Week Three Problem Set

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Week Three Problem Set

• ACC/455 Corporate Taxation I

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C3-3 Discussion Question Case Scenario on Tax
Elections
C3-3 The two calendar year taxpayers, named
Susan and Stan, are going to start a new business
of digital circuits where they will manufacture
and sell these goods. They are planning to do so
with the help of their own capital of 600,000
and another equity capital of 2 million that
other people invested. The companys target is to
gain 100,000 as organizational and start-up
expenditure. A material income-producing factor
is the inventories. The company is also thinking
that a loss of 500,000 may have to be brought in
the first two years of operation and first three
years expenditures for development purpose. They
expect that by three years they will break even
and will make a profit by the end of fourth year
although it is important to run research
activities and make development frequently in
this kind of business. Question is what type of
accounting schemes and tax elections Susan and
Stan should keep in mind in the first year of
their operation? Explain the probable
alternatives for each and every scheme and
election and what advantages and disadvantages
these have.
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C 3-3 Discussion Question Case Scenario on Tax
Elections
Elections

• Accounting Methods
• Accrual Method
• Advantage typical financial reporting is
  coordinated
• Cash Method
• Advantage Stan and Susan are eligible because of
  inventories although it is less burdensome
• Hybrid Method
• Advantageless burdensome for other revenue and
  expenses and also meets financial reporting
  customary

• Tax Year
• Calendar Year
• benefitThe calendar year is currently being
  used by Susan and Stan
• Fiscal Year
• Advantage to avoid short time filing, it can
  agree with the starting date of business

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C5-8 Discussion Question Identify Items as AMT
Adjustment or Preference
C5-8 The following items should be identified as
(A) an AMT adjustment to taxable income, (B) a
tax preference item or (N) none of them. a. At
the end of the tax year, percentage reduction in
excess of a propertys adjusted basis. b. The
Sec. 179 expense along with first-year MACRS
decrease claimed on a machine, with placing in
service in the present year, which cost
200,000. c. Discrepancy between the gain,
mentioned in Part b, on the sale of the asset and
the other minimum taxable income purposes. d. The
tax-exempt interest which was earned on State of
Michigan private activity bond. e. The tax-exempt
interest that was earned on State of Michigan
general revenue bond. f. 75 of the surplus of
adjusted current earnings (ACE) over
preadjustment AMTI.
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C5-8 Discussion Question Items to identify as
AMT Adjustment or Preference

• A. P Tax inclination item
• B. A AMT Alteration to taxable income
  (decrease)
• C. A AMT Alteration to taxable income
• D. P Tax inclination item
• E. A AMT Alteration to taxable income
• F. A AMT Alteration to taxable income

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C3-37 Problem Charitable Contributions of
Property
C3-37 Charitable contributions of property.
Blue Corporation confers some properties
specified below to Johnson Elementary School 1.
2 years ago XYZ corporation stock purchased for
25,000. There is a 19,000 FMV to the stock on
the contribution date. 2. It cost 16,000 a year
ago when computer equipment was built. The
equipment has a 50,000 FMV on the donation date.
The business of manufacturing computer equipment
doesnt include Blue. 3. six months ago XYZ
corporation stock was purchased at 12,000. The
hoard has a 19,000 FMV on the date of the
bequest. By selling the stock, the school will
remodel a classroom for the use of a computer
laboratory. The taxable income for Blue is
400,000 regarding all charitable contribution
deduction, dividends-received deduction and NOL
or capital loss carry back. a. What is Blues
recent charitable contribution deduction? b. If
there is any charitable contribution carryover
for this company then what is that? What years it
can be used in? c. Considering the XYZ stock
donation, what could be a better tax plan?
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C3-37 Problem Charitable Contributions of
Property
Blue Corporation Blue Corporation Blue Corporation
Taxable Income 400,000 400,000
Contributions Cost FMV
XYZ Stock 25,000 19,000
Equipment 16,000 50,000
PQR Stock 12,000 18,000
     
Total donation 53,000 87,000
highest Allowable Deduction 40,000 40,000
     
Contribution Carryover 47,000 47,000

1. - 40,000
2. - 47,000
3. Sell XYZ stock and contribute proceeds. Claim
   loss on sale against taxable earnings and
   donation of income as charitable contribution

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C3-64 Tax Form /Return Preparation Problem
Knoxville Musical Sales Inc. Tax Return
Preparation
See attached Form 1120, Form 1120 Schedule D, and
Form 4562 in Assignment Section