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Assignment Problems (The solutions for these problems are only available in the solutions manual that has been provided to your instructor.) Assignment Problem Seven - 1 (Interest Deductibility - 4 Cases) Each of the following independent Cases involves the payment of interest and the issue of whether the interest will be deductible for tax purposes. Case A Thomas Sanjuan finances the acquisition of an income producing property. The cost of the property is $435,000 and Thomas finances 100 percent of the purchase. The invest- ment proves successful, with the property being sold for $610,000. He uses the proceeds of the sale to acquire two properties with costs of $495,000 and $115,000 respectively. Explain how the original $435,000 proceeds from the loan can be allocated to the two properties. Case B Tamara Sherrell has a trading account which holds equity securities with a current fair market value of $1,500,000. She would like to purchase a new Bentley for $325,000. Her bank will finance her purchase with a $325,000 loan that requires interest to be paid at a rate of 8.3 percent. However, as her equity securities are in a margin account, she can use her margin balance to borrow the $325,000 at a rate of 3.25 percent. She chooses the latter approach. During the year, she pays interest on this loan of $10,500. Also during the year, the securities in her trading account pay total dividends of $75,000. Can she deduct the $10,500 of interest against the dividend income generated by the securities in her trading account? Explain your conclusion Case C Manuel Pettie takes out a mortgage on his house for $500,000 and immediately transfers the entire amount to his brokerage account to invest in publicly traded securities. Relying solely on company names that come to him in his dreams, he makes some very bad investment choices. As a result, after one year, his securities are worth only $240,000. Feeling very discouraged, he sells all of the securities and uses the proceeds to reduce the loan balance. He will not have the resources to pay off the remaining $260,000 until he receives $500,000 from his trust fund in 2 years. Is the interest on the mortgage deductible before he sells the shares? If so, does this change after he sells the shares? Explain your conclusion. Income From Property Assignment Problems Case D Bo Godina borrows $220,000 in order to purchase an income producing property for that same amount. The results from this investment are not promising and, as a result, he sells the investment for $150,000. He uses these funds to buy two properties. The first prop- erty costs $35,000, while the second costs $115,000. How will the $220,000 in borrowing be linked to the two properties? Assignment Problems (The solutions for these problems are only available in the solutions manual that has been provided to your instructor.) Assignment Problem Seven - 1 (Interest Deductibility - 4 Cases) Each of the following independent Cases involves the payment of interest and the issue of whether the interest will be deductible for tax purposes. Case A Thomas Sanjuan finances the acquisition of an income producing property. The cost of the property is $435,000 and Thomas finances 100 percent of the purchase. The invest- ment proves successful, with the property being sold for $610,000. He uses the proceeds of the sale to acquire two properties with costs of $495,000 and $115,000 respectively. Explain how the original $435,000 proceeds from the loan can be allocated to the two properties. Case B Tamara Sherrell has a trading account which holds equity securities with a current fair market value of $1,500,000. She would like to purchase a new Bentley for $325,000. Her bank will finance her purchase with a $325,000 loan that requires interest to be paid at a rate of 8.3 percent. However, as her equity securities are in a margin account, she can use her margin balance to borrow the $325,000 at a rate of 3.25 percent. She chooses the latter approach. During the year, she pays interest on this loan of $10,500. Also during the year, the securities in her trading account pay total dividends of $75,000. Can she deduct the $10,500 of interest against the dividend income generated by the securities in her trading account? Explain your conclusion Case C Manuel Pettie takes out a mortgage on his house for $500,000 and immediately transfers the entire amount to his brokerage account to invest in publicly traded securities. Relying solely on company names that come to him in his dreams, he makes some very bad investment choices. As a result, after one year, his securities are worth only $240,000. Feeling very discouraged, he sells all of the securities and uses the proceeds to reduce the loan balance. He will not have the resources to pay off the remaining $260,000 until he receives $500,000 from his trust fund in 2 years. Is the interest on the mortgage deductible before he sells the shares? If so, does this change after he sells the shares? Explain your conclusion. Income From Property Assignment Problems Case D Bo Godina borrows $220,000 in order to purchase an income producing property for that same amount. The results from this investment are not promising and, as a result, he sells the investment for $150,000. He uses these funds to buy two properties. The first prop- erty costs $35,000, while the second costs $115,000. How will the $220,000 in borrowing be linked to the two properties