- Prepare a Balance Sheet for the Mocsins using the data
- Prepare an Income and Expense Statement using the data
MOCSIN CASE Richard Mocsin is 46 years old, and his wife Gloria is 37 years old. Richard and Gloria were married 8 years ago, it was Richard's second marriage and Gloria's first marriage. Richard and Gloria have one child Charles, who is 6 years of age. Richard has two children by his prior marriage: Laura, who is 14 years of age and Elaine, who is 12. All of the children attend public schools. Richard is a biology professor at the university and is a partner in Wizard Research Associates, a biotechnology firm that Richard started with three of his associates from the university. ASSET INFORMATION The Mocsins own their personal residence in joint tenancy with right of survivorship, and it is valued currently at $250,000. They purchased the home seven years ago for $175,000. They have finished the basement and added a room and bathroom at a cost of $40,000. They have a mortgage balance of $150,000. The Mocsins' household furnishings are valued at $70,000, and Gloria's jewelry and furs are valued at $30,000. Richard and Gloria live in a state that follows the common-law forms of property ownership Richard and Gloria have a joint checking account that contains $7,000 and a joint savings account that contains $15,000. Interest income on the savings accountlast year was $450. The Mocsins also have $12,000 in money market mutual funds that paid dividends last year of $515. Richard owns shares in a growth stock mutual fund that he purchased three years ago for $5,000, is now worth $5,750, and paid dividends last year of $100. Dividends on these shares are expected to grow by 8% per year, and Richard believes that a 10% rate of return would be appropriate for these shares with their degree of risk. Gloria owns shares in a municipal bond fund purchased for $6,300, currently valued at $7,000, and yielding $400 per year tax-free. The Mocsins jointly purchased 500 shares in Power Station, Inc., a public utility company. These shares were acquired at a cost of $6,250, are currently valued at $8,000, and pay annual dividends of $480. Richard's father died two years ago, and his mother died last year, leaving Richard an inheritance of $150,000 in U.S. Treasury notes paying 8% interest ($12,000 annually) and a one-half interest in common with his brother in a Florida condominium. The condominium was valued in his mother's estate at $120,000 and was purchased six years ago for $125,000. Real estate taxes on the condominium, half of which Richard includes among his itemized deductions for federal income tax purposes, total $1,000. Both of Gloria's parents are still living. The Mocsins are also joint owners of a parcel of undeveloped land in the mountains, where they plan to build a vacation home. The parcel of land cost them $75,000 and is currently valued at $70,000. They have a $30,000 mortgage on the property. Interest on the mortgage is $2,700 per year. Real estate taxes are $700. Richard owns an apartment building near the university that he rents to students. The apartment building was purchased four years ago for $95,000 and is currently valued at $125,000. The annual gross rental income from the property is $11,000. Richard has a mortgage balance of $60,000, and Financial Planning -- Mocsin Case his interest payments total $4,950. His real estate taxes and maintenance expenses are $3,000, and depreciation is $2,850. The Mocsins are joint owners of two automobiles. The cars are valued at $25,000 and $17,500. Richard owns a sailboat which he bought for $35,000 and is valued now at $40,000. Richard has a one-fourth interest in the partnership Wizard Research Associates, which is engaged in research for genetic engineering of various plants. There are no employment contracts for the partners. In addition to the partners, the firm has eight employees, including four research assistants, two secretaries, and two maintenance/hothouse workers. The research assistants are paid $30,000 each, the secretaries are paid $18,000 each, and the other workers are paid $20,000 each. Richard and his partners believe that the value of Wizard Research Associates is approximately $1 million. There has been no objective valuation, however. The largest assets of the firm are its building and grounds, where the firm has a laboratory, hothouses, and fields for growing experimental plants. The building and land were purchased for $250,000, and $150,000 was allocated to the building and $100,000 to the land. Additional buildings have been added at a cost of $75,000, and the current value is estimated to be $400,000. The firm has a mortgage balance on the building and land of $150,000. The partnership has been depreciating the building for tax purposes under the original accelerated cost recovery system. INCOME TAX INFORMATION Richard earns $60,000 in annual salary from the university, and he reports another $48,000 of net taxable income from the biotechnology firm. Gloria earns $30,000 working in public relations for a hospital. She also receives $5,000 at the beginning of each year from a trust established by her grandfather, with securities valued currently at $100,000. At Gloria's death, the trust income will be paid to Charles, or if Charles is over age 25, the corpus will be distributed to him. The Mocsins file joint tax returns. Richard' pays child support for his two daughters in the amount of $400 each per month, and these payments are probably 75% of their support annually. Richard's daughters are in the custody of their mother and live with her for approximately nine months of the year. Richard is required by his divorce decree to