Rover Corporation would like to transfer excess cash to its sole shareholder, Aleshia, who is also an employee. Aleshia is in the 24% taxbracket, and Rover is subject to a 21% rate. Because Aleshia's contribution to the business is substantial, Rover believes that a $150,000bonus in the current year is reasonable compensation and should be deductible by the corporation. However, Rover is considering payingAleshia a $150,000 dividend because the tax rate on dividends is lower than the tax rate on compensation.Answer the following questions to determine whether Rover is correct in believing that a dividend is the better choice.a. Regarding taxes, which would benefit Aleshia the most?The $150,000 dividend ✔ because after taxes she would have $bonus.b. Regarding taxes, which would benefit Rover Corporation the most?The $150,000 bonus ✔ because it would save Rover $from the dividend and $31,500 ✓in taxes.from thec. Considering the two parties together, which alternative would provide the most overall tax savings?The $150,000 bonus because when the overall effect to both the corporation and the shareholder are considered the net tax savingsis $

Dividend refers to a reward, cash or otherwise, that is provided by a company to its shareholders.…

Answered: Rover Corporation would like to…

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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The Blue Corporation, a C corporation, is owned 100% by Tim Morgan and had taxable income in 2019 of $535,000. Tim is also an employee of the corporation. In December 2019, the corporation has decided to distribute $450,000 to Tim and has asked you whether it would be better to distribute the money as a dividend or salary. Tim, a single taxpayer, is in the 37% marginal tax bracket. How would you respond to Blue Corporation? Consider only income taxes for this problem. (Tim's taxable income exceeds $434,550.) LOADING... Calculate the taxes for Blue and Tim under each option. (For the purpose of this analysis, we will only consider the marginal and capital gain rates for Tim. Ignore additional taxes imposed on high income taxpayers.) Distributed as dividend Distributed as salary Taxes for Blue Taxes for Tim Total tax liability Enter any number in the edit fields and then click Check Answer.…
Xenon, LLC is a partnership, for tax purposes, with a C corporation member. Xenon has three year average annual gross receipts of $24 million from the retail sale of merchandise. Xenon may use the cash method for all purposes of tax reporting, without limitation. Select one: True False Digital Video Recorders is an accrual method taxpayer that uses the calendar year as its tax year. Digital offers customers a refund if they are not satisfied with their products. During X1, 100 customers request a refund of the $500 purchase price. Digital refunds $30,000 on or before September 15, X2. It refunds the remaining $20,000 in October X2. If Digital adopts the recurring item exception with respect to the refunds, economic performance is treated as having occurred in X1 for the $50,000 refunded in X1. Select one: True False No hand written and fast answer with explanation
Eva received $60,000 in compensation payments from JAZZ Corp. during 2020. Eva incurred $5,000 in business expenses relating to her work for JAZZ Corp. JAZZ did not reimburse Eva for any of these expenses. Eva is single and she deducts a standard deduction of $12,400. Based on these facts, answer the following questions: Use Tax Rate Schedule for reference. (Leave no answer blank. Enter zero if applicable.) a. Assume that Eva is considered to be an employee. What amount of FICA taxes is she required to pay for the year?
7.Sam and Devon agree to go into business together selling college-licensed clothing. According to the agreement, Sam will contribute inventory valued at $100,000 in return for 80 percent of the stock in the corporation. Sam’s tax basis in the inventory is $60,000. Devon will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualify as organizational expenditures). The accounting services are valued at $25,000. (Negative amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.) What amount of income gain or loss does Sam realize on the formation of the corporation? What amount, if any, does he recognize? Income Gain or loss realizedIncome Gain or loss recognized
Rick, who is single, has been offered a position as a city landscape consultant. The position pays $147,800 in cash wages. Assume Rick has no dependents. Rick deducts the standard deduction instead of itemized deductions and he is not eligible for the qualified business income deduction. (Use the tax rate schedules.) b-1. Suppose Rick receives a competing job offer of $139,000 in cash compensation and nontaxable (excluded) benefits worth $8,800. What is the amount of Rick’s after-tax compensation for the competing offer?
Casey is in the 12% marginal tax bracket, and Mei is in the 35% marginal tax bracket. Their employer is experiencing financial difficulties and cannot continue to pay for the company's health insurance plan. The annual premiums are approximately $8,000 per employee. The employer has proposed to either (1) require the employee to pay the premiums or (2) reduce each employee's pay by $10,000 per year with the employer paying the premium. Which option is less objectionable to Casey, and which is less objectionable to Mei? Casey would find the less objectionable since she would be "better off" by $fill in the blank 2. Mei would find the less objectionable since she would be"better off" $fill in the blank 4.
Ekiya, who is single, has been offered a position as a city landscape consultant. The position pays $127,400 in wages. Assume Ekiya has no dependents. Ekiya deducts the standard deduction instead of itemized deductions, she is not eligible for the qualified business income deduction, and she did not make any charitable donations. -what is the amount of Ekiya’s after-tax compensation (ignore payroll taxes)? -suppose Ekiya receives a competing job offer of $122,000 in wages and non taxable (excluded) benefits worth $5,400. What is the amount of Ekiyas after tax compensation for the competing offer?
Graham is the sole shareholder of Logan Corporation. For the past five years, Logan has reported little or no taxable income as a result of paying Graham a salary of $500,000 per year. During a recent IRS audit, the revenue agent determined that Graham’s educational and business experience, and his time devoted to managing Logan, justified a salary of only $200,000. Thus, the agent recharacterized $300,000 of the payments from the corporation as a dividend. Assume that all dividends are taxed to the individuals at a 20% tax rate. Required: Calculate the additional income tax liability for Logan as a result of this constructive dividend treatment. Assume Logan's marginal tax rate for the year in question was 34 percent. (Ignore any payroll tax consequences.) What are the tax consequences to Graham as a result of the constructive dividend treatment? Calculate the change in Graham’s income tax liability as a result of this change. Assume that Graham’s marginal tax rate on ordinary…
8. Sam and Devon agree to go into business together selling college-licensed clothing. According to the agreement, Sam will contribute inventory valued at $100,000 in return for 80 percent of the stock in the corporation. Sam’s tax basis in the inventory is $60,000. Devon will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualify as organizational expenditures). The accounting services are valued at $25,000. (Negative amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.) What is Sam’s tax basis in the stock he receives in return for his contribution of property to the corporation?
Eva received $83,000 in compensation payments from JAZZ Corporation during 2022. Eva incurred $16,000 in business expenses relating to her work for JAZZ Corporation JAZZ did not reimburse Eva for any of these expenses. Eva is single and deducts a standard deduction of $12,950. Based on these facts, answer the following questions: Use Tax Rate Schedule for reference. Assume that Eva is considered to be an employee. What amount of FICA taxes is she required to pay for the year? Assume that Eva is considered to be an employee. What is her regular income tax liability for the year? Assume that Eva is considered to be a self-employed contractor. What are her self-employment tax liability and additional Medicare tax liability for the year? Assume that Eva is considered to be a self-employed contractor. What is her regular tax liability for the year?
Lenny is the sole shareholder of an S corporation. Each year, he draws a salary and receives a distribution of profits from the corporation. Which of the following statements is TRUE? Lenny's share of the profits will not be subject to social security or medicare taxes. Lenny's salary will be treated as self-employment income and must be reported on Schedule C. Lenny will pay income taxes only on the portion of the profits that he actually distributes to himself. Lenny may determine his salary by selecting the amount that provides him the greatest tax benefit, regardless of the market rate for the services he provides.

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