HW3 - 1 Chapter 3: The Corporate Income Tax Homework...

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Unformatted text preview: 1 Chapter 3: The Corporate Income Tax Homework Solutions C3-34 Land: Sales price $ 50,000 Minus: Basis (original cost) ( 25,000) Sec. 1231 gain on land $ 25,000 Building: Sales price $225,000 Minus: Basis (original cost) $200,000 Minus: Depreciation ( 50,000) (150,000 ) Recognized gain $ 75,000 Recapture amount on building: Lesser of: $50,000 (Depreciation claimed) or $75,000 (Recognized gain) $ 50,000 Times: Sec. 291 percentage x 0.20 Ordinary income under Sec. 291 $ 10,000 Sec. 1231 gain on building: Recognized gain $ 75,000 Minus: Ordinary income on building ( 10,000) Sec. 1231 gain on building $ 65,000 Summary: Type of Gain Asset Sec. 1231 Ordinary Total Land $25,000 25,000 Building 65,000 $10,000 75,000 Total $90,000 $10,000 $100,000 pp. C3-8 and C3-9. C3-35 a. Delta Corporation can elect to amortize organizational expenditures under Sec. 248 over 60 months (or more). Delta Corporation can also elect to amortize start-up expenditures under Sec. 195 over 60 months (or more). Date Expense Amount Treatment 1/30 Travel expense $2,000 Start-up expense 5/15 Legal expense 2,500 Organizational expense 5/30 Commission to stockbroker 4,000 Reduction of capital 5/30 Director's fees 2,500 Organizational expense 6/5 Accounting fees 1,500 Organizational expense 6/10 Training expense 5,000 Start-up expense 6/15 Rent expense 1,000 Start-up expense 7/15 Rent expense 1,000 Sec. 162 expense b. Organizational expenditures total $6,500 or $108.33 ($6,500/60) per month if amortized over 60 months. Delta can amortize $433.33 ($108.33 x 4 months) in the first year for the period July 1 through October 31. pp. C3-9 through C3-11. 2 C3-37 Blue Corporations charitable contribution deduction is determined as follows: Property Basis FMV Deduction XYZ stock (capital gain property) $25,000 $16,000 $16,000 Computer equipment (Sec. 170(e)(6) property) {$16,000 + [0.50 x ($50,000 - $16,000)] limited to 2 x $16,000 basis} 16,000 50,000 32,000 PQR Stock (Short-term capital gain) 12,000 18,000 12,000 Total contribution amount $60,000 The charitable contribution deduction is limited to $40,000 ($400,000 x 0.10). Blue Corporations contribution carryover is determined as follows: Total contribution allowable before limitation $60,000 Minus: Amount deducted in current year (40,000) Contribution carryover to next 5 years $20,000 C3-38 a. 1998: Contribution limitation: = $180,000 x 0.10 = $18,000 Carryover to 1999: $20,000 - $18,000 = $2,000 1999: Contribution limitation: $125,000 x 0.10 = $12,500 1999 contribution consists of $12,000 (1999 contribution) and $500 (carryover from 1998) b. Carryover to 2000: 1998 contribution $20,000 Amount used in 1998 (18,000) Carryover used in 1999 ( 500) Carryover to 2000 $ 1,500 The entire carryover is from 1998. p. C3-15....
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HW3 - 1 Chapter 3: The Corporate Income Tax Homework...

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