maintain a $100,000 life insurance policy to provide child support in the event of his death. Several years ago, Richard established custodian accounts for Laura and Elaine. Laura's account generates annual income of $900, and Elaine's account has annual income of $850. Richard and Gloria incur home mortgage interest costs of $12,000 per year. Real estate taxes on their home are $2,500. They will pay $4,500 in state income taxes this year and $150 in personal property taxes. Their contributions to charities totaled $2,000. Financial Planning - Mocsin Case RETIREMENT INFORMATION Gloria owns IRA accounts totaling $17,000. She is now an active participant in a defined- contribution pension plan through the hospital where she works, and her vested account value is $35,000. Eight percent of Richard's gross salary at the university is deducted each year and contributed to a tax-deferred annuity. The university contributes an additional six percent dollar-for- dollar on a tax-deferred basis. The plan is projected to pay Richard $2,500 per month when he retires at age 65 or to Gloria at his death. One of the partners in Wizard Research Associates is age 65 and about two years away from retirement, and two partners are age 55. The partners would like to prepare for the expected retirement of the age-65 partner, as well as the unexpected death or disability of any partner. The partners are also contemplating a retirement program for the firm and would like advice concerning the design. INSURANCE INFORMATION The university provides disability income coverage for one-third of Richard's salary, group medical expense insurance covering Richard and his family through a health maintenance organization, and group term life insurance for Richard with a death benefit of $50,000. Richard owns a whole life insurance policy that will pay a death benefit of $100,000 and has a cash value of $5,500, and he owns a universal life policy with a face value of $150,000 and a cash value of $3,000. The annual premium on the whole life policy is $2,000, and the annual premium on the universal life policy is $800. Gloria has group term life insurance through her employer in a face amount that is equal to her salary. Property and liability insurance that insures the Mocsins' house for its replacement cost has an annual premium of $1,200. The Mocsins' cars are insured under a personal auto policy providing limits for bodily injury of $100,000/$300,000, property damage of $25,000, uninsured motorists coverage of $10,000/$20,000, no-fault benefits, and a collision deductible of $250. Richard's sailboat is insured under a yacht policy. ESTATE PLANNING INFORMATION Richard's will leaves his entire estate to Gloria, but if Gloria predeceases Richard, the estate will be left in trust for Richard's three children equally. Gloria's will leaves her entire estate to Richard, or if he predeceases her, to Charles. MOCSIN CASE Richard Mocsin is 46 years old, and his wife Gloria is 37 years old. Richard and Gloria were married 8 years ago, it was Richard's second marriage and Gloria's first marriage. Richard and Gloria have one child Charles, who is 6 years of age. Richard has two children by his prior marriage: Laura, who is 14 years of age and Elaine, who is 12. All of the children attend public schools. Richard is a biology professor at the university and is a partner in Wizard Research Associates, a biotechnology firm that Richard started with three of his associates from the university. ASSET INFORMATION The Mocsins own their personal residence in joint tenancy with right of survivorship, and it is valued currently at $250,000. They purchased the home seven years ago for $175,000. They have finished the basement and added a room and bathroom at a cost of $40,000. They have a mortgage balance of $150,000. The Mocsins' household furnishings are valued at $70,000, and Gloria's jewelry and furs are valued at $30,000. Richard and Gloria live in a state that follows the common-law forms of property ownership Richard and Gloria have a joint checking account that contains $7,000 and a joint savings account that contains $15,000. Interest income on the savings accountlast year was $450. The Mocsins also have $12,000 in money market mutual funds that paid dividends last year of $515. Richard owns shares in a growth stock mutual fund that he purchased three years ago for $5,000, is now worth $5,750, and paid dividends last year of $100. Dividends on these shares are expected to grow by 8% per year, and Richard believes that a 10% rate of return would be appropriate for these shares with their degree of risk. Gloria owns shares in a municipal bond fund purchased for $6,300, currently valued at $7,000, and yielding $400 per year tax-free. The Mocsins jointly purchased 500 shares in Power Station, Inc., a public utility company. These shares were acquired at a cost of $6,250, are currently valued at $8,000, and pay annual dividends of $480. Richard's father died two years ago, and his mother died last year, leaving Richard an inheritance of $150,000 in U.S. Treasury notes paying 8% interest ($12,000 annually) and a one-half interest in common with his brother in a Florida condominium. The condominium was valued in his mother's estate at $120,000 and was purchased six years ago for $125,000. Real estate taxes on the condominium, half of which Richard includes among his itemized deductions for federal income tax purposes, total $1,000. Both of Gloria's parents are still living. The Mocsins are also joint owners of a parcel of undeveloped land in the mountains, where they plan to build a vacation home. The parcel of land cost them $75,000 and is currently valued at $70,000. They