Question 1: Mabel and Alan, who are in the 35% tax bracket, recently acquired a fast-food franchise. Each of them will work in the business and receive a salary of $175,000. They anticipate that the annual profits of the business, after deducting salaries, will be approximate $450,000.
The entity will distribute enough cash each year to Mabel and Alan to cover their Federal income taxes associated with the franchise.
a. What amount will the entity distribute if the franchise operates as a C corporation?
b. What amount will the entity distribute if the franchise operates as a S corporation?
c. What will be the amount of the combined entity/owner tax liability in (a) and (b)?
Question 2: Kantner, Inc., is a domestic corporation with the following balance sheet for book and tax purposes at the end of the year. Based on this information, determine Kantner's net deferred tax asset or net deferred tax liability at year-end Assume a 34% corporate tax rate and no valuation allowance.
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Tax Debit/(Credit)
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Book Debit/
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(Credit)
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Assets
|
|
|
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Cash
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$1,000
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$1,000
|
|
Accounts receivable
|
9,000
|
9,000
|
|
Buildings
|
850,000
|
850,000
|
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Accumulated depreciation
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-700,000
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-620,000
|
|
Furniture & Fixtures
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40,000
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40,000
|
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Accumulated depreciation
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-10,000
|
-8,000
|
|
Total assets
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$190,000
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$272,000
|
|
Liabilities
|
|
|
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Accrued warranty expense
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$ - 0 -
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($40,000)
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Note payable
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-16,000
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-16,000
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Total Liabilities
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($16,000)
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($56,000)
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Stockholders' Equity
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|
|
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Paid-in capital
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($50,000)
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($50,000)
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Retained earnings
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($124,000)
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-166,000
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Total liabilities and stockholders'equity
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($190,000)
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($272,000)
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