Question: Calculate the total Social Security and Medicare

> Firm L has $500,000 to invest and is considering two alternatives. Investment A would pay 6 percent ($30,000 annual before-tax cash flow). Investment B would pay 4.8 percent ($24,000 annual before tax cash flow). The return on Investment A is taxable, wh

> Watch Corporation has U.S. source income for the current year of $2 million, foreign source income from Country X of $3 million, and foreign source income from Country Y of $1 million, for total taxable income of $6 million. Watch paid $900,000 of income

> Elmo Inc. is a U.S. corporation with a branch office in foreign Country Z. During the current year, Elmo had $340,000 of U.S. source income and $60,000 of foreign source income from Z, on which Elmo paid $28,000 of Country Z income tax. a. Calculate Elmo

> Jackson Inc. has the following taxable income. U.S. source income ………………………………$18,800,000 Foreign source income  …………………………..2,690,000 Taxable income ……………………………………..$21,490,000 Jackson paid $1,040,000 foreign income tax. Compute its U.S. income tax, a

> Zenon Inc. has the following taxable income. U.S. source income ……………………………$1,900,000 Foreign source income   ……………………….240,000 Taxable income ………………………………….$2,140,000 Zenon paid $33,000 foreign income tax. Compute its U.S. income tax, assuming the for

> Akita is a U.S. corporation. This year, it earned $8 million before-tax income and paid $450,000 income tax to jurisdictions other than the United States. Compute Akita’s U.S. income tax assuming that: a. The other jurisdictions were the states of Montan

> This year, Mesa Inc.’s before-tax income was $9,877,000. It paid $419,000 income tax to Minnesota and $385,000 income tax to Illinois. a. Compute Mesa’s federal income tax. b. What is Mesa’s tax rate on its income?

> Angela and Thomas are planning to start a new business. Thomas will invest cash in the business but not be involved in day-to-day operations. Angela plans to work full-time overseeing business operations. The two currently project that the business will

> A number of tax and nontax factors should be considered in choosing the type of pass through entity through which to operate a new business. For each of the following considerations, indicate whether the item favors the partnership form or the S corporat

> WRT, a calendar year S corporation, has 100 shares of outstanding stock. At the beginning of the year, Mr. Wallace owned all 100 shares. On September 30, he gave 25 shares to his brother and 40 shares to his daughter. WRT’s ordinary income for the year w

> Delta Partnership has four equal partners. At the beginning of the year, Drew was one of the Delta partners, but on October 1, he sold his partnership interest to Cody. If Delta’s ordinary income for the year was $476,000, what portion of this income sho

> Jurisdiction X levies a flat 14 percent tax on individual income in excess of $35,000 per year. Individuals who earn $35,000 or less pay no income tax. a. Mr. Hill earned $98,750 income this year. Compute his income tax and determine his average and marg

> Mrs. Franklin, who is in the 37 percent tax bracket, owns a residential apartment building that generates $80,000 annual taxable income. She plans to create a family partnership by giving each of her two children a 20 percent equity interest in the build

> Mr. and Mrs. Lund and their two children (Ben and June) are the four equal partners in LBJ Partnership. This year, LBJ generated $36,000 ordinary income. Compute the tax cost for the business if Mr. and Ms. Lund’s marginal rate is 32 percent, Ben’s margi

> Megan operates a housecleaning business as a sole proprietorship. She oversees a team of 10 cleaning personnel, markets the business, and provides supplies and equipment. The business has been generating net taxable profits of $50,000 per year, before co

> Graham is the sole shareholder of Logan Corporation. For the past five years, Logan has reported little or no taxable income as a result of paying Graham a salary of $500,000 per year. During a recent IRS audit, the revenue agent determined that Graham’s

> During a recent IRS audit, the revenue agent decided that the Parker family used their closely held corporation, Falco, to avoid shareholder tax by accumulating earnings beyond the reasonable needs of the business. Falco’s taxable income was $900,000, it

