1. Ann and Jack have been partners for several years. Their firm, A & J Tax Preparation, has been very successful, as the pair agree on most business-related questions. One disagreement, however, concerns the legal form of their business. For the past two years, Ann has tried to convince Jack to incorporate. She believes there is no downside to incorporating and sees only benefits. Jack strongly disagrees; he thinks the business should remain a partnership forever. First, take Ann's side, and explain the positive side to incorporating the business. Next, take Jack's side, and state the advantages to remaining a partnership. Last, what information would you want if you were asked to make the decision for Ann and Jack?
2. The end-of-year parties at Yearling, Inc. are known for their extravagance. To thank the employees for their hard work, management provides the best food and enter-tainment. During the planning for this year's bash, a disagreement broke out be-tween the treasurer's staff and the controller's staff. The treasurer's staff contended that the firm was running low on cash and might have trouble paying its bills over the coming months; they requested that cuts be made to the budget for the party. The controller's staff believed that any cuts were unwarranted, as the firm continued to be very profitable. Can both sides be correct? Explain your answer.
3. You have been made treasurer for a day at AIMCO, which develops technology for video conferencing. A manager of the satellite division has asked you to authorize a capital expenditure in the amount of $100,000. The manager states that this ex-penditure is necessary to continue a long-running project designed to use satellites to allow video conferencing anywhere on the planet. The manager admits that the satellite concept has been surpassed by recent technological advances, but he believes that AIMCO should continue the project because $2.5 million has already been spent over the past 15 years on this project. Although you believe the project will generate future cash outflows that exceed its inflows, the manager believes it would be a shame to waste the money and time already spent. Use marginal cost-benefit analysis to make your decision regarding whether you should authorize the $100,000 expenditure to continue the project.
4. For the current year, Ross Corporation had pretax ordinary income of $500,000 and sold for $150,000 an asset purchased previously for $125,000. Calculate the total tax liability for the company.