Benton company (BC) has one owner, who is
\nin the 33% Federal income tax bracket. BC\u00e2\u0080\u0099s gross income is $395,000 and its
\nordinary trade or business deductions are $245,000. Compute the Federal income
\ntax liability on BC\u00e2\u0080\u0099s income for the current year under the following
\nassumptions:
\na. BC is operated as a proprietorship, and the owner withdraws $100,000 for
\npersonal use.
\nb. BC is operated as a corporation, pays out $100,000 as salary to its
\nshareholder, and pays out the remainder of its earnings as dividends.
\nc. BC is operated as a corporation and pays out no salary or dividends to its
\nshareholder.
\nd. BC is operated as a corporation, pays out $100,000 as salary to its
\nshareholder, and pays the remainder of its earnings as dividends.
\ne. Assume that Robert Benton of 1121 Monroe Street, Ironton, OH 45638 is the
\nowner of BC , which was operated as a proprietorship. Robert is thinking about
\nincorporating the business for next year and asks your advice. He expects about
\nthe same amount of income and expenses and plans to take $100,000 per year out
\nof the company whether he incorporates or not. Write a letter to Robert [based
\non your analysis in (a) and (b)] containing your recommendations.<\/p>\n
During the current year,
\nSwallow corporation, a calendar year C corporation, has the following
\ntransactions:
\nincome from operations $660,000
\nExpenses from operations $720,000
\nDividends received from Brown Corp $240,000
\na. Swallow
\nCorporation owns 12% of Brown Corporation\u00e2\u0080\u0099s stock. How much is Swallow\u00e2\u0080\u0099s taxable income or NOL
\nfor the year?
\nb. Assume
\ninstead that Swallow Corporation owns 26% of Brown Corporation\u00e2\u0080\u0099s stock. How
\nmuch is Swallow\u00e2\u0080\u0099s taxable income or NOL for the year?
\nThe following information
\nfor 2014 relates to Sparrow Corporation, a calendar year, accrual method
\ntaxpayer.
\nNet income per books (after tax) $174,100
\nFederal income tax expense per books $86,000
\nTax-exempt interest income $4,500
\nMACRS Depreciation in excess of straight-line depreciation
\nused for financial statement purposes $7,200
\nExcess of capital loss over capital gains $9,400
\nNondeductible meals and entertainment $5,500
\nInterest on loan to purchase tax-exempt bonds $1,100
\nbased on the above information, use schedule M-1 of Form 1120, which is
\navailable on the IRS website, to determine Sparrow\u00e2\u0080\u0099s taxable income for 2014.
\nCynthia, a sole proprietor, was engaged in
\na service business and reported her income on the cash basis. On February 1,
\n2014, she incorporates her business as Dove Corporation and transfers the
\nassets of the business to the corporation in return for all of the stock in
\naddition to the corporation\u00e2\u0080\u0099s assumption of her proprietorship\u00e2\u0080\u0099s liabilities.
\nAll of the receivables and the unpaid trade payables are transferred to the
\nnewly formed corporation. The balance sheet of the corporation immediately
\nafter its formation is as follows:
\nDove Corporation
\nBalance Sheet
\nFebruary 1, 2014
\nAssets
\nBasis to Dove Fair Market Value
\nCash $ 80,000 $ 80,000
\nAccounts receivable \u00e2\u0080\u00930\u00e2\u0080\u0093 240,000
\nEquipment (cost $180,000; depreciation
\npreviously claimed $60,000) 120,000 320,000
\nBuilding (straight-line depreciation) 160,000
\n400,000
\nLand 40,000 160,000
\nTotal $400,000 $1,200,000
\nLiabilities and Stockholder\u00e2\u0080\u0099s Equity
\nLiabilities:
\nAccounts payable\u00e2\u0080\u0094trade $ 120,000
\nNotes payable\u00e2\u0080\u0094bank 360,000
\nStockholder\u00e2\u0080\u0099s equity:
\nCommon stock 720,000
\nTotal $1,200,000
\nDiscuss the tax consequences of the
\nincorporation of the business to Cynthia and to Dove Corporation.
\nFrank, Cora, and Mitch are equal shareholders in
\nPurple Corporation. The corporation\u00e2\u0080\u0099s assets have a tax basis of $50,000 and a
\nfair market value of $600,000. In the current year, Frank and Cora each loan
\nPurple Corporation $150,000. The notes to Frank and Cora bear interest of 8%
\nper annum. Mitch leases equipment to Purple Corporation for an annual rental of
\n$12,000. Discuss whether the shareholder loans from Frank and Cora might be
\nreclassified as equity. Consider in your discussion whether Purple Corporation
\nhas an acceptable debt-equity ratio.<\/p>\n","protected":false},"excerpt":{"rendered":"
Benton company (BC) has one owner, who is in the 33% Federal income tax bracket. BC\u00e2\u0080\u0099s gross income is $395,000 and its ordinary trade or\u2026<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8827,10099,10540,10536,10892,10538,10539,10537,10891],"tags":[10549,10616,10615,7687,10627,8857,10552,10295,10548,10622,8907],"class_list":["post-130207","post","type-post","status-publish","format-standard","hentry","category-australia-essays","category-buy-essay","category-cheap-essay-writers","category-get-assignments-done","category-page-paper","category-phd-essay-writers","category-research-paper-writing-service-for-any-topic","category-study-bay-essay","category-write-my-assignment-ireland","tag-ai-plagiarism-free-essay-writing-tool","tag-australian-best-tutors","tag-best-trans-tutors","tag-buy-essay-uk","tag-cheap-dissertation-writer","tag-help-with-writing-an-essay","tag-help-write-my-paper-ai-free","tag-homework-for-you","tag-online-essay-writers","tag-phd-essays","tag-write-my-essay-for-me"],"_links":{"self":[{"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/posts\/130207","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/comments?post=130207"}],"version-history":[{"count":0,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/posts\/130207\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/media?parent=130207"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/categories?post=130207"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/tags?post=130207"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}