Problme 1- Wild Corporation (a calendar year, accrual basis C corporation) had $6,000,000 of book income for the current year.
Included in Wild's book income were the following items:
. $30,000 of straight-line depreciation. $25,000 of deducted tax depreciation
. $T00,000charitablecontribution
. $10,000 penalty assessed by the Securities and Exchange Commission
. $63,000 of municipal bond interest
. $38,000 Proceeds from a life insurance policy on a key employee
. $4,000 Premiums for insurance policy of key employee
. $50,000 of meals and entertainment
. 960,000 divided received from Lame Corporation. Wild owns LOo/o of Lame's voting stock.
Not included in Wild's book income are:
. 9100,000 received for an advance payment of rent of one of their office buildings. The terms
of the lease require prepayment.
A. Identify the items above as temporary or permanent differences.
B. Calculate'the deductible portion of the charitable contribution and the carry forward.
C. Calculate modified book income for the current year.
D. Calculate income tax expense for financial accounting.
E. Cdlculate federal taxable income and the federal income tax liability.
F. Calculate earnings and profits for the current year. Assume the income tax from paft G was paid.
G. Assume Wild is owned by 50% by A (stock basis $200,000) and 50% by B ($200,000) and accumulated earnings and profits is $100,000. IF Wild distributes $2,000,000 to A and $2,000,000 to B, determine the tax consequences to both A and B and to Wild.
Problem 2- Twins Partnership (a calendar year, accrual basis, partnership) had $7,000,000 of gross sales for the current year. The partnership is owned 50o/o by A and 50o/o by B. Twin's operations included the following results:
. $1,500,000 Cost of goods sold
. $33,000 Section 1231 gain on the sale of land
. $10,000 penalty assessed by the Securities and Exchange Commission
. $50,000 of meals and entertainment
. $30,000 of straight-line depreciation. $25,000 of deducted tax depreciation
. $700,000 charitable contribution
. $63,000 of municipal bond interest
. $75,000 of operating expenses
. $38,000 Proceeds from a life insurance policy on a key employee
. $4,000 Premiums for insurance policy of key employee
. $60,000 divided received from Lame Corporation. Twins owns 10olo of Lame's voting stock.
. Partner A received a guaranteed payment of $85,000 for seruices rendered to the partnership
A. Determine the separately spted items and amounts.
B. Calculate net income (tax).
C. How much income tax will Twins Partnership pay as a result of the current years operations?
D. Assume Twins is owned by 50o/o by A (basis $1,000,000) and 50o/o by B (basis $1,000,000). If Twins distributes $3,000,000 cash to A and a machine with a FMV of $3,000,000 and basis of g900,000 to B, determine the tax consequences to both A and B and to Twins.
E. Determine B's basis in the machine distributed.