Bill files as head of household in 2016. He had taxable income of $90,000, including the sale of stock he held for investment for two years for a $20,000 gain. Bill sold no other assets during the year, and he did not have any capital loss carryovers.

a. What is Bills 2016 tax liability?

b. What would Bills 2016 tax liability be if he had held the stock for 10 months?

Klondike Construction Company is building a highway under a three-year construction contract. Klondike will receive $11,200,000 for building five miles of highway. Klondike estimates that it will incur $10,000,000 of costs before the contract is completed. At the end of year one, Klondike had incurred $3,000,000 of contract costs.

a. How much income from the contract must Klondike report for year one?

b. Assume Klondike incurs an additional $5,000,000 of costs during the second year. How much income should be reported for that year?

c. If Klondike incurs another $2,500,000 of costs in the third and final year of the contract, how much income must Klondike report for the third year.

d. Will Klondike receive or pay look-back interest? Explain.