Principles Of Taxation For Business And Investment Planning 2020 Edition
23rd Edition
ISBN: 9781259969546
Author: Sally Jones, Shelley C. Rhoades-Catanach, Sandra R Callaghan
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 2IRP
To determine
Identify the issue for the situation given.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
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?
April Ltd. is located in Alberta, a province which does not participate in the HST program and has no provincial sales tax. All of its operations are in that province. During its current quarter, April Ltd. purchases an office building and land for a total of $1300000 before GST. The Company spends an additional $266000 (before GST) on office equipment. Office equipment is capital personal property. The building will be used 20% for taxable supplies and the remainder for exempt supplies. The office equipment is to be allocated in the same ratio. For accounting purposes, the building will be amortized over 35 years, while the office equipment will be written off over 5 years. Determine the input tax credits that April Ltd. can claim as a result of these capital expenditures.
Mr. Don is the director of A-Design Inc., a federally incorporatedcompany in Canada, specializing in the design and manufacturing ofarmrests for the wheelchair industry. A-Design invested $100,000 in aproduction machine, which has a useful life of 10 years, and put $10,000 in its bank account.
In an attempt to improve company sales and profits, Mr. Don planned tooffer two purchasing options to the clients of his company.
Option 1:$250 deposit upfront$500 yearly fee for 5 years
Option 2:$1300 deposit upfront$300 yearly fee for 3 years
Assuming an interest rate of 5% per year compounded every 6 months over aperiod of 5 years on the money put in the bank, how much will A-Design have in its bank account at the end of the fifth year?
Chapter 13 Solutions
Principles Of Taxation For Business And Investment Planning 2020 Edition
Ch. 13 - Why does a corporations state income tax cost...Ch. 13 - Prob. 2QPDCh. 13 - Prob. 3QPDCh. 13 - Prob. 4QPDCh. 13 - Borden Inc. conducts a business that spans four...Ch. 13 - Prob. 6QPDCh. 13 - Prob. 7QPDCh. 13 - Prob. 8QPDCh. 13 - Prob. 9QPDCh. 13 - Prob. 10QPD
Ch. 13 - Prob. 11QPDCh. 13 - Prob. 12QPDCh. 13 - Prob. 13QPDCh. 13 - Prob. 14QPDCh. 13 - Prob. 15QPDCh. 13 - Prob. 16QPDCh. 13 - This year, Mesa Inc.s before-tax income was...Ch. 13 - Prob. 2APCh. 13 - Prob. 3APCh. 13 - Prob. 4APCh. 13 - Prob. 5APCh. 13 - Prob. 6APCh. 13 - Prob. 7APCh. 13 - Prob. 8APCh. 13 - Prob. 9APCh. 13 - Prob. 10APCh. 13 - Prob. 11APCh. 13 - Prob. 12APCh. 13 - Prob. 13APCh. 13 - Prob. 14APCh. 13 - Prob. 15APCh. 13 - Prob. 16APCh. 13 - Prob. 17APCh. 13 - Prob. 18APCh. 13 - Prob. 19APCh. 13 - Prob. 20APCh. 13 - Prob. 21APCh. 13 - Prob. 22APCh. 13 - Prob. 23APCh. 13 - Prob. 24APCh. 13 - Prob. 25APCh. 13 - Prob. 26APCh. 13 - Prob. 27APCh. 13 - Prob. 28APCh. 13 - Prob. 29APCh. 13 - Prob. 30APCh. 13 - Prob. 31APCh. 13 - Prob. 32APCh. 13 - Prob. 33APCh. 13 - Prob. 34APCh. 13 - Prob. 35APCh. 13 - Prob. 36APCh. 13 - Prob. 37APCh. 13 - State E wants to encourage the development of a...Ch. 13 - Prob. 2IRPCh. 13 - Prob. 3IRPCh. 13 - Prob. 4IRPCh. 13 - Prob. 5IRPCh. 13 - Prob. 6IRPCh. 13 - Prob. 7IRPCh. 13 - Prob. 8IRPCh. 13 - Prob. 9IRPCh. 13 - Prob. 10IRPCh. 13 - Prob. 11IRPCh. 13 - Prob. 2RPCh. 13 - Prob. 3RPCh. 13 - Prob. 1TPCCh. 13 - Prob. 2TPCCh. 13 - Prob. 3TPCCh. 13 - Prob. 1CPCh. 13 - Prob. 2CP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- During the last five months of the year, Dwana opens a new Internet telecommunications business called Dwan-Com. Dwan-Com bills 50,000 of revenues, but receives only 40,000 cash. Dwan-Com incurs 3,000 of supply expenses, and 41,000 of labor costs. Dwan-Com pays for 2,200 of the supplies and 38,000 of the labor costs in the current year. a. What is Dwan-Coms taxable income if it elects the cash method of accounting? b. What is Dwan-Coms taxable income if it elects the accrual method of accounting? c. What method of accounting do you recommend that Dwan-Com elect?arrow_forwardMr. Don is the director of A-Design Inc., a federally incorporatedcompany in Canada, specializing in the design and manufacturing ofarmrests for the wheelchair industry. A-Design invested $100,000 in aproduction machine, which has a useful life of 10 