> In 1994, Mr. and Mrs. Adams formed ADC by transferring $50,000 cash in exchange for 100 shares of common stock and a note from the corporation for $49,000. The note obligated ADC to pay 10 percent annual interest and to repay the $49,000 principal on dem

> Mr. Vernon is the sole shareholder of Teva. He also owns the office building that serves as corporate headquarters. Last year, Teva paid $180,000 annual rent to Mr. Vernon for use of the building. Teva’s marginal tax rate was 21 percent, and Mr. Vernon’s

> Ms. Xie, who is in the 37 percent tax bracket, is the sole shareholder and president of Xenon. The corporation’s financial records show the following. Gross income from sales of goods ……………………….$1,590,000 Operating expenses ………………………………………………(930,000) S

> American Corporation has two equal shareholders, Mr. Freedom and Brave Inc. In addition to their investments in American stock, both shareholders have made substantial loans to American. During the current year, American paid $100,000 interest each to Mr

> Mr. Pauper and Mrs. Queen are the equal shareholders in Corporation PQ. Both shareholders have a 37 percent marginal tax rate. PQ’s financial records show the following. Gross income from sales of goods ……………………………..$980,000 Operating expenses ………………………

> Jurisdiction B levies a flat 7 percent tax on the first $5 million of annual corporate income. a. Jersey Inc. generated $3.9 million income this year. Compute Jersey’s income tax and determine its average and marginal tax rate on total income. b. Leray I

> Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto, Inc., which manufactures greeting cards. Toto’s average annual net profit (before deduction of Mr. Lion’s salary) is $200,000. For each of the following cases, compute the i

> Refer to the facts in the preceding problem. a. If the business is operated as a partnership, explain the payroll tax/self-employment tax implications for the entity, Thomas, and Angela. (No calculations are required.) b. If the business is operated as a

> Mr. Tuck and Ms. Under organized a new business as an LLC in which they own equal interests. The new business generated a $4,800 operating loss for the year. a. If Mr. Tuck’s marginal tax rate before consideration of the LLC loss is 35 percent, compute h

> Cranberry Corporation has $3,240,000 of current year taxable income. a. If the current year is a calendar year ending on December 31, 2017, calculate Cranberry’s regular income tax liability. b. If the current year is a calendar year ending on December 3

> This year, Fig Corporation made a $100,000 contribution to charity. In each of the following situations, compute the after-tax cost of this contribution assuming that Fig uses a 6 percent discount rate to compute NPV. a. Fig had $8 million taxable income

> In its first year, Camco Inc. generated a $92,000 net operating loss, and it made a $5,000 cash donation to a local charity. In its second year, Camco generated a $210,600 profit, and it made a $10,000 donation to the same charity. Compute Camco’s taxabl

> This year, GHJ Inc. received the following dividends. Compute GHJ’s dividends-received deduction. BP Inc. (a taxable California corporation in which GHJ holds a 2% stock interest) $17,300 MN Inc. (a taxable Florida corporation in

> This year, Napa Corporation received the following dividends. Napa and Gamma do not file a consolidated tax return. Compute Napa’s dividends-received deduction. KLP Inc. (a taxable Delaware corporation in which Napa holds an 8% st

> Griffin Corporation received $50,000 of dividend income from Eagle, Inc. Griffin owns 5 percent of the outstanding stock of Eagle. Griffin’s marginal tax rate is 21 percent. a. Calculate Griffin’s allowable dividends-received deduction and its after-tax

> Corporation P owns 93 percent of the outstanding stock of Corporation T. This year, the corporation’s records provide the following information. a. Compute each corporation’s taxable income if each files a separate t

> Firm Y has the opportunity to invest in a new venture. The projected cash flows are as follows: Year 0: Initial cash investment in the project of $300,000. Years 1, 2, and 3: Generate cash revenues of $50,000. Years 1, 2, and 3: Incur fully deductible ca

