Question 1
INDIVIDUAL TAX RETURN PROBLEM 5 Required: Use the following information to complete Paul and Judy Vance's 2011 federal income tax return. If information is missing, use reasonable assumptions to fill in the gaps. You may need the following forms and schedules to complete the project: Form 1040, Schedule A, Schedule B, Schedule C, Schedule D, Schedule E, Schedule SE, Form 2106-EZ, Form 4562 (for the dental practice), Form 4562 (for the rental property), Form 4797, and Form 8863. The forms, schedules, and instructions can be found at the IRS Web site (www.irs.gov). The instructions can be helpful in completing the forms. Facts: Paul J. and Judy L. Vance are married and file a joint return. Paul is self-employed as a dentist, and Judy is a college professor. Paul and Judy have three children. The oldest is Vince who lives at home. Vince is a law student at the University of Cincinnati and worked part-time during the year, earning $1,500, which he spent for his own support. Paul and Judy provided $6,000 toward Vince's support (including $4,000 for Vince's fall tuition). They also provided over half the support of their daughter, Joan, who is a full-time student at Edgecliff College in Cincinnati. Joan worked part-time as an independent contractor during the year, earning $3,200. Joan lived at home until she was married in December 2011. She filed a joint return with her husband, Patrick, who earned $20,000 during the year. Jennifer is the youngest and lived in the Vances' home for the entire year. The Vances provide you with the following additional information: Paul and Judy would like to take advantage on their return of any educational expenses paid for their children. The Vances do not want to contribute to the presidential election campaign. The Vances live at 621 Franklin Avenue, Cincinnati, OH 45211. Paul's birthday is 3/5/1957 and his Social Security number is 333-45-6666. Judy's birthday is 4/24/1960 and her Social Security number is 566-77-8888. Vince's birthday is 11/6/1988 and his Social Security number is 576-18-7928. Joan's birthday is 2/1/1992 and her Social Security number is 575-92-4321. Jennifer's birthday is 12/12/1999 and her Social Security number is 613-97-8465. The Vances do not have any foreign bank accounts or trusts. Judy is a lecturer at Xavier University in Cincinnati, where she earned $30,000. The university withheld federal income tax of $3,375, state income tax of $900, Cincinnati city income tax of $375, $1,260 of Social Security tax and $435 of Medicare tax. She also worked part of the year for Delta Airlines. Delta paid her $10,000 in salary, and withheld federal income tax of $1,125, state income tax of $300, Cincinnati city income tax of $125, Social Security tax of $420, and Medicare tax of $145. The Vances received $800 of interest from State Savings Bank on a joint account. They received interest of $1,000 on City of Cincinnati bonds they bought in January with the proceeds of a loan from Third National Bank of Cincinnati. They paid interest of $1,100 on the loan. Paul received a dividend of $540 on General Bicycle Corporation stock he owns. Judy received a dividend of $390 on Acme Clothing Corporation stock she owns. Paul and Judy received a dividend of $865 on jointly owned stock in Maple Company. All of the dividends received in 2011 are qualified dividends. Paul practices under the name ?Paul J. Vance, DDS.? His business is located at 645 West Avenue, Cincinnati, OH 45211, and his employer identification number is 01-2222222. Paul's gross receipts during the year were $111,000. Paul uses the cash method of accounting for his business. Paul's business expenses are as follows: Advertising $?1,200 Professional dues 490 Professional journals 360 Contributions to employee benefit plans 2,000 Malpractice insurance 3,200 Fine for overbilling State of Ohio for work performed on welfare patient 5,000 Insurance on office contents 720 Interest on money borrowed to refurbish office 600 Accounting services 2,100 Miscellaneous office expense 388 Office rent 12,000 Dental supplies 7,672 Utilities and telephone 3,360 Wages 30,000 Payroll taxes 2,400 In June, Paul decided to refurbish his office. This project was completed and the assets placed in service on July 1. Paul's expenditures included $8,000 for new office furniture, $6,000 for new dental equipment (seven-year recovery period), and $2,000 for a new computer. Paul elected to compute his cost recovery allowance using MACRS. He did not elect to use ?179 immediate expensing, and he chose to not claim any bonus depreciation. Judy's mother, Sarah, died on July 2, 2006, leaving Judy her entire estate. Included in the estate was Sarah's residence (325 Oak Street, Cincinnati, OH 45211). Sarah's basis in the residence was $30,000. The fair market value of the residence on July 2, 2006, was $155,000. The property was distributed to Judy on January 1, 2007. The Vances have held the property as rental property and have managed it themselves. From 2007 until June 30, 2011, they rented the house to the same tenant. The tenant was transferred to a branch office in California and moved out at the end of June. Since they did not want to bother finding a new tenant, Paul and Judy sold the house on June 30, 2011. They received $140,000 for the house and land ($15,000 for the land and $125,000 for the house), less a 6 percent commission charged by the broker. They had depreciated the house using the MACRS rules and conventions applicable to residential real estate. To compute depreciation on the house, the Vances had allocated $15,000 of the property's basis to the land on which the house is located. The Vances collected rent of $1,000 a month during the six months the house was occupied during the year. They incurred the following related expenses during this period: Property insurance $500 Property taxes 800 Maintenance 465 Depreciation (to be computed) ? The Vances sold 200 shares of Capp Corporation stock on September 3, 2011, for $42 a share (minus a $50 commission). The Vances received the stock from Paul's father on June 25, 1980, as a wedding present. Paul's father originally purchased the stock for $10 per share in 1967. The stock was valued at $14.50 per share on the date of the gift. No gift tax was paid on the gift. Judy is required by Xavier University to visit several high schools in the Cincinnati area to evaluate Xavier University students who are doing their practice teaching. However, she is not reimbursed for the expenses she incurs in doing this. During the spring semester (January through April 2011), she drove her personal automobile 6,800 miles in fulfilling this obligation. Judy drove an additional 6,700 personal miles during 2011. She has been using the car since June 30, 2010. Judy uses the standard mileage method to calculate her car expenses. Paul and Judy have given you a file containing the following receipts for expenditures during the year: Prescription medicine and drugs (net of insurance reimbursement) $?376 Doctor and hospital bills (net of insurance reimbursement) 2,468 Penalty for underpayment of last year's state income tax 15 Real estate taxes on personal residence 4,762 Interest on home mortgage (paid to Home State Savings & Loan) 8,250 Interest on credit cards (consumer purchases) 595 Cash contribution to St. Matthew's church 3,080 Payroll deductions for Judy's contributions to the United Way 150 Professional dues (Judy) 325 Professional subscriptions (Judy) 245 Fee for preparation of 2010 tax return paid April 14, 2011 500 The Vances filed their 2010 federal, state, and local returns on April 14, 2011. They paid the following additional 2010 taxes with their returns: federal income taxes of $630, state income taxes of $250, and city income taxes of $75. The Vances made timely estimated federal income tax payments of $1,500 each quarter during 2011. They also made estimated state income tax payments of $300 each quarter and estimated city income tax payments of $160 each quarter. The Vances made all fourth-quarter payments on December 31, 2011. They would like to receive a refund for any overpayments.
Question 3
Of Redbird?s sales, 20% is for cash, another 60% is collected in the month following sale, and 20 percent is collected in the second month following sale. November and December sales for 20X1 were $220,000 and $175,000, respectively. Redbird purchases its raw materials two months in advance of its sales equal to 70% of its final sales price. The supplier is paid one month after it makes delivery. For example, purchases for April sales are made in February, and payment is made in March. In addition, Redbird pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments for $23,000 are made each quarter beginning in March. The company?s cash balance at December 31, 20X1, was $22,000; a minimum balance of $20,000 must be maintained at all times. Assume that any short-term financing needed to maintain cash balance would be paid off in the month following the month of financing if sufficient funds are available. Interest on short-term loans (12%) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if in the month of April the firm expects to have a need for an additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 x 1/12 x $60,500) owed for April and paid at the beginning of May. January $100,000 May $275,000 February $110,000 June $250,000 March $130,000 July $235,000 April $250,000 August $160,000 Prepare a cash budget for Redbird covering the first seven months of 2010. They have $100,000 in notes payable due in July that must be repaid, or an extension renegotiated. Will they be able to pay off the notes? What are the external funding needs, or how much can they pay back?
Question 4
505 Course Project B Assignments The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchasing them. The equipment needed would cost $200,000, with a disposal value of $40,000, and it would be able to produce 5,500,000 cans over the life of the machinery. The production department estimates that approximately 1,100,000 cans would be needed for each of the next five years. The company would hire three new employees. These three individuals would be full-time employees working 2,000 hours per year and earning $12.00 per hour. They would also receive the same benefits as other production employees, 18% of wages, in addition to $2,500 of health benefits. It is estimated that the raw materials will cost 25? per can and that other variable costs would be 5? per can. Since there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted. It is expected that cans would cost 45? each if purchased from the current supplier. The company's minimum rate of return (hurdle rate) has been determined to be 12% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for a gallon of paint, as well as the number of units sold, will not be affected by this decision. The unit-of-production depreciation method would be used if the new equipment is purchased. Required: 1. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase: o Annual cash flows over the expected life of the equipment o Payback period o Annual rate of return o Net present value o Internal rate of return 2. Would you recommend the acceptance of this proposal? Why or why not? Prepare a short double-spaced Word paper elaborating and supporting your answer.
Question 5
Nuclear plant staffing problem) South Central Utilities has just announced the August 1 opening its second nuclear generator at its Baton Rou, Louisiana, nuclear power plant. Its personnel department has been directed to determine how many nuclear technicians need to be hired and trained the remainder of the year. The plant currently employs 350 fully trained technicians and projects the following personnel needs: MONTH PERSONNEL HOURS NEEDED August 40,000 September 45,000 October 35,000 November 50,000 December 45,000 By Louisiana law, a reactor employee can actually work no more than 130 hours per month. (Slightly over one hour per day is used for check-in and checkout, recordkeeping, and for daily radiation health scans.) Policy at South Central Utilities also dictates that layoffs are not acceptable in those months when the nuclear plant is overstaffed. So, if more trained employees are available than are needed in any month, each worker is still fully paid, even though It or she is not required to work the 130 hours. Training new employees is an importantly costly procedure. It takes one month of one-to-one classroom instruction before a new technician is permitted to work alone in the reactor facility. Therefore South Central must hire trainees one month before they are actually needed. Each trainee teams up with a skilled nuclear technician and requires 90 hours of that employee's time, meaning that 90 hours less of the technician's time are available that month for actual reactor work. Personnel department records indicate a turnover rate of trained technicians at 5% per month. In other words, about 5% of the skilled employees at the start of any month resign by the end of that month. A trained technician earns an average monthly salary of $2,000 (regardless of the number of hours worked, as noted earlier). Trainees are paid $900 during their one month of instruction. (a) Formulate this staffing problem using LP. (b) Solve the problem. How many trainees must begin each month?
