Hi! I am really not sure where to start with this question. Can someone please guide me through this? I am not sure how to approach it, but I really want to be able to understand. Step by step is extremely appreciated. Thank you in advance!

Whirlwind Cycles is owned 100% by Daniel, a single taxpayer. Both Whirlwind Cycles and Daniel use the cash method of accounting for tax purposes. Whirlwind Cycles is organized as a C Corporation and the corporation pays all of its after-tax cash flows to Daniel as a dividend.

The business incurred the following items of income and expense in Year 2:

Cash Sales $225,000

Interest received from City of Flint Bonds (this is a municipal bond) 3,000

Cost of Goods Sold (assume cash paid in Year 2) 45,000

Cash payments for Year 2 utilities 3,500

Cash payments for Year 2 rent 18,000

Tax depreciation 40,000

Cash contribution to the Democratic party (not deductible for tax purposes) 1,000

On 1/1, Year 1, Whirlwind Cycles purchased a 60-month zero coupon bond with a 5% yield and a $20,000 maturity value for $15,670 (compounded annually). Daniels taxable income is $100,000 before any profits from the business are considered. Daniel files as a single tax payer.

(a) How much interest income does Whirlwind cycles need to recognize from the zero coupon bond in Year 2?

(b) What is the taxable income of Whirlwind Cycles in Year 2?

(c) What is the after-tax cash flow of Whirlwind Cycles in Year 2? Hint: the total tax due in Year 2 of Whirlwind Cycles is 25,058.

(d) Calculate Daniels Year 2 after-tax cash flows from the Whirlwind Cycles. Hint: This is a dividend payment. So consider what tax rate Daniel needs to pay on the cash payment.