(Problem 1). FACTS: Assume that you are the controller for MetroCorp LTD. The board of Directors is considering the adoption of a stock option plan. They have asked you to prepare an explanation of a qualified stock option plan and a nonqualified stock option option does not have an ascertainable fair market value). Assume that the current value of the stock is $43 per share
Question: Please explain to the Board the federal income tax effects upon both the employer and the employee from the adoption of the plan to the possible sale of the shares by the employee from:
(1). Qualified stock option plan and
(2). Nonqualified stock option plan in which the options do not have an ascertainable fair market value.
(Problem 2). FACTS: On October 1,2010, Acme spent $560,000 for new furniture in its corporate office. The additions were their only capital expenditures for the year. On the books, the furniture has a salvage value of $20,000 and an estimated life of ten years.
QUESTION: What is the total write off for federal income tax purposes for Acme for 2010?
(Problem 3). FACTS: During 2010, Ace Inc. purchased ONLY four copiers with one of the equal priced copiers being purchased each of the first four months. The total cost was $384,000. Book depreciation of 22,500 for the current year was computed using the straight line method over an eight year life with a half year convention and salvage value of $24,000
QUESTION: What is the total write-off for federal income tax purposes for Ace for 2010?
(Problem 4). FACTS: On August 2, 2010, Ajax placed in service a new warehouse facility. It cost $4,000,000 consisting of $500,000 for the parking lot and related improvements and the balance for the warehouse. The land for the warehouse was purchased in 2008 for $600,000
QUESTION: What is the total write-off for federal income tax purposes for Ajax for 2010?
(Problem 5). FACTS: Maria and Carlos are married and file a joint tax return. On November 1, 2010, Maria went to work at MetroCorp as the assistant controller. Previously, she had been a stay at home mom. She cannot be covered by her employer's retirement plan until she has worked there for a year. Carlos is a principal of an elementary school and is vested in his retirement plan. They estimate that their adjust gross income for 2010 will be $135,000
QUESTION: How much can Maria contribute and deduct if she contributes the maximum amount to a traditional IRA?
(Problem 6). FACTS: Trung is 4, single and has an AGI of $104,000. He wants to contribute the maximum amount to a Roth IRA. He has no other retirement plans.
REQUIRED: What is the maximum amount which he can contribute to the ROTH IRA this year?