Click here to get an A+ paper at a Discount
44. 4 Amber, a publicly held corporation (not a TARP recipient), currently pays its president an annual salary of $900,000. In addition, it contributes $20,000 annually to a defined contribution pension plan for him. As a means of increasing company profitability, the board of directors decides to increase the president’s compensation. Two proposals are being considered. Under the first proposal, the salary and pension contribution for the president would be increased by 30%. Under the second proposal,
Need a Professional Writer to Work on this Paper and Give you Original Paper? CLICK HERE TO GET THIS PAPER WRITTEN
Amber would implement a performance-based compensation program that is projected to provide about the same amount of additional compensation and pension contribution for the president.
a. Evaluate the alternatives from the perspective of Amber, Inc.
b. Prepare a letter to Amber’s board of directors that contains your recommendations.
Address the letter to the board chairperson, Agnes Riddle, whose address is 100
James Tower, Cleveland, OH 44106.
45. LO.3 Vermillion, Inc., a publicly held corporation (not a TARP recipient), pays the following salaries to its executives:
Salary Bonus Retirement Plan Contribution
CEO $2,000,000 $100,000 $80,000
Executive vice president 1,800,000 90,000 72,000
Treasurer 1,600,000 –0– 64,000
Marketing vice president 1,500,000 75,000 60,000
Operations vice president 1,400,000 70,000 56,000
Distribution vice president 1,200,000 60,000 48,000
Research vice president 1,100,000 –0– 44,000
Controller 800,000 –0– 32,000
Vermillion normally does not pay bonuses, but after reviewing the results of operations for the year, the board of directors decided to pay a 5% bonus to selected executives.
What is the amount of these payments that Vermillion may deduct?
46. LO.3 Nancy, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $35,000 of expenses associated with this investigation. Based on the regulatory environment for hotels in the city, she decides not to expand. During the year, she also investigates opening a restaurant that will be part of a national restaurant chain. Her expenses for this are $53,000. The restaurant begins operations on September 1. Determine the amount that Nancy can deduct in the current year for investigating these two businesses.
47. LO.3 Terry traveled to a neighboring state to investigate the purchase of two hardware stores. His expenses included travel, legal, accounting, and miscellaneous expenses. The total was $52,000. He incurred the expenses in June and July 2013. Under the following circumstances, what can Terry deduct in 2013?
a. Terry was in the hardware store business and did not acquire the two hardware stores.
b. Terry was in the hardware store business and acquired the two hardware stores and began operating them on October 1, 2013.
c. Terry did not acquire the two hardware stores and was not in the hardware store business.
d. Terry acquired the two hardware stores but was not in the hardware store business when he acquired them. Operations began on October 1, 2013.
48. LO.3 Alex, who is single, conducts an activity that is appropriately classified as a hobby.
The activity produces the following