Ch_01_and_02_Inclass_exercise_Solution - business to a...

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Ch 01 and 02 Inclass exercise Solutions Ch 01 Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the
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Unformatted text preview: business to a minimum. Which form of business entity should these individuals adopt? Why? Answer: Limited Partnership Ch 02 ABC has taxable income of $250,000. The applicable tax table is shown below. Taxable Income Tax Rate 0 50,000 15% 50,001 75,000 25% 75,001 100,000 34% 100,001 and over 39% 1. What is ABC’s tax? Tax = (50,000*15%) + (25,000*25%) + (25,000*34%) + (150,000*39%) = 80,750 2. What is ABC’s average tax rate? Avg rate = 80,750 / 250,000 = 32.3% 3. What is ABC’s marginal tax rate? Marginal tax rate = 39% Tax Bracket Rate 0 50,000 15% 50,001 75,000 25% 75,001 100,000 34% 100,001 39% Taxable Income 250,000 Tax 80,750.00 Average Rate 32.30%...
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