Corporate Taxation Assignment

Questions 1
In 2018, Silver Ltd a household goods retail, purchased and placed in service the following assets:

  • Ten delivery vehicles costing $1,500,000 (placed in service on January 15th),
  • five cars costing $250,000 (placed in service on May 1st ),
  • New office furniture for $320,000 (installed on June 13th ),
  • Computers worth $60,000 (placed in service on November 21st ),


  • Which convention should the company use to determine depreciation for 2018? Justify your answer.
  • What is the depreciation expense for each asset purchased by Silver Ltd. to be charged for the first year knowing that it uses 200% declining balance method (round-up to the nearest $)? Justify your answer.
  • On March 15th the company bought and placed in service a new warehouse and the land it resides on. The cost of the purchase was $2,000,000 ($1,200,000 is allocated to the building and the remaining to the land). What is the depreciation expense for the warehouse to be charged for the first year?

Question 2
Horizon Inc. is a kitchen appliances manufacturing business. It has recently embarked on an ambitious modernisation programme of both equipment and products it manufactures. This plan required the disposal of a number of its old assets, the sale of some redundant inventory as well as a restructuring of its investments. The company’s board of directors approved the following:

  1. The sale of an assembly line for $163,800. This machine was purchased 3 years ago for $115,200. The company has already claimed on the machine $48,000 in depreciation.
  2. To discontinue the production of item ZR716G (a handheld mixer). The stock of components used only for the manufacturing of this item was sold to another company for $42,000. This inventory had a basis of $30,000.
  3. Horizon Inc. decided to keep the stocks it owns in Secca Lts (a plastics manufacturer). The share price of the latter moved from $72,000 at the time Horizon bought them to $91,500 at the end of the current year.


  • Determine the gain/loss realised in the current year for each of these decisions.
  • Determine the gain/loss recognised in the current year for each of these decisions.
  • Determine whether the gain/loss recognised will be §1231, capital, or ordinary.

Question 3
C is the managing director and sole shareholder of Andrews Corp, a C corporation.
The company reported a taxable income before paying salary to Mr Mullins of $1,200,000. The company pays Mr Mullins a salary of $180,000.
The marginal tax rate for Mr Mullins on ordinary income is 35.9 percent (including the additional Medicare tax) and 18.8 percent on dividend income (including the 3.8% net investment income).

  • Using an example where appropriate, explain the difference between C corporations and S corporations with respect to double taxation and how the corporation’s decision to pay dividends affect its overall tax.
  • What is the amount of overall tax (corporate level + shareholder level) on Mr Mullins’ pre-salary income? Assume Andrews Corp’s tax rate is 35 percent and the company distributes all after-tax earnings to Mr Mullins.

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