• Textbook:Taxes and Business Strategy: A Planning Approach
• File:WS6 Exercises - Answer Sheet

Instructions

1. Download the exercises assignment sheet and answer sheet template provided inResources(above). These will identify the exercises in the textbook to be completed.
2. Using the answer sheet template enter formulas or numbers required to complete the exercise. If the questions require a written component, enter your written responses in the area indicated.

Type your name here------> Points earned --> 50 Read the instructions and hints before attempting to complete the solution. Enter your responses and answers in the areas specified. There are 50 total points for this assignment. The point value of each exercise is determined by dividing the 50 points by the number of exercises per assignment. If you have difficulty with any of the exercises, take advantage of the collaboration discussion forum. Workshop 6 12 Corporations: formation, operation, capital structure, and liquidation 1, 2, 3 18 Estate and Gift Tax Planning 1, 2 Chapter 12 Exercise 1 points possible 10 deductions Points earned 10 1. Which of the following scenarios will qualify under Section 351 as a nontaxable corporate formation? For those that do not qualify, what requirement of Section 351 do they violate? a. Ginger, Mary Ann, and Mrs. Howell form GMH Corp. Ginger contributes memorabilia in exchange for 40% of GMH's stock, Mary Ann contributes farmland in exchange for 30% of GMH, and Mrs. Howell contributes cash in exchange for the remaining 30%. b. Clyde founded ABC Corp. in 2009 and owns all of ABC's 1,000 shares of outstanding stock. In 2013, ABC issues 300 shares of new stock to Bonnie in exchange for land that Bonnie owned. Will Bonnie's contribution qualify under Section 351? c. With the same facts as part b, now ABC issues 4,500 shares of new stock to Bonnie in exchange for Bonnie's land. d. Bert and Ernie form Duckie Corp. in late 2013. Bert contributes $10,000 cash in exchange for 60% of Duckie's stock; Ernie contributes services in exchange for the remaining 40% of Duckie. a. Ginger, Mary Ann, and Mrs. Howell form GMH Corp. Ginger contributes memorabilia in exchange for 40% of GMH's stock, Mary Ann contributes farmland in exchange for 30% of GMH, and Mrs. Howell contributes cash in exchange for the remaining 30%. Yes or No and explain. type your response here. b. Clyde founded ABC Corp. in 2009 and owns all of ABC's 1,000 shares of outstanding stock. In 2013, ABC issues 300 shares of new stock to Bonnie in exchange for land that Bonnie owned. Will Bonnie's contribution qualify under Section 351? Yes or No and explain. type your response here. b. Clyde founded ABC Corp. in 2009 and owns all of ABC's 1,000 shares of outstanding stock. In 2013, ABC issues 300 shares of new stock to Bonnie in exchange for land that Bonnie owned. Will Bonnie's contribution qualify under Section 351? Yes or No and explain. type your response here. c. With the same facts as part b, now ABC issues 4,500 shares of new stock to Bonnie in exchange for Bonnie's land. Yes or No and explain. type your response here. d. Bert and Ernie form Duckie Corp. in late 2013. Bert contributes $10,000 cash in exchange for 60% of Duckie's stock; Ernie contributes services in exchange for the remaining 40% of Duckie. Yes or No and explain. type your response here. Exercise 2 points possible 10 deductions Points earned 10 2. Conan and Andy decide to form a new corporation, LN Corp. Conan contributes property with a basis of $10,000 and a fair market value of $18,000 in exchange for 5 shares of LN stock and $13,000 in cash, which LN borrows from a bank to finance. Andy contributes property with a basis of $35,000 and a fair market value of $80,000 in exchange for 80 shares of LN stock. a. How much taxable gain or loss will Conan recognize as a result of the transaction? b. What basis will Conan take in the LN stock he receives? a. How much taxable gain or loss will Conan recognize as a result of the transaction? Tax gain=min= Points earned --> 50 Read the instructions and hints before attempting to complete the solution. Enter your responses and answers in the areas specified. There are 50 total points for this assignment. The point value of each problem is determined by dividing the 50 points by the number of exercises are per assignment. If you have difficulty with any of the exercises/problems, take advantage of the collaboration discussion forum. Workshop 6 12 Corporations: formation, operation, capital structure, and liquidation Ex's 4, 5, 6 18 Estate and Gift Tax Planning 1, 2 Chapter 12 Exercise 4 points possible 10 deductions Points earned 10 4. DMM Corporation is a diversified U.S. firm that has ownership stakes in two other U.S. corporations. Specifically, DMM Corporation owns 60% of the outstanding stock of Tax Shelter.com and 10% of the outstanding stock of Litigation.com. During the year 2013, DMM Corporation itself had $10 million of taxable income; TaxShelter.com and Litigation.com had $2 million and $3 million net operating losses, respectively. Neither TaxShelter.com nor Litigation.com has ever reported positive taxable income, and neither pays any dividends. How