Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

James Blaine is the sole shareholder and president of Blaine Foods, Inc. which operates a successful fast-food franchise. Mr. Blaine owns the building and land

James Blaine is the sole shareholder and president of Blaine Foods, Inc. which operates a successful fast-food franchise. Mr. Blaine owns the building and land from which the franchise is operated, but the corporation owns the franchise and leases the building and land from Mr. Blaine. Mr. Blaine is paid a salary of $150,000 a year. He also earns $50,000 per year in interest, dividends, and capital gains on his investment account. Mr. Blaine, age 50 is married and has three children nearing college age. He currently has no qualified plan in place at Blaine Foods and would like your help in developing one for 2018 (assume that it is currently September 20, 2018).

The corporation averages a cash flow of $35,000 to $55,000 per year after the owner's compensation. The restaurant is managed by one general manager and two assistant managers who have worked for James Blaine for at least five years. The general manger is paid $65,000 per year, and the two assistants average $45,000 annually (all the managers are between 28 and 34 years old). The rest of Blaine's employees can be divided into two groups. Group A (ten employees) are short-term, part-time high school students who will make between $650 and $6,000 during 2018. Group B (12 employees) are over 21 and will earn more than $6,000 in 2018. The total compensation for these two groups for 2018 will be $35,000 and $171,000, respectively. James Blaine would like to increase his savings for retirement beyond his regular IRA contributions. He wants to maximize his tax-deductible contributions, without incurring large expense for his regular employees, who are likely to remain with the company for only a short time.

James Blaine has asked you the following questions:

1. If in 2018 a qualified profit-sharing plan is established at Blaine Foods, Inc. what is the maximum contribution that could be made on the behalf of James Blaine?

2. If in 2018 Mr. Blaine established a SIMPLE IRAplan what is the maximum contribution that could be made on the behalf of James Blaine?

3. For James Blaine, what is the primary advantage of establishing a defined-benefit plan at Blaine Foods?

4. Which of the following retirement vehicles is not an option for Mr. Blaine or Blaine Foods:

a. Roth IRA

b. Defined-benefit pension plan

c. SIMPLE IRA

d. 401(k) plan

5. What type of retirement plan would you recommend?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Entrepreneurial Finance

Authors: J. Chris Leach, Ronald W. Melicher

2nd Edition

0324289235, 9780324289237

More Books

Students also viewed these Finance questions

Question

Describe the concept of lead time and its impact on decision-making

Answered: 1 week ago

Question

What is meant by organisational theory ?

Answered: 1 week ago

Question

What is meant by decentralisation of authority ?

Answered: 1 week ago

Question

Briefly explain the qualities of an able supervisor

Answered: 1 week ago

Question

Define policy making?

Answered: 1 week ago

Question

Define co-ordination?

Answered: 1 week ago

Question

3. How much information do we need to collect?

Answered: 1 week ago

Question

2. What types of information are we collecting?

Answered: 1 week ago

Question

5. How quickly can we manage to collect the information?

Answered: 1 week ago