ACC 307 HW
1. Lynette is the CEO of publicly traded TTT Corporation and earns a salary of $315,000 in the current year.
What is TTT Corporation’s after-tax cost of paying Lynette’s salary excluding FICA taxes?
After tax cost
2. Required information
[The following information applies to the questions displayed below.]
On January 1, year 1, Dave received 3,600 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $23 per share. On receiving the restricted stock, Dave made the 83(b) election. Dave’s restricted shares will vest at the end of year 2. He intends to hold the shares until the end of year 4 when he intends to sell them to help fund the purchase of a new home. Dave predicts the share price of RRK will be $27 per share when his shares vest and will be $52 per share when he sells them. Assume that Dave’s price predictions are correct and answer the following questions: (Leave no answers blank. Enter zero if applicable. Round your final answer to the nearest whole dollar value. Enter all amounts as positive values.)
a. What are Dave’s taxes due if his ordinary marginal rate is 32 percent and his long-term capital gains rate is 15 percent?
Grant date
Vesting date
Sale date
b. If Dave’s stock price predictions are correct, What are the tax consequences of these transactions to RRK?
Grant date
Vesting date
Sale date
3. Seiko’s current salary is $105,000. Her marginal tax rate is 32 percent and she fancies European sports cars. She purchases a new auto each year. Seiko is currently a manager for Idaho Office Supply. Her friend, knowing of her interest in sports cars, tells her about a manager position at the local BMW and Porsche dealer. The new position pays only $90,100 per year, but it allows employees to purchase one new car per year at a discount of $19,900. This discount qualifies as a nontaxable fringe benefit. In an effort to keep Seiko as an employee, Idaho Office Supply offers her a $12,100 raise. Answer the following questions about this analysis.
a. What is the annual after-tax cost to Idaho Office Supply if it provides Seiko with the $12,100 increase in salary? After tax cost?
b-1. Financially, which offer is better for Seiko on an after-tax basis?
b.
Car dealer's offer
c.
Current employer's offer
d.
Both offers
e. b-2. By how much is the offer better for Seiko on an after tax basis (Assume that Seiko is going to purchase the new car whether she switches jobs or not.)
Offer is better by?
c. What before-tax salary would Seiko need to receive from Idaho Office Supply to make her financially indifferent (after taxes) between receiving additional salary from Idaho Office Supply and accepting a position at the auto dealership? Salary needed?
4. Meg works for Freedom Airlines in the accounts payable department. Meg and all other employees receive free flight benefits (for the employee, family, and 10 free buddy passes for friends per year) as part of its employee benefits package. If Meg uses 35 flights with a value of $15,855 this year, how much must she include in her compensation this year? Amount included?
5. Jarvie loves to bike. In fact, he has always turned down better-paying jobs to work in bicycle shops where he gets an employee discount. At Jarvie’s current shop, Bad Dog Cycles, each employee is allowed to purchase four bicycles a year at a discount. Bad Dog has an average gross profit percentage on bicycles of 25 percent. During the current year, Jarvie bought the following bikes:
|
Description |
Retail Price |
Cost |
Employee Price |
|||
|
Specialized road bike |
$ |
7,100 |
$ |
4,750 |
$ |
4,970 |
|
Rocky Mountain mountain bike |
|
6,100 |
|
5,300 |
|
4,880 |
|
Trek road bike |
|
3,700 |
|
2,740 |
|
2,590 |
|
Yeti mountain bike |
|
5,200 |
|
4,710 |
|
4,160 |
a. What amount is Jarvie required to include in taxable income from these purchases? Amount to be included?