much taxable income will DMM Corporation report on its 2013 consolidated tax return? Exercise 5 points possible 10 deductions Points earned 10 5. Which of the following were typical features of trust preferred stock, also known as monthly income preferred stock (MIPS)? yes or no answer is all that is required a. Treated as debt on the issuer's GAAP balance sheet. b. Corporate recipients of trust preferred dividends are eligible for the dividends received deduction. c. Trust preferred stock is thought to have a greater pretax yield than traditional preferred stock of similar risk. d. Trust preferred stock dividends are deductible to the issuer. e. Trust preferred stock counts as Tier 1 capital for banks. b. Corporate recipients of trust preferred dividends are eligible for the dividends received deduction. c. Trust preferred stock is thought to have a greater pretax yield than traditional preferred stock of similar risk. d. Trust preferred stock dividends are deductible to the issuer. e. Trust preferred stock counts as Tier 1 capital for banks. a. b. c. d. e. Chapter 12 points possible 10 Exercise 6 deductions Points earned 10 6. Brad, Scott, and Jake each contribute property to form BSJ Corporation. Brad contributes a building with a fair market value of $450,000 and a basis of $100,000 and receives 45% of the stock of BSJ. Scott contributes $100,000 cash and equipment with a fair market value and tax basis of $350,000, receiving 45% of the stock of BSJ. Jake contributes a collection of vintage automobiles with a fair market value of $150,000 and tax basis of $130,000 in exchange for 10% of the stock of BSJ and $50,000 cash. What tax basis will each take in their respective BSJ stock? Brad Scott Jake Basis = show calculations check figure $100,000 Chapter 18 Problem 1 points possible 10 deductions Points earned 10 1. Suppose your parents founded a wildly successful business in which they still own 90% of the outstanding stock, which is the source of most of their wealth. The basis in their stock is close to zero. Your parents are nearing retirement age and are considering their options. They would like to buy a condo in Vail and a winter home in Vero Beach. They also would like to have sufficient money to travel extensively each year. They want to contribute half their wealth to charity, although they have not decided which charities they want to support, with the remainder of their wealth being divided equally between you and your sister. You have recently graduated with your MBA and your sister is about to enter college. Prepare a plan for your parents' consideration and carefully explain each part of the plan. outstanding stock, which is the source of most of their wealth. The basis in their stock is close to zero. Your parents are nearing retirement age and are considering their options. They would like to buy a condo in Vail and a winter home in Vero Beach. They also would like to have sufficient money to travel extensively each year. They want to contribute half their wealth to charity, although they have not decided which charities they want to support, with the remainder of their wealth being divided equally between you and your sister. You have recently graduated with your MBA and your sister is about to enter college. Prepare a plan for your parents' consideration and carefully explain each part of the plan. Consider the impact of selling the stock now tax wise vs inheriting. Discuss a family limited partnership. What about the siblings purchasing one of the houses - any tax savings? Would the parents pay rent? Conisder a charitable foundation for the stock. type your response here. Chapter 18 Problem 2 points possible 10 deductions Points earned 10 2. A 70-year-old recently retired engineer is discussing with you, over coffee, whether to gift $500,000 to-day to his only daughter or invest the $500,000 and bequeath the $500,000 plus earnings to his daughter in his will. The engineer expects to live another 10 years. What would you advise the engineer to do? Carefully explain your reasoning and make explicit any assumptions you make, such as taxes, earnings rates, spending patterns, and so on. Why is gifting advanteous in this situation? What about the life time exclusion. What are a disadvantages of gifting? Does the engineer have sufficient other income to live on? discuss. What are the likely marginal tax rates faced on the earnings on the $500k of each party? compare the daughter marginal rate to the engineer's possible MR. daughter marginal rate to the engineer's possible MR. esponses and ned by dividing the tion discussion U.S. corporations. m and 10% of the ad $10 million of operating losses, xable income, and x return? as monthly income eived deduction. erred stock of eived deduction. erred stock of ributes a building e stock of BSJ. Scott 350,000, receiving air market value of 000 cash. 90% of the k is close to zero. ld like to buy a nt money to travel which charities een you and your ollege. plan. k is close to zero. ld like to buy a nt money to travel which charities een you and your ollege. plan. imited ? Would the er to gift $500,000 earnings to his as taxes, earnings e to live on? arty? compare the