10, Flowers incurred a pre-tax income of $467,000 while operating Bulbs. On December 31, Year 10, Bulbs' historical cost was $3,200,000 with associated accumulated depreciation of $2,400,000. Provide the adjusting entry to record any impairment of Bulbs in Year 10. If no entry is needed choose "No Entry" for the debit and credit and $0 for the amount. debit . credit . for the amount of $ In Year 10 on the Balance Sheet, Flowers will report for Bulbs' Book Value for the amount of $ EN y F prin Doc ens:arrow_forwardThe BVM Corp., a construction company, purchased a used hybrid electric pickup truck for $30,000 and used MACRS depreciation in the income tax return. During the time the company had the truck, they estimated that it saved $9500 a year. At the end of 4 years, BVM sold the truck for $9000. The combined federal and state income tax rate for BVM is 28%. Compute the after-tax rate of return for the truck.arrow_forward
- Jane Shay operates a management consulting business. The business has been successful and now produces a taxable income of $100,000 per year after all “ordinary and necessary” expenses and depreciation have been deducted. At present the business is operated as a proprietorship; that is, Jane pays personal federal income tax on the entire $100,000. For tax purposes, it is as if she had a job that pays her a $100,000 salary per year. As an alternative, Jane is considering incorporating the business. If she does, she will pay herself a salary of $40,000 a year from the corporation. The corporation will then pay taxes on the remaining $60,000 and retain the balance of the money as a corporate asset. Thus Jane’s two alternatives are to operate the business as a proprietorship or as a corporation. Jane is single and has $3500 of itemized personal deductions. Which alternative will result in a smaller total payment of taxes to the government?arrow_forward1) In the current year, Azure Company has $350,000 of net operating income before deducting any compensation or other payment to its sole owner, Sasha. In addition, Azure has interest on municipal bonds of $25,000. Sasha has significant income from other sources and is in the 37% marginal tax bracket. Based on this information, determine the income tax consequences to Azure Company and to Sasha during the year for each of the following independent situations.(Ignore the deduction for qualified business income and the 3.8% Medicare surtax on net investment income.) Azure is a C corporation and pays no dividends or salary to Sasha. Azure is a C corporation and distributes $75,000 of dividends to Sasha. Azure is a C corporation and pays $75,000 of salary to Sasha. Azure is a sole proprietorship, and Sasha withdraws $0. Azure is a sole proprietorship, and Sasha withdraws $75,000arrow_forwardThe Drillup Company has been in the business of oil exploration for the past 10 years. In 2021. $10,000 was spent drilling wells that were dry holes. According to the accounting standards this should be capitalized. However, Drillup decided to treat the $10,000 as a one time expense for the business because of its positive effects for tax purposes entered by the accountant. The accountant has considered the ethical issues involved in this transaction. Select one: True Falsearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT