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True or False questions: 1. Bob owns a tract of land worth $100,000 with an adjusted basis of $50,000. Bob needs $50,000 to pay for a new house. If Bob elects to borrow $50,000 against the land rather than sell the land, this is a tax recognition event.

True or False questions: 1. Bob owns a tract of land worth $100,000 with an adjusted basis of $50,000. Bob needs $50,000 to pay for a new house. If Bob elects to borrow $50,000 against the land rather than sell the land, this is a tax recognition event.

FINANCIAL ACCOUNTING
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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True or False questions: 1. Bob owns a tract of land worth $100,000 with an adjusted basis of $50,000. Bob needs $50,000 to pay for a new house. If Bob elects to borrow $50,000 against the land rather than sell the land, this is a tax recognition event. 2. Susan, whose marginal tax rate is 35%, is offered the choice of a $10,000 raise in her salary or a $10,000 employer payment toward the costs of her group health insurance as a nontaxable fringe benefit. Susan is probably better off tax-wise to take the health insurance payment by the employer because that, unlike the raise, in not an income recognition event. 3. Even when tax rates are constant, delaying income recognition or accelerating expense recognition can be beneficial.
Transcribed Image Text:True or False questions: 1. Bob owns a tract of land worth $100,000 with an adjusted basis of $50,000. Bob needs $50,000 to pay for a new house. If Bob elects to borrow $50,000 against the land rather than sell the land, this is a tax recognition event. 2. Susan, whose marginal tax rate is 35%, is offered the choice of a $10,000 raise in her salary or a $10,000 employer payment toward the costs of her group health insurance as a nontaxable fringe benefit. Susan is probably better off tax-wise to take the health insurance payment by the employer because that, unlike the raise, in not an income recognition event. 3. Even when tax rates are constant, delaying income recognition or accelerating expense recognition can be beneficial.
4. George is currently in the 39.6% marginal tax bracket. However, he plans to retire on January 15, 2021 on his 40th birthday and has no plans to work for the remainder of 2021. Instead, he intends to live off of his very large non-IRA savings account for the remainder of 2021. He wants to make a large charitable donation to DBU in the near future. Assuming that he will itemize in both years (maybe not the best assumption under current tax law), George will be better off to make the charitable deduction in 2020. Please explain if the answer is false, thank you!
Transcribed Image Text:4. George is currently in the 39.6% marginal tax bracket. However, he plans to retire on January 15, 2021 on his 40th birthday and has no plans to work for the remainder of 2021. Instead, he intends to live off of his very large non-IRA savings account for the remainder of 2021. He wants to make a large charitable donation to DBU in the near future. Assuming that he will itemize in both years (maybe not the best assumption under current tax law), George will be better off to make the charitable deduction in 2020. Please explain if the answer is false, thank you!
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