Tax Accounting – Exam Three
After working in accounting for fifteen years, you and two friends have decided, you would really like to start your own firm. Some of the initial consultations you have had in your meetings have brought up a number of issues. Please answer the following issues being brought up.
You are trying to decide what kind of entity you want to use for your business. You have the option of using the C-Corporation, S-Corporations and the Partnership. Which entity would you argue to use and provide at least three reasons in support of this choice and one potential problem you might have for this choice? (10pts)
After discussion, the decision is to choose to operate as a C-Corporation. As a part of this organization, you all decide you want to set up an education reimbursement program. You have decided to categorize this under two groups: 1) continuing education and 2) reimbursement for tuition in pursuit towards a master’s degree. Provide discussion of the difference between how each will be taxed to the corporation and the employees under each case. (10Pts)
After several years, your firm is rather successful and, in an effort, to expand, the company is deciding to expand their benefits package. One of the changes being discussed is offering health care benefits. Discuss how health care benefits are taxed to the owners of the firm under the case the firm is taxed as a partnership vs a C-Corporation. (10pts)
How are health benefits treated for owners of S-Corporations under two situations. 1) If the owner is a 1% owner. 2) If the owner is a 25% owner. (10pts)
You have a client, and they formed a corporation with 5 of their friends. All of the owners (all six of you) were required to put in $50,000 or assets valued at the same into the company, but only 1 of the owners is going to work full time for the company. Under which tax code does this transaction apply and what are the tax effects to the corporation and to the shareholders, who all contribute (for this transaction specifically). (10Pts)
In 2019, US Sys Corporation received $250,000 in death benefits after its CEO (a key employee) died (it included this amount in book income). For book purposes, US Sys also expensed life insurance premiums for other key employees in the amount of $20,000. In addition, for book purposes, it
expensed $10,000 of business meals expenditures. What is the total book–tax difference associated with | |
these items? Is it favorable or unfavorable? What amount of the book–tax difference is temporary and |
what amount is permanent?
What is the difference between the aggregate and entity theories of partnership taxation? Provide two examples of how partnership tax rules reflect the aggregate theory and two examples of how they reflect the entity theor
What are five common book to tax differences in determining tax income from book income? (10Pts)
During 2020, Sienar Systems, Inc purchased Correalian Drives, Inc. (one of its suppliers) using the assets method. As a part of this business, it was determined the company purchased 1,200,000 of Goodwill.
How much is the book to tax difference with this purchase in 2020 and is it temporary or permanent? (5Pts)
In 2022, it was determined the goodwill was impaired to the tune of about $200,000. What is the book effect of the impairment in 2022? (5Pts)
What is the book to tax difference of the impairment in question 6.b. ass reported on the form 1120? Is it temporary or permanent? (5Pts)
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Asset | Basis | Fair Market Value |
Cash | $100,000 | $100,000 |
Land | $200,000 | $440,000 |
$300,000 | $540,000 |
What are the tax effect to Kevin, Robb and Gerald for transferring the profit and losses interest? (10Pts)
The partnership has the following forms of debt:
Nonrecourse: $30,000
Recourse: $150,000 (The recourse debt was secured 100% by James)
Qualified Nonrecourse Mortgage: $600,000
Assets
Kim had the following stats:
James and Paul are not interested in acquiring more of the firm, but Alice, who is a manager in the company is interested in purchasing Kim’s interest. She is willing to purchase it for $750,000 (using a loan from her 401k and the bank to finance it).
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