First Problem: Edna, 63, is a widow and works for Rhododendron Corporation. Her annual salary is $40,000. Rhododendron provides the following benefits to all employees: Medical insuranceThe cost of Ednas policy is $1,800. She incurs $950 in valid medical expenses and is reimbursed for $760 of the expenses by the company policy. Group term life insuranceEach employee is provided with $90,000 worth of coverage under the policy. Qualified pension planRhododendron matches employee contributions up to $2,000. Edna contributes 8% of her salary to the plan. Edna has the following other items that may affect her current-year taxes: a. She receives $125 per month from a qualified annuity. The annuity cost $9,100. Edna is to receive the annuity for life. She began receiving the payments in January, when her life expectancy was 15 years. b. She receives a $200 refund of last years state income taxes during the current year. Last year, her itemized deductions totaled $6,300. In the current year, Ednas itemized deductions are $4,300. c. She has a separate medical policy she purchased to cover costs that her employer-provided policy does not cover. She pays $1,400 for the policy, which reimburses her for $350 of her medical expenses. d. She owns 6% Puerto Rico bonds with a face value of $40,000. The bonds pay interest annually on December 20. e. She sells stock she owned for $20,000 on July 1. She had paid $26,000 for the stock three years earlier. Edna invests the proceeds from the sale of the stock in a money-market savings account that pays 4% interest. f. Her brother dies and leaves her the farm he had inherited from their father. The farm is valued at $160,000. Edna leases the farm to a local farmer and receives $8,000 in rent during the current year. g. On April 1, she gives $5,000 of Kao Corporation bonds she owns to her granddaughter. The bonds pay annual interest of 8% on December 31. h. She receives a watch worth $300 from Rhododendron for her twenty years of loyal service. Rhododendron does not routinely give out length-of-service awards. i. She sells land that she had held as an investment for $19,000 on October 1. She had paid $17,000 for the land two years earlier. Edna invests the proceeds in state of Oregon bonds that pay 4% interest annually on December 31. Compute Ednas gross income, adjusted gross income, taxable income, and her income tax liability. Edna has no dependents.

Second Problem:

Nick and Jolene are married. Nick is 61 and retired in 2012 from his job with Amalgamated Company. Jolene is 56 and works part-time as a special education teacher. Nick and Jolene have a substantial amount of investment savings and would like to reorganize it to achieve the best after-tax return on their investments. They give you the following list of projected cash receipts for 2013: Jolenes salary $13,000 Nicks pensionfully taxable 12,500 Interest income 4,000 Dividend income 2,500 Social Security benefits 7,000 Farmers Fund annuity 6,000 In addition, Nick tells you that he owns a duplex that he rents out. The duplex rents for 2013 are $18,000, and Nick estimates expenses of $22,000 related to the duplex. The annuity was purchased 18 years ago for $20,000, and pays $500 per month for 10 years. Nick and Jolenes investments consist of the following: 6-month certificates of deposit (CDs) $100,000 1,000 shares of Lardees common stock (current market value = $7 per share, projected 2013 dividend = $1 per share)cost 10,000 2,000 shares of Corb Company common stock (current market value = $20 per share, projected 2013 dividend = $.75 per share)cost 20,000 a. Assuming that Nick and Jolene have total allowable itemized deductions of $12,350 in 2013 and that they have no dependents, determine their 2013 taxable income and tax liability based on the projections they gave you. b. The 6-month CDs consist of two $50,000 certificates, both of which yield 4% interest. One CD matures on January 3, 2013. Nicks banker tells him that he canrenew the CD for one year at 4%. Nicks stockbroker tells him that he can purchase tax-exempt bonds with a yield of 3%. Nick would like you to determine whether the tax-exempt bonds provide him a better after-tax return than the CD. c. Jolene is concerned that they are not getting the best return on their Corb Company stock. When they purchased the stock in 2002, the $.75 per share dividend was yielding 10% before taxes. However, the rise in market value has far outpaced the dividend growth, and it is yielding only 3.75%, based on the current market value. Jolene thinks they should sell the stock and purchase either the 3% tax-exempt securities or the 4% CD if it would be a better deal from an income tax viewpoint. Calculate the tax effect on their 2013 income of selling the shares, and determine whether they should sell the shares and invest the after-tax proceeds in tax-exempt securities or the 4% CD. Do this calculation after you have determined the best option regarding the CD that matures in January.

Third Problem:

During the current year, the Harlow Corporation, which specializes in commercial construction, has the following property transactions: a. In April, a tornado damages a crane and a dump truck at one of its construction sites. The crane was acquired in 2010 for $120,000 and has an adjusted basis of $39,650. The dump truck was acquired in 2008 for $70,000 and has an adjusted basis of $33,880. The insurance company reimburses Harlow $35,000 for the crane and $42,000 for the dump truck. The company decides not to replace the dump truck and uses the insurance proceeds to purchase a new crane for $110,000. b. The company trades a road grader with a fair market value of $72,000 for a bulldozer worth $60,000. Harlow receives $12,000 in the exchange. The road grader originally cost $90,000 and has an adjusted basis of $50,000. The bulldozer cost $85,000, and its adjusted basis is $37,000. c. A fire destroys the companys supply warehouse. The warehouse originally cost $300,000 and has an adjusted basis of $200,000. Its fair market value before the fire was $250,000. The insurance company pays Harlow $230,000, which it uses to acquire a warehouse costing $280,000. d. The city of PeaceDale condemns land that Harlow had acquired in 1979 for $22,000 and held as an investment. The city pays Harlow the $195,000 fair market value of the land. Harlow uses the proceeds to acquire a commercial office park for $350,000. e. Harlow sells an automobile used by its president for business purposes for $10,000 to a local car dealership. The car originally cost $32,000, and its adjusted basis is $15,000. The company had an agreement to replace the automobile with a customized four-wheel-drive vehicle from a company that specializes in custom cars. However, the day the company sells the automobile, it is informed that the custom car company will not be able to deliver the vehicle for at least 10 weeks. Harlow terminates its contract with the custom car company and buys a new automobile from the local car dealership for $55,000. Determine the realized and recognized gain or loss on each of Harlows property transactions and the basis of any property acquired in each transaction.