years, and put $10,000 in its bank account. In an attempt to improve company sales and profits, Mr. Don planned tooffer two purchasing options to the clients of his company. Option 1:$250 deposit upfront$500 yearly fee for 5 years Option 2:$1300 deposit upfront$300 yearly fee for 3 years Assuming an interest rate of 5% per year compounded monthly over a period of 5 years on the money put in the bank, how much will A-Design have in its bank account at the end of the fifth year?arrow_forwardCano' Corn LLC produces and sells baseball gloves and other sports equipment. A seasonal business, it earns most of its profits during the summer months and has a tax year ending September 30. For its year ended September 30, year 1, the company has taxable income of $96,000. Bud Harrelson, an individual with a tax year ending on December 31, owns a 20% interest in Can o' Corn. On December 31, year 1, Bud sells one-half of his interest to a third party. Assume that the company will have the same taxable income for its year ending September 30, year 2, that it had in the previous year, and that it will earn $12,000 of such income in the three-month period ending December 31, year 1. The company is treated as a partnership for tax purposes and its operating agreement does not specify an allocation method under section 706(d). Ignoring any gain or loss from the sale of his interest, what amount of the company's taxable income does Bud include in his return for his taxable year ending…arrow_forward
- Renee operates a proprietorship selling collectibles over the Web, and last year she purchased a building for $24 million for her business. This year, Rene’s proprietorship reported revenue of $95.5 million and incurred total expenses of $88.6 million. Her expenses included cost of goods sold of $48.5 million. Sales commissions paid of $16.9 million. $10.5 million of interest paid on the building mortgage, and $12.7 million of depreciation. What’s Renee’s adjusted taxable income for purposes of calculating the limitation on business interest expense? What is the maximum amount of business interest expense that Renee can deduct this year, and how is the disallowed interest expense (if any) treated? Suppose that Renee’s revenue includes $5 million of business interest income. What is the maximum amount of business interest expense that could be deducted this year under the business interest limitation?arrow_forwardFred Stone is an employee of Henrock Company. During the first part of the year, Stone earned $4,340 while working in State Q. For the remainder of the year, the company transferred him to State S where he earned $27,000. Henrock Company's tax rate in State Q is 4.6%, and in State S, 4.0% on the first $7,000. If reciprocal arrangements exist between the two states, determine the SUTA tax that the company paid on Stone's earnings in State S. Round your answer to the nearest cent.$fill in the blank 1arrow_forwardJohn Richard operating a business on his own. His Taxable income is $100,000 per annum, but is expected to grow quickly when planned expansion is undertaken. There are prospects of exporting goods to North America. Present operations involve the manufacture and sale of sporting goods. About 15 people are employed and most have been with John for over 10 years. Employees are paid over-award wages and are given a lavish Christmas party for themselves and their families each year. At present, John pays for the party out of his own funds. John bought the premises 10 years ago and while the buildings are in good shape, the grounds need attention. A new driveway and landscaping are essential, and installation of a practice and testing area would greatly boost sales. New plant and equipment are needed, as much of the existing plant and equipment have been held for over 10 years. It is still in working order and, although written off for tax purposes, has a market value of about $15,000. John…arrow_forward
