answer a questions

1. After working in accounting for fifteen years, you and two friends have decided, you would really like to start your own firm. Some of the initial consultations you have had in your meetings have brought up a number of issues. Please answer the following issues being brought up.

a. You are trying to decide what kind of entity you want to use for your business. You have the option of using the C-Corporation or the Partnership. Which entity would you argue to use and provide at least three reasons in support of this choice and one potential problem you might have for this choice? (10pts)

b. You all are trying to decide whether you want to use a cash method or accrual method of accounting for your business. Please provide three reasons in support of accrual methods and three in support of cash methods of accounting. (6Pts)

c. Discuss five different kinds of Ordinary and Necessary Business expenses and list two, which might be ordinary and necessary, but are nondeductible under the law (fully or partially). (14pts)

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2. You have a client and they formed a corporation with 5 of their friends. All of the people were required to put in $50,000 or assets valued at the same into the company, but only 1 was going to work full time for the company (and also put in $50,000). What is the tax effect to the contributors and what rate would they be taxed at for this transaction? (10Pts)

3. A-Co, Inc has acquired a 40% interest in New-Co, Inc. as a result of its deal exiting out of the Northeastern market. New-Co, Inc. operates in the Southwest, where A-Co, Inc. is seeking to expand its operations of fast food chains. New-Co is expecting to pay out dividends at around $1 million each year, as it has done so in previous years (of which A-Co will receive 40%).

a. What is the dividends received deduction (percentage and actual amount assuming the 1 million dividends holds). (5Pts)

b. What code section is the primary source of the dividends received deduction? (5Pts)

4. What are five common book to tax differences in determining tax income from book income? (5Pts)

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5. During 2020, Sienar Systems, Inc purchased Correalian Drives, Inc. (one of its suppliers) using the assets method. As a part of this business, it was determined the company purchased 1,200,000 of Goodwill. In 2022, it was determined the goodwill was impaired to the tune of about $200,000.

a. How much is the book to tax difference with this purchase in 2020 and is it temporary or permanent? (5Pts)

b. What is the book effect of the impairment in 2022? (5Pts)

c. What is the book to tax difference of the impairment? Is it temporary or permanent? (5Pts)

6. In 2020, Bespin Gas Systems, Inc (a C-Corporation), made a charitable donation of $100,000 to the Wookie Relief Fund (a qualifying charity). For 2020, they reported net income of $550,000, which included the $100,000 donation, a $50,000 dividends received deduction and a $10,000 Net Operating Loss carryover, from the previous year.

a. What is the permitted charitable deduction allowed in 2020? (5Pts)

b. What is the effect of the remaining amount (both amount and time of the carryover). (5Pts)

7. Kevin, Gerald and Robb formed HyperTech Systems, LLC. No election was made as to the status of this entity, as they wanted to leave it as a partnership. Kevin and Robb contributed $245,000 cash to the partnership. Gerald contributed the following assets:

a. What is the tax basis of Kevin and Robb in the partnership? (5Pts)

b. Assume Gerald is asking for an equal part in the partnership in terms of capital? What will be the tax effects to Gerald? (5Pts)

c. Assume Gerald is asking for an equal share in the partnership in terms of profits and losses only. What are the tax effect to Kevin, Robb and Gerald? (5Pts)

8. Compute the M-1 for the Mandellian Corporation’s 2020 tax year based on the information below. You will start out using the book income of $300,000 as modified below. (The completion of the M-1 will be the calculated taxable income; I also recommend an Excel sheet to complete this). (15pts)

· Gross Profit from sale of services of $750,000 (no book-to-tax difference)

· Dividends received from 25% owned corporation of $100,000 (assume this is the pro rata share of the distributing corporation’s earnings).

· Expenses other than DRD, Charitable contributions and the NOL from 2019, $400,000. (no book-to-tax difference on this expense)

· NOL Carryover from 2019 $50,000

· Cash charitable contribution of $150,000

9. Jack, Jill and James own a CPA firm (Smith, Smith, Bond and Co., LLC), which is taxed as a partnership, and where each work full-time. Each contributed cash of $100,000 to the firm in 2019 at its beginning. The firm in the first year made $40,000 in profit in its first year. Profits and losses are split three ways.

The partnership has the following forms of debt:

Nonrecourse: $30,000

Recourse: $150,000 (The recourse debt was secured 100% by James)

Qualified Nonrecourse Mortgage: $600,000

a. Calculate the total basis (including debt basis) for each partner. (5Pts)

b. Calculate the at-risk amount limitation (5Pts)

c. Calculate the passive loss limitation for each partner. (5Pts)

10. Cadillac Square Corporation determined that $1,000,000 of its research tax credit on its current-year tax return was uncertain but that it was more likely than not to be sustained on audit. Management made the following assessment of the company’s potential tax benefit from the deduction and its probability of occurring:

What is the amount Cadillac can recognize in calculating its income tax provision in the current year?

11. You are at a cocktail party after the end of the year and at the table at which you are sitting, the VP of Sales is sitting there. He is complaining that everytime he gets into a financial meeting with the other VPs and the VP of Finance is always talking about things that don’t make sense. You look over to the table where the VP of Finance is and notice he is in no condition to explain accounting to anyone (too much celebrating after closing the books for the fiscal year). Try to explain the difference in the following terms to her (the VP of Sales).

a. Deferred Tax Asset and Deferred Tax Liability

b. Permanent Book-Tax Difference and Temporary Book-Tax Difference