Beta Corporation received permission to change its tax year from a calendar year to a year ending August 31. Its income for the eight months ending August 31 is $96,000. What s Beta Corporation?s tax liability for the short tax year? Realty Corporation, an accrual-basis, calendar-year corporation, agrees to rent office space to Tenant Company for $3,000 per month beginning on January 1, year 2. On December 15, year 1, Tenant gives Realty Corporation a $3,000 deposit in addition to rent for the months of March and April. On May 15 Tenant closes its business and vacates the office. Realty withholds $1,500 from the deposit for unpaid rent and $1,000 for damages. Realty refunds the balance of the deposit to Tenant on May 20, year 2. (a) How much income should Realty Corporation report in year 1 from the above transactions for tax and financial accounting? (b) How much income should Realty Corporation report in year 2? Julie wins $15 million in the lottery payable over 30 years. In years 1 through 4, she receives annual installments of $500,000. At the beginning of year 5, Julie sells her right to receive the remaining 26 payments to a third party for a lump-sum payment of $8,900,000. How much does Julie include in income each year? Stu and Harriett divorce on January 2 of the current year after eight years of marriage. Under the divorce decree, Harriett receives a vacation home that had been held jointly with Stu while they were married. The vacation home was acquired seven years ago for $90,000 but is worth $170,000 today. Additionally, Stu is required to pay Harriett $2,000 per month beginning in January; $1,300 is for alimony and $700 is for child support for their six year old son who lives with Harriett. (a) How much gross income does Harriett recognize in the current year? (b) Will Stu get a tax deduction for any of these payments? Linda?s husband dies, naming her the sole beneficiary of a $500,000 life insurance policy. The insurance company informs her that she has two options: (1) she can receive the entire $500,000 in one lump-sum payment or (2) she can receive annual installments of $58,000 for 10 years. (a) How much does Linda include in gross income of she takes the lump-sum payment? (b) How much does Linda include in gross income each year is she elects the installments payments? In December, year 1, Sid?s Body Shop (an accrual-basis taxpayer) did repair work on Lisa?s car and was to be paid $2,000 by her insurance company. Linda was not satisfied with the repair job but finally agreed that her insurance company should pay $1,700 for the repair work, subject to approval by the insurance company adjuster. In March, year 2, the insurance company paid $1,700 to Sid?s Body Shop. Identify the issues or problems suggested during this situation. State each issue as a question. Sandra, a single taxpayer in the 35% marginal tax bracket, has $60,000 she can invest in either corporate bonds with a stated interest rate of 9% or general revenue bonds issued by her municipality with a stated interest rate of 6%. What do you recommend she do? Would your answer change if her marginal tax rate is only 28%?

Beta Corporation received permission to change its tax year from a calendar year to a year ending August 31. Its income for the eight months ending August 31 is $96,000. What s Beta Corporation's tax liability for the short tax year? Realty Corporation, an accrualbasis, calendaryear corporation, agrees to rent office space to Tenant Company for $3,000 per month beginning on January 1, year 2. On December 15, year 1, Tenant gives Realty Corporation a $3,000 deposit in addition to rent for the months of March and April. On May 15 Tenant closes its business and vacates the office. Realty withholds $1,500 from the deposit for unpaid rent and $1,000 for damages. Realty refunds the balance of the deposit to Tenant on May 20, year 2. (a) How much income should Realty Corporation report in year 1 from the above transactions for tax and financial accounting? (b) How much income should Realty Corporation report in year 2? Julie wins $15 million in the lottery payable over 30 years. In years 1 through 4, she receives annual installments of $500,000. At the beginning of year 5, Julie sells her right to receive the remaining 26 payments to a third party for a lumpsum payment of $8,900,000. How much does Julie include in income each year? Stu and Harriett divorce on January 2 of the current year after eight years of marriage. Under the divorce decree, Harriett receives a vacation home that had been held jointly with Stu while they were married. The vacation home was acquired seven years ago for $90,000 but is worth $170,000 today. Additionally, Stu is required to pay Harriett $2,000 per month beginning in January; $1,300 is for alimony and $700 is for child support for their six year old son who lives with Harriett. (a) How much gross income does Harriett recognize in the current year? (b) Will Stu get a tax deduction for any of these payments? Linda's husband dies, naming her the sole beneficiary of a $500,000 life insurance policy. The insurance company informs her that she has two options: (1) she can receive the entire $500,000 in one lumpsum payment or (2) she can receive annual installments of $58,000 for 10 years. (a) How much does Linda include in gross income of she takes the lumpsum payment? (b) How much does Linda include in gross income each year is she elects the installments payments? In December, year 1, Sid's Body Shop (an accrualbasis taxpayer) did repair work on Lisa's car and was to be paid $2,000 by her insurance company. Linda was not satisfied with the repair job but finally agreed that her insurance company should pay $1,700 for the repair work, subject to approval by the insurance company adjuster. In March, year 2, the insurance company paid $1,700 to Sid's Body Shop. Identify the issues or problems suggested during this situation. State each issue as a question. Sandra, a single taxpayer in the 35% marginal tax bracket, has $60,000 she can invest in either corporate bonds with a stated interest rate of 9% or general revenue bonds issued by her municipality with a stated interest rate of 6%. What do you recommend she do? Would your answer change if her marginal tax rate is only 28%