- Trevorson Electronics is a small company privately owned by Jon Trevorson, an electrician whoinstalls wiring in new homes. Because the company’s financial statements are prepared only for taxpurposes, Jon uses the direct write-off method. During 2015, its first year of operations, TrevorsonElectronics sold $30,000 of services on account. The company collected $26,000 of these receivables during the year, and Jon believed that the remaining $4,000 was fully collectible. In 2016,Jon discovered that none of the $4,000 would be collected, so he wrote off the entire amount. Tomake matters worse, Jon sold only $5,000 of services during the year.Required:1. Prepare journal entries to record the transactions in 2015 and 2016.2. Using only the information provided (ignore other operating expenses), prepare comparativeincome statements for 2015 and 2016. Was 2015 really as profitable as indicated by its incomestatement? Was 2016 quite as bad as indicated by its income statement? What should Jon…arrow_forwardREW, Inc. is closely held by six members of the REW family. The corporation owns two vans that employees use for various business transportation purposes. However, for at least eight weeks during each year, the shareholders use the vans to take their families on extended vacation trips. Identify the tax issue or issues suggested by the following situations, and state each issue in the form of a question.arrow_forwardJames Mathias has decided to return home after 15 years in California, USA. He intends to go into cattle rearing and eventually produce corned beef and other meat products. You are required to advise him on all tax incentives.b). Dr. Jimmy Watt, a consultant surgeon, was seconded from Cuba to the Tamale Teaching Hospital for 15 months effective 1st October, 2019.His contract of service provided for a consolidated salary of ¢240,000 per annum, a steward’s allowance of ¢10,000 a month. He was also paid a flat inconvenience allowance of ¢5,000 a month.Other benefits include the following:i. a furnished accommodationii. a watchman and a garden boy who are paid ¢800 each a monthiii. car fuel and a driverDr. Watt was found to be very conscientious worker but was getting too much involved in local politics. His appointment was therefore terminated effective from 31st May, 2020. The following severance payments were made to him;Salary in lieu of notice ¢17,000End of service benefits ¢25,000He…arrow_forward
- Henrietta, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $60,000 of expenses associated with this investigation. Based on the regulatory environment for hotels in the city, she decides not to expand. During the year, she also investigates opening a restaurant that will be part of a national restaurant chain. Her expenses for this are $52,600. She proceeds with opening the restaurant, and it begins operations on May 1. Determine the amount that Henrietta can deduct in the current year for investigating these two businesses. In your computations, round the per-month amount to the nearest dollar and use rounded amount in subsequent computations. a. The deductible amount of investigation expenses related to expansion of her hotel chain into another city: s 60,000 v b. The deductible amount of investigation expenses related to opening a restaurant: $ 4,631 Xarrow_forwardMs. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $656,000. Of this sum, $82,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the Internal Revenue Service (IRS) will permit the company to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company could depreciate the $82,000 straight-line over 5 years. The tax rate is 30% and the opportunity cost of capital is 5%.  a. What is the present value of the cost of the kiln if the installation cost is treated as a separate current expense?b. What is the present value of the cost of the kiln if the installation cost is treated as a part of the capital investment?arrow_forwardMs. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $496,000. Of this sum, $62,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the Internal Revenue Service (IRS) will permit the company to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company could depreciate the $62,000 straight-line over 5 years. The tax rate is 30% and the opportunity cost of capital is 5%.  a. What is the present value of the cost of the kiln if the installation cost is treated as a separate current expense?b. What is the present value of the cost of the kiln if the installation cost is treated as a part of the capital investment? (Round your answer to the nearest whole dollar amount.)arrow_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
Depreciation -MACRS; Author: Ronald Moy, Ph.D., CFA, CFP;https://www.youtube.com/watch?v=jsf7NCnkAmk;License: Standard Youtube License