AC507 Unit 3 Assignment
Chapter 4 Questions
24. Betsy receives a salary of $50,000 from her employer (a retail clothing store) and several fringe benefits. Her employer pays premiums of $300 for her $40,000 group term life insurance coverage and pays $3,200 for medical insurance premiums. Her employer provides dependent care facilities (where she places her young children while she is at work) valued at $4,500 per year. Her employer also allows employees to purchase clothing (the employer’s inventory) at 50 percent off the retail sales price (which is 5 percent more than the employer’s cost). During the year, Betsy purchases clothing with a retail value of $10,000 for $5,000. In addition to her salary, how much must Betsy include in gross income?
42. Evan is setting up a new business. He can operate the business as a sole proprietorship or he can incorporate as a regular C corporation or as an S corporation. He expects that the business will have gross income of $130,000 in the first year with expenses of $25,000 excluding the following. He plans to take $35,000 from the business for living expenses as a salary and will have the business pay $3,000 annually for his health insurance premiums.
43. Cindy is president and sole shareholder of Chip smart Corporation. Through her hard work (frequently putting in 70 hours per week), she has managed to triple the number of clients and revenue in the past year. Chip smart has never paid a dividend to Cindy, although it does have retained earnings. Last year, Cindy’s salary was $200,000; this year, due to her success, she would like to pay herself a $600,000 salary. As Chip smart’s tax adviser, prepare a list of questions you would like to ask Cindy when you meet her to discuss the salary increase.
Chapter 5 Questions
7. In its first year of operations, Bell Corporation paid its attorney $4,000 and its accountant $2,000 for services related to the organization of the corporation. In its second year of operations, Bell paid the attorney $700 to handle contract negotiations with a new customer. Which expenses are immediately deductible and which ones must Bell Corporation amortize?
32. Maria earns $50,000 from consulting contracts during the year. She collects only $48,000 from her clients and expects the $2,000 will remain uncollectible.
38. Maxwell Corporation has income per books before tax of $400,000. Included in the income per books is $8,000 interest income from tax-exempt municipal bonds. In computing income per books, Maxwell deducted $22,000 for meals and entertainment expenses, $3,300 for premiums on officers’ life insurance policies (the corporation is the beneficiary for these policies),and $200 for fines.
71. Ken, owner of Kendrick Corporation, realizes that he needs to send an employee to a temporary assignment at a plant in another state. He can either send one employee for an 18-month assignment or two employees for 9-month assignments. Kendrick Corporation will pay for all the meal and lodging expenses while the employees are on their out-of-town assignments. Does it make any difference from a tax perspective to Kendrick and to the employees which option Ken chooses?