> James, who is in the 35 percent marginal tax bracket, owns 100 percent of the stock of JJ Inc. This year, JJ generates $500,000 taxable income and pays a $100,000 dividend to James. Compute his tax on the dividend under each of the following assumptions:

> In 2017, NB Inc.’s federal taxable income was $242,000. Compute the required installment payments of 2018 tax in each of the following cases: a. NB’s 2018 taxable income is $593,000. b. NB’s 2018 taxable income is $950,000. c. NB’s 2018 taxable income is

> In 2017, Bartley Corporation’s federal income tax due was $147,000. Compute the required installment payments of 2018 tax in each of the following cases: a. Bartley’s 2018 taxable income is $440,000. b. Bartley’s 2018 taxable income is $975,000. c. Bartl

> Callen Inc. has accumulated minimum tax credits of $1.3 million from tax years prior to 2018. The following are Callen’s regular tax before credits for 2018 through 2021. Complete the following table to calculate Callenâ€&#

> Camden Corporation, a calendar year accrual basis corporation, reported $5 million of net income after tax on its current year financial statements prepared in accordance with GAAP. In addition, the following information is available from Camden’s books

> Grim Corporation has income and expenses for its current fiscal year, recorded under generally accepted accounting principles, as shown in the following schedule. In addition, a review of Grim’s books and records reveals the following i

> EFG, a calendar year, accrual basis corporation, reported $479,900 net income after tax on its financial statements prepared in accordance with GAAP. The corporation’s financial records reveal the following information: EFG earned $10,700 on an investmen

> Western Corporation, a calendar year, accrual basis corporation, reported $500,000 of net income after tax on its 2018 financial statements prepared in accordance with GAAP. The corporation’s books and records reveal the following information: Western’s

> Cramer Corporation, a calendar year, accrual basis corporation, reported $1 million of net income after tax on its 2018 financial statements prepared in accordance with GAAP. The corporation’s books and records reveal the following information: Cramer’s

> Landover Corporation is looking for a larger office building to house its expanding operations. It is considering two alternatives. The first is a newly constructed building at a cost of $6 million. It would require only minor modifications to meet Lando

> Firm E must choose between two business opportunities. Opportunity 1 will generate an $8,000 deductible loss in year 0, $5,000 taxable income in year 1, and $20,000 taxable income in year 2. Opportunity 2 will generate $6,000 taxable income in year 0 and

> In each of the following cases, determine if the United States has jurisdiction to tax Mrs. CM. a. Mrs. CM is a citizen of Brazil but is a permanent resident of Orlando, Florida. b. Mrs. CM is a citizen and resident of Brazil. She owns Manhattan real est

> Hallick Inc. has a fiscal year ending June 30. Taxable income is $5,000,000 for its year ended June 30, 2018, and it projects similar taxable income for its 2019 fiscal year. a. Compute Hallick’s regular tax liability for its June 30, 2018, tax year. b.

> In 2018, Wilma Way’s sole proprietorship, WW Bookstore, generated $120,000 net profit. In addition, Wilma recognized a $17,000 gain on the sale of business furniture and shelving, all of which was recaptured as ordinary income. The business checking acco

> Mrs. Singer owns a profitable sole proprietorship. For each of the following cases, use a Schedule SE, Form 1040, to compute her 2017 self-employment tax and her income tax deduction for such tax. a. Mrs. Singer’s net profit from Schedule C was $51,458.

