For Mary Lou and Ernie, the assets and liabilities and the effective income tax rates at December 31, 2001, follow:

Excess of Estimated EffecCurrent tive Amount of Estimated Values Income Estimated Current over Tax Tax Income Accounts Tax Bases Value Bases Rates Taxes Cash $ 20,000 $ 20,000 — — _________ Marketable securities 80,000 100,000 20,000 28% _________ Options -0- 30,000 30,000 28% _________ Residence 100,000 150,000 50,000 28% _________ Royalties -0- 20,000 20,000 28% _________ Furnishings 40,000 20,000 (20,000) — _________ Auto 20,000 15,000 (5,000) — _________ Mortgage (70,000) (70,000) — — _________ Auto loan (10,000) (10,000) — — _________ Required

a. Compute the estimated tax liability on the differences between the estimated current value of the assets and liabilities and their tax bases.

b. Present a statement of financial condition for Mary Lou and Ernie at December 31, 2001.

c. Comment on the statement of financial condition.