Problem 1 - Robert decided not to ?le his return on April 15 because he knew that he could not pay the balance due. He files his return on August 3, paying the full $4,000 balance. What are Robert's expected late-payment/late-filing penalties?
Problem 2 - Jessica plans to invest $150,000 in a second business. She expects to generate a 12 percent before-tax return on her investment the first year. Her marginal tax rate is 25 percent due to the income from her other business. She needs to decide whether to establish this second business as a sole proprietorship or a C corporation.
a. Compute the after-tax cash flow from a sole proprietorship if she withdraws 50 percent of the profits from the business the first year. (Ignore employment taxes.)
b. Compute the after-tax cash flow from a C corporation if she receives a dividend equal to 50 percent of the before-tax profits from the business the first year.
c. What nontax factors should Jessica consider in making this decision?
d. What do you recommend?
Problem 3 - On December 1, year 1, Peak Advertising (a calendar-year, accrual-basis taxpayer) received a $24,000 retainer fee for a two-year service contract. a. How much income should Peak report in year 1 for tax and financial accounting? b. How much income should Peak report in year 2 for tax and financial accounting? c. How much income should Peak report in year 3 for tax and financial accounting?
Problem 4 - In year 1, Highrise Company contracts to manufacture a piece of customized equipment for a customer. The contract will take two years to complete. The contract price is $250,000 and the company estimates total costs of $220,000. Actual costs incurred are: Year 1$121,000Year 2 105,000$226,000 What are the company's gross income and deductions recognized in each of the two years, assuming the company uses (1) the completed contract method and (2) the percentage-of-completion method of accounting for long-term contracts?