C Harvey quit his job at State Universitywhere he earned $45,000 a year. Hefigures his entrepreneurial talent orforegone entrepreneurial income to be$5,000 a year. To start the business, hecashed in $100,000 in bonds that earned10 percent interest annually to buy asoftware company, Extreme Gaming. In thefirst year, the firm sold 11,000 units ofsoftware at $75 for each unit. Of the $75per unit, $55 goes for the costs ofproduction, packaging, marketing,employee wages and benefits, and rent ona building.Refer to the above information. The cost ofcapital for Harvey in the first year is:Group of answer choicesA) $10,000B) Not enough informationC) $110,000D) $100,000E) There is $0 cost of capital associatedwith Harvey's new business

Cost of capital is amount you paid using the money.

Answered: Harvey quit his job at State University…

Harvey quit his job at State University where he earned $45,000 a year. He Figures his entrepreneurial talent or Foregone entrepreneurial income to be Vear To start the b ucinecc be

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter15: Taxing Business Income

Section: Chapter Questions

Problem 3DQ

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

Harvey quit his job at State University
where he earned $45,000 a year. He
figures his entrepreneurial talent or
foregone entrepreneurial income to be
$5,000 a year. To start the business, he
cashed in $100,000 in bonds that earned
10 percent interest annually to buy a
software company, Extreme Gaming. In the
first year, the firm sold 11,000 units of
software at $75 for each unit. Of the $75
per unit, $55 goes for the costs of
production, packaging, marketing,
employee wages and benefits, and rent on
a building.
Refer to the above information. The cost of
capital for Harvey in the first year is:
Group of answer choices
A) $10,000
B) Not enough information
C) $110,000
D) $100,000
E) There is $0 cost of capital associated
with Harvey's new business

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