> Evan is the sole shareholder of Magic Roofing Company, a calendar year S corporation. Although Evan spends at least 30 hours per week supervising Magic’s employees, he has never drawn a salary from Magic. Magic has been in existence for five years and ha

> Wanda is a 20 percent owner of Video Associates, which is treated as a pass through entity for federal income tax purposes. This year, Wanda was allocated $45,000 of ordinary income from Video Associates, $1,000 of tax-exempt interest income, and $2,000

> For each of the following situations, indicate whether the corporation is eligible to elect S corporation status. a. Carman Corporation has two shareholders, Carla and Manuel. Carla is a United States citizen permanently residing in Mexico. Manuel is a M

> Colin, a self-employed consultant, uses a room of his home as a business office. This room represents 10 percent of the home’s square footage. This year, Colin incurred the following expenses in connection with his home. Home mortgage interest ………………………

> Refer to the facts in the preceding problem. BLS generated $408,000 ordinary business income in 2018. a. How much of Leo’s share of this income is included in his 2018 taxable income? b. Compute Leo’s basis in his BLS stock and his BLS note at the end of

> On January 1, 2017, Leo paid $15,000 for 5 percent of the stock in BLS, an S corporation. In November, he loaned $8,000 to BLS in return for a promissory note. BLS generated a $600,000 operating loss in 2017. a. How much of his share of the loss can Leo

> Company DL must choose between two business opportunities. Opportunity 1 will generate $14,000 before-tax cash in years 0 through 3. The annual tax cost of Opportunity 1 is $2,500 in years 0 and 1 and $1,800 in years 2 and 3. Opportunity 2 will generate

> At the beginning of 2018, Ms. P purchased a 20 percent interest in PPY Partnership for $20,000. Ms. P’s Schedule K-1 reported that her share of PPY’s debt at year-end was $12,000, and her share of ordinary loss was $28,000. On January 1, 2019, Ms. P sold

> Refer to the facts in the preceding problem. In 2018, YZ generated $7,000 ordinary business income and $18,000 dividend and interest income. The partnership made no distributions. At the end of the year, YZ had $21,000 debt. a. How much partnership incom

> Zelda owns a 60 percent general interest in YZ Partnership. At the beginning of 2016, the adjusted basis in her YZ interest was $95,000. For 2017, YZ generated a $210,000 business loss, earned $14,600 dividend and interest income on its investments, and

> Bonnie and George are equal general partners in BG Partnership. Bonnie receives a $4,000 monthly guaranteed payment for services. This year, BG generated $95,000 profit (before consideration of Bonnie’s guaranteed payments). a. Compute each partner’s dis

> AV Inc. is a member of an LLC. This year, AV received a Schedule K-1 reporting a $1,200 share of capital loss and a $4,000 share of Section 1231 gain. During the year, AV recognized a $5,000 capital loss on the sale of marketable securities and a $17,000

> This year, individual X and individual Y formed XY Partnership. X contributed $50,000 cash, and Y contributed business assets with a $50,000 FMV. Y’s adjusted basis in these assets was only $10,000. The partnership agreement provides that income and loss

> Refer to the facts in the preceding problem. a. Complete Schedule K, Form 1065, for the partnership. b. Complete Schedule K-1, Form 1065, for Jayanthi. Data from Problem 19: Jayanthi and Krish each own a 50 percent general partner interest in the JK Pa

> Rhea is a self-employed professional singer. She resides in a rented apartment and uses one room exclusively as a business office. This room includes 225 of the 1,500 square feet of living space in the apartment. Rhea performs in recording studios and co

> Jayanthi and Krish each own a 50 percent general partner interest in the JK Partnership. The following information is available regarding the partnership’s 2017 activities. Sales revenue …………………………………………………$500,000 Selling expenses ………………………………………………..2

> Refer to the facts in the preceding problem. Mr. T is a 10 percent general partner in KLMN. During the year, he received a $1,000 cash distribution from KLMN. a. Compute Mr. T’s share of partnership ordinary income and separately stated items. b. If Mr.

> Firm X has the opportunity to invest $200,000 in a new venture. The projected cash flows from the venture are as follows: Firm X uses an 8 percent discount rate to compute NPV, and its marginal tax rate over the life of the venture will be 35 percent.

