Liberty ACCT 401 Assignment Chapter 3 Problems Spring 2015

| June 3, 2016

Question
(ACCT 401 – Spring B 2015 1)

Assignment:

Chapter 3

1.

Award: 4 out of 4.00 points

Problem 3-32 (LO 3-2, LO 3-3)

Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $24,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $24,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 40 percent this year and next year, and that she can earn an after-tax rate of return of 8 percent on her investments.

a.

What is the after-tax cost if Isabel pays the $24,000 bill in December?

b.

What is the after-tax cost if Isabel pays the $24,000 bill in January? Use.mhhe.com/connect/0077631714/Exhibit_3_1.jpg”>Exhibit 3.1. (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

c.

Based on requirement a and b, should Isabel pay the $24,000 bill in December or January?

2.

Award: 4 out of 4.00 points

Problem 3-41 (LO 3-3)

Assume Rafael can earn a 9 percent after-tax rate of return. Use.mhhe.com/connect/0077631714/Exhibit_3_1.jpg”>Exhibit 3.1.

Would he prefer $900 today or $1,350 in five years?

3.

Award: 4 out of 4.00 points

Problem 3-45 (LO 3-4)

Tawana owns and operates a sole proprietorship and has a 40 percent marginal tax rate. She provides her son, Jonathon, $13,000 a year for college expenses. Jonathon works as a pizza delivery person every fall, and has a marginal tax rate of 15 percent.

a.

What could Tawana do to reduce her family tax burden?

b.

How much pretax income does it currently take Tawana to generate the $13,000 after taxes given to Jonathon?(Round your answer to the nearest whole dollar amount.)

c.

If Jonathon worked for his mother’s sole proprietorship, what salary would she have to pay him to generate $13,000 after taxes (ignoring any Social Security, Medicare, or self-employment tax issues)?(Round your answer to the nearest whole dollar amount.)

d.

How much money would this strategy save?(Round your intermediate calculations and final answers to the nearest whole dollar amount.)

4.

Award: 4 out of 4.00 points

Problem 3-48 (LO 3-4)

Hyundai is considering opening a plant in two neighboring states.

Option 1:

One state has a corporate tax rate of 10 percent. If operated in this state, the plant is expected to generate $1,435,000 pretax profit.

Option 2:

The other state has a corporate tax rate of 2 percent. If operated in this state, the plant is expected to generate $1,360,000 of pretax profit.

a.

What is the after state taxes profit in the state with the 2% tax rate?

b.

What is the after state taxes profit in the state with the 10% tax rate?

c.

Which state should Hyundai choose?

5.

Award: 5 out of 5.00 points

Problem 3-51 (LO 3-5)

Daniel is considering selling two stocks that have not fared well over recent years. A friend recently informed Daniel that one of his stocks has a special designation, which allows him to treat a loss up to $78,000 on this stock as an ordinary loss rather than the typical capital loss. Daniel figures that he has a loss of $93,600 on each stock. If Daniel’s marginal tax rate is 35 percent and he has $187,200 of other capital gains (taxed at 15 percent), what is the tax savings from the special tax treatment?

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