Orie and Jane, husband and wife, operate a sole proprietorship. They expect their taxable income next year to be $450,000, of which $250,000 is attributed to the sole proprietorship. Orie and Jane are contemplating incorporating their sole proprietorship. (Use the tax rate schedule.) a) Using the married-joint tax brackets and corporate tax rate, find out how much current tax this strategy could save Orie and Jane. b) How much income should be left in the corporation? EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates ofReturnYear 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10Year 11Year 12Year 13Year 14Year 154%5%6%8% 9% 10% 11% 12%0.962 0.952 0.9430.926 0.917 0.909 0.9010.8930.9250.907 0.8900.842 0.826 0.8120.7970.8890.8640.7310.7120.8550.823 0.792 0.7630.7350.708 0.6830.659 0.6360.822 0.7840.747 0.7130.6810.650 0.6210.5930.5670.790 0.746 0.705 0.666 0.6300.596 0.564 0.5350.5070.760 0.711 0.6650.583 0.547 0.513 0.482 0.4520.6230.627 0.582 0.5400.731 0.6770.5020.4040.467 0.4340.460 0.424 0.391 0.3610.703 0.6450.592 0.5440.5000.676 0.614 0.5580.5080.4630.4220.386 0.3520.3220.650 0.585 0.5270.4750.429 0.388 0.350 0.3170.2870.625 0.557 0.4970.444 0.397 0.356 0.3190.286 0.2570.601 0.5300.4690.415 0.368 0.3260.2900.2580.2290.5770.5050.4420.3880.3400.2990.2630.232 0.2050.555 0.481 0.4170.362 0.315 0.2750.239 0.209 0.1837%0.9350.873 0.8570.840 0.816 0.794 0.772 0.751

In this problem, we are asked to compute the following: a) Using the married-joint tax brackets and…

Answered: Orie and Jane, husband and wife,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Orie and Jane, husband and wife, operate a sole proprietorship. They expect their taxable income next year to be $450,000, of which $250,000 is attributed to the sole proprietorship. Orie and Jane are contemplating incorporating their sole proprietorship. (Use the tax rate schedule.) a) Using the married-joint tax brackets and corporate tax rate, find out how much current tax this strategy could save Orie and Jane. b) How much income should be left in the corporation?

EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates of
Return
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year 11
Year 12
Year 13
Year 14
Year 15
4%
5%
6%
8% 9% 10% 11% 12%
0.962 0.952 0.943
0.926 0.917 0.909 0.901
0.893
0.925
0.907 0.890
0.842 0.826 0.812
0.797
0.889
0.864
0.731
0.712
0.855
0.823 0.792 0.763
0.735
0.708 0.683
0.659 0.636
0.822 0.784
0.747 0.713
0.681
0.650 0.621
0.593
0.567
0.790 0.746 0.705 0.666 0.630
0.596 0.564 0.535
0.507
0.760 0.711 0.665
0.583 0.547 0.513 0.482 0.452
0.623
0.627 0.582 0.540
0.731 0.677
0.502
0.404
0.467 0.434
0.460 0.424 0.391 0.361
0.703 0.645
0.592 0.544
0.500
0.676 0.614 0.558
0.508
0.463
0.422
0.386 0.352
0.322
0.650 0.585 0.527
0.475
0.429 0.388 0.350 0.317
0.287
0.625 0.557 0.497
0.444 0.397 0.356 0.319
0.286 0.257
0.601 0.530
0.469
0.415 0.368 0.326
0.290
0.258
0.229
0.577
0.505
0.442
0.388
0.340
0.299
0.263
0.232 0.205
0.555 0.481 0.417
0.362 0.315 0.275
0.239 0.209 0.183
7%
0.935
0.873 0.857
0.840 0.816 0.794 0.772 0.751

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