> KLMN Partnership’s financial records show the following. Gross receipts from sales ………………………………$670,000 Cost of goods sold ………………………………………..(460,000) Operating expenses ………………………………………..(96,800) Business meals and entertainment …………………..(6,240) Section

> Rochelle is a partner in Megawatt Partnership. For 2018, her schedule K-1 from the partnership reported the following share of partnership items. Ordinary income ………………………………$25,000 Section 1231 loss ……………………………….(3,000) Nondeductible expense …………………………

> This year, FGH Partnership generated $600,000 ordinary business income. FGH has two equal partners: Triad LLC and Beta, an S corporation. Triad LLC has three members: Mr. T, who owns a 40 percent interest; Mrs. U, who owns a 35 percent interest; and V In

> AB Corporation and YZ Corporation formed a partnership to construct a shopping mall. AB contributed $500,000 cash, and YZ contributed land ($500,000 FMV and $430,000 basis) in exchange for a 50 percent interest in ABYZ Partnership. Immediately after its

> Jane is a self-employed attorney. This year, her net profit exceeded $350,000, which put her in the 37 percent tax bracket. Early in the year, Jane hired Ben as a paralegal and paid him a $33,000 salary. a. Compute the employer payroll tax on Ben’s salar

> JC recently graduated from veterinary school and opened her own professional practice. This year, her net profit was $32,000. Compute JC’s after-tax income from her practice assuming: a. Her self-employment tax is $4,522, and her marginal income tax rate

> James Jones is the owner of a small retail business operated as a sole proprietorship. During 2017, his business recorded the following items of income and expense. Revenue from inventory sales …………………………$147,000 Cost of goods sold ……………………………………………….33

> CC Company exchanged a depreciable asset with a $17,000 initial cost and a $10,000 adjusted basis for a new asset priced at $16,000. a. Assuming that the assets do not qualify as like-kind property, compute the amount and character of CC’s recognized gai

> This year, Neil Inc. exchanged a business asset for an investment asset. Both assets had a $932,000 appraised FMV. Neil’s book basis in the business asset was $604,600, and its tax basis was $573,000. a. Compute Neil’s book gain and tax gain assuming the

> Firm Q exchanged old property with an $80,000 tax basis for new property with a $65,000 FMV. Under each of the following assumptions, apply the generic rules to compute Q’s realized loss, recognized loss, and tax basis in the new property. a. Old propert

> Investor W has the opportunity to invest $500,000 in a new venture. The projected cash flows from the venture are as follows: Investor W uses a 7 percent discount rate to compute NPV. Determine if she should make this investment assuming that: a. Her m

> Firm A exchanged an old asset with a $20,000 tax basis for a new asset with a $32,000 FMV. Under each of the following assumptions, apply the generic rules to compute A’s realized gain, recognized gain, and tax basis in the new asset. a. Old asset and ne

> Alfix, a calendar year corporation, reported $789,300 net income before tax on its financial statements prepared in accordance with GAAP. The corporation’s records reveal the following information: Depreciation expense per books was $15,890, and MACRS de

> KAI, a calendar year corporation, reported $500,000 net income before tax on its financial statements prepared in accordance with GAAP. The corporation’s records reveal the following information: KAI received an $80,000 insurance reimbursement for the th

> Watson, a calendar year corporation, reported $1,250,000 net income before tax on its financial statements prepared in accordance with GAAP. During the year, Watson exchanged one piece of commercial real estate for another. The real estate given in the e

> Ten years ago, Janine purchased 100 shares of Mega stock for $245 per share. On September 10 of the current year, she sold all 100 shares for $200 per share. a. Compute Janine’s realized and recognized loss on sale assuming that she purchased 200 shares

> Refer to the facts in the preceding problem. In each case in which SW purchased 1,200 Delta shares, compute its tax basis in the shares. Data from Problem 29: Eight years ago, SW purchased 1,000 shares of Delta stock. On May 20 of the current year, it

