Chapter 16, Problem 16.7E

Julio and Milania are owners of Falcons Corporation, an S corporation. Each owns 50 percent of Falcons Corporation. In year 1, Julio and Milania each received distributions of $10,000 from Falcons Corporation. Falcons Corporation (an S Corporation) Income Statement December 31, Year 1 and Year 2   Year 1 Year 2 Sales revenue $ 340,000 $ 470,000 Cost of goods sold (42,000) (64,000) Salary to owners Julio and Milania (40,000) (80,000) Employee wages (30,000) (60,000) Depreciation expense (20,000) (40,000) Section 179 expense (30,000) (50,000) Interest income (related to business income) 10,000 18,500 Municipal bond income 1,200 3,400 Government fines 0 (1,000) Overall net income $ 189,200 $ 196,900 Distributions $ 20,000 $ 50,000   a. What amount of ordinary income and separately stated items are allocated to them for year 1 based on the information above? Assume that Falcons Corporation has $240,000 of qualified property (unadjusted basis).

Jones is seriously ill and has $5.20 million of property that he wants to leave to his four children. Jones is considering making a current gift of the property (rather than leaving the property to pass through a will). Assume all of his exemption equivalent was used and any taxable transfers will be subject to the highest transfer tax rate. (Refer to Exhibit 25-1 and Exhibit 25-2.) a-1. Determine how much gift tax Jones will owe if the transfers are made now. a-2. If Jones makes a current gift, how much estate tax will be saved if Jones dies after three years, during which time the property appreciates to $5.6 million? Note: For all requirements, enter your answers in dollars and not in millions of dollars.   EXHIBIT 25-1 Unified Transfer Tax Rates* Tax Base Equal to or Over Not Over Tentative Tax Plus of Amount Over $       0 $10,000 $     0    18% $      0 10,000 20,000 1,800 20 10,000 20,000 40,000 3,800 22 20,000 40,000 60,000 8,200 24 40,000 60,000 80,000 13,000 26…

Julio and Milania are owners of Falcons Corporation, an S corporation. Each owns 50 percent of Falcons Corporation. In year 2, Julio and Milania each received distributions of $25,000 from Falcons Corporation. Falcons Corporation (an S Corporation) Income Statement December 31, Year 1 and Year 2   Year 1 Year 2 Sales revenue $ 300,000 $ 430,000 Cost of goods sold (40,000) (60,000) Salary to owners Julio and Milania (40,000) (80,000) Employee wages (25,000) (50,000) Depreciation expense (20,000) (40,000) Section 179 expense (30,000) (50,000) Interest income (related to business income) 12,000 22,500 Municipal bond income 1,500 4,000 Government fines 0 (2,000) Overall net income $ 158,500 $ 174,500 Distributions $ 30,000 $ 50,000   a. What amount of ordinary income and separately stated items are allocated to them for year 2 based on the information above? Assume that Falcons Corporation has $200,000 of qualified property (unadjusted basis).