have a $30,000 mortgage on the property. Interest on the mortgage is $2,700 per year. Real estate taxes are $700. Richard owns an apartment building near the university that he rents to students. The apartment building was purchased four years ago for $95,000 and is currently valued at $125,000. The annual gross rental income from the property is $11,000. Richard has a mortgage balance of $60,000, and Financial Planning -- Mocsin Case his interest payments total $4,950. His real estate taxes and maintenance expenses are $3,000, and depreciation is $2,850. The Mocsins are joint owners of two automobiles. The cars are valued at $25,000 and $17,500. Richard owns a sailboat which he bought for $35,000 and is valued now at $40,000. Richard has a one-fourth interest in the partnership Wizard Research Associates, which is engaged in research for genetic engineering of various plants. There are no employment contracts for the partners. In addition to the partners, the firm has eight employees, including four research assistants, two secretaries, and two maintenance/hothouse workers. The research assistants are paid $30,000 each, the secretaries are paid $18,000 each, and the other workers are paid $20,000 each. Richard and his partners believe that the value of Wizard Research Associates is approximately $1 million. There has been no objective valuation, however. The largest assets of the firm are its building and grounds, where the firm has a laboratory, hothouses, and fields for growing experimental plants. The building and land were purchased for $250,000, and $150,000 was allocated to the building and $100,000 to the land. Additional buildings have been added at a cost of $75,000, and the current value is estimated to be $400,000. The firm has a mortgage balance on the building and land of $150,000. The partnership has been depreciating the building for tax purposes under the original accelerated cost recovery system. INCOME TAX INFORMATION Richard earns $60,000 in annual salary from the university, and he reports another $48,000 of net taxable income from the biotechnology firm. Gloria earns $30,000 working in public relations for a hospital. She also receives $5,000 at the beginning of each year from a trust established by her grandfather, with securities valued currently at $100,000. At Gloria's death, the trust income will be paid to Charles, or if Charles is over age 25, the corpus will be distributed to him. The Mocsins file joint tax returns. Richard' pays child support for his two daughters in the amount of $400 each per month, and these payments are probably 75% of their support annually. Richard's daughters are in the custody of their mother and live with her for approximately nine months of the year. Richard is required by his divorce decree to maintain a $100,000 life insurance policy to provide child support in the event of his death. Several years ago, Richard established custodian accounts for Laura and Elaine. Laura's account generates annual income of $900, and Elaine's account has annual income of $850. Richard and Gloria incur home mortgage interest costs of $12,000 per year. Real estate taxes on their home are $2,500. They will pay $4,500 in state income taxes this year and $150 in personal property taxes. Their contributions to charities totaled $2,000. Financial Planning - Mocsin Case RETIREMENT INFORMATION Gloria owns IRA accounts totaling $17,000. She is now an active participant in a defined- contribution pension plan through the hospital where she works, and her vested account value is $35,000. Eight percent of Richard's gross salary at the university is deducted each year and contributed to a tax-deferred annuity. The university contributes an additional six percent dollar-for- dollar on a tax-deferred basis. The plan is projected to pay Richard $2,500 per month when he retires at age 65 or to Gloria at his death. One of the partners in Wizard Research Associates is age 65 and about two years away from retirement, and two partners are age 55. The partners would like to prepare for the expected retirement of the age-65 partner, as well as the unexpected death or disability of any partner. The partners are also contemplating a retirement program for the firm and would like advice concerning the design. INSURANCE INFORMATION The university provides disability income coverage for one-third of Richard's salary, group medical expense insurance covering Richard and his family through a health maintenance organization, and group term life insurance for Richard with a death benefit of $50,000. Richard owns a whole life insurance policy that will pay a death benefit of $100,000 and has a cash value of $5,500, and he owns a universal life policy with a face value of $150,000 and a cash value of $3,000. The annual premium on the whole life policy is $2,000, and the annual premium on the universal life policy is $800. Gloria has group term life insurance through her employer in a face amount that is equal to her salary. Property and liability insurance that insures the Mocsins' house for its replacement cost has an annual premium of $1,200. The Mocsins' cars are insured under a personal auto policy providing limits for bodily injury of $100,000/$300,000, property damage of $25,000, uninsured motorists coverage of $10,000/$20,000, no-fault benefits, and a collision deductible of $250. Richard's sailboat is insured under a yacht policy. ESTATE PLANNING INFORMATION Richard's will leaves his entire estate to Gloria, but if Gloria predeceases Richard, the estate will be left in trust for Richard's three children equally. Gloria's will leaves her entire estate to Richard, or if he predeceases her, to Charles
