1. Liam paid $7,000 for an automobile that needed substantial repairs. He worked nights and weekends to restore the car and spent $2,400 on parts for it. He knows that he can sell the car for $13,000, but he is very wealthy and does not need the money. On the other hand, his daughter, who has very little income, needs money to make the down payment on a house. a) Would it matter, after taxes, whether Liam sells the car and gives the money to his daughter or whether he gives the car to his daughter and she sells it for $13,000? Explain. b) Assume that Liam gave the car to his daughter after he had arranged for another person to buy it from his daughter. The daughter then transferred the car to the buyer and received $13,000. Who is taxed on the gain? 2. a) Openlane Co, an accrual basis calendar year taxpayer, sells its services under 12- and 24-month contracts. The company provides services to each customer every month. On July 1, 20x1, Openlane sold the following customer contracts: 12 mos for $14,000 and 24 mos for $24,000, both paid in full at the time the contracts were signed. Determine the income to be recognized in taxable income in 20x1 and 20x2. b) Garver Co, an accrual basis calendar year taxpayer, leases retail space to businesses under 12- and 24-month rental contracts. The company provides rental space to its customers every month. On July 1, 20x1, Garver sold the following customer contracts: 12 mos for $14,000 and 24 mos for $24,000, both paid in full at the time the contracts were signed. Determine the income to be recognized in taxable income in 20x1 and 20x2. 3. Kaitlyn is single and has $125,000 of taxable income. Using the simplified tax brackets discussed in lecture (given), calculate her tax liability. Rate Single Income Over But Not Over The Tax is ...of the Amount Over 10% $ -0- $10,000 10% $ -0- 15% $10,000 $50,000 $1,000 + 15% $10,000 20% $50,000 $100,000 $7,000 + 20% $50,000 25% $100,000 $200,000 $17,000 + 25% $100,000 30% $200,000 $300,000 $42,000 + 30% $200,000 35% $300,000 $500,000 $72,000 + 35% $300,000 40% $500,000 $142,000 + 40% $500,000