> Rufus Inc. and Hardy Company are negotiating a nontaxable exchange of business properties. Rufus’s property has a $50,000 tax basis and a $77,500 FMV. Hardy’s property has a $60,000 tax basis and a $90,000 FMV. a. Which party to the exchange must pay boo

> Eight years ago, SW purchased 1,000 shares of Delta stock. On May 20 of the current year, it sold these shares for $90 per share. In each of the following cases, compute SW’s recognized gain or loss on this sale: a. SW’s cost basis in the 1,000 shares wa

> Ten years ago, Ms. Dee purchased 1,000 shares of Fox common stock for $124 per share. On June 2 of the current year she sold 500 shares for $92 per share. Compute Ms. Dee’s recognized loss on sale assuming that: a. She purchased 600 shares of Fox common

> Corporation A and Corporation Z go into partnership to develop, produce, and market a new product. The two corporations contribute the following properties in exchange for equal interests in AZ Partnership. Corporation A’s tax basis i

> Firm W has the opportunity to invest $150,000 in a new venture. The projected cash flows from the venture are as follows: Determine if Firm W should make the investment, assuming that: a. It uses a 6 percent discount rate to compute NPV. b. It uses a 3

> Lydia and Oliver want to form a partnership to conduct a new business. They each contribute the following assets in exchange for equal interests in LO Partnership. Lydia’s tax basis in the contributed equipment is $22,000, and Oliver&ac

> Refer to the facts in the preceding problem. Assume that Mrs. L, who is Mr. ZJ’s business colleague, transfers $200,000 cash to ZJL Corporation in exchange for 500 shares of ZJL stock. Mr. ZJ and Mrs. L’s transfers occur on the same day, and after the ex

> Mr. ZJ owns a sole proprietorship. The business assets have a $246,000 aggregate adjusted basis. According to an independent appraisal, the business is worth $400,000. Mr. ZJ transfers his business to ZJL Corporation in exchange for 1,000 shares of ZJL s

> PV Inc. transferred the operating assets of one of its business divisions into newly incorporated SV Inc. in exchange for 100 percent of SV’s stock. PV’s adjusted basis in the operating assets was $4 million, and their FMV was $10 million. a. Discuss the

> Mr. Boyd and Ms. Tuck decide to form a new corporation named BT Inc. Mr. Boyd transfers $10,000 cash and business inventory ($20,000 FMV; adjusted tax basis $3,200), and Ms. Tuck transfers business equipment (FMV $60,000; adjusted tax basis $41,500) to B

> Calvin Corporation’s office was burglarized. The thieves stole 10 laptop computers and other electronic equipment. The lost assets had an original cost of $35,000 and accumulated tax depreciation of $19,400. Calvin received an insurance reimbursement of

> On October 18 of last year, a flood washed away heavy construction equipment owned by Company K. The adjusted tax basis in the equipment was $416,000. On December 8 of last year, Company K received a $480,000 reimbursement from its insurance company. On

> Business K exchanged an old asset (FMV $95,000) for a new asset (FMV $95,000). Business K’s tax basis in the old asset was $107,000. a. Compute Business K’s realized loss, recognized loss, and tax basis in the new asset assuming the exchange was a taxabl

> RP owned residential real estate with a $680,000 adjusted basis that was condemned by City Q because it needed the land for a new convention center. RP received $975,000 condemnation proceeds for the real estate. Assume that RP would elect to defer gain

> On January 10, 2016, a fire destroyed a warehouse owned by NP Company. NP’s adjusted basis in the warehouse was $530,000. On March 12, 2016, NP received a $650,000 reimbursement from its insurance company. In each of the following cases, determine NP’s r

> Company W produces circuit boards in a foreign country that imposes a 15 percent VAT. This year, Company W manufactured 8.3 million boards at a $5 material cost per unit. Company W’s labor and overhead added $1 to the cost per unit. Company W sold the bo