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 )
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?
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:
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.
- 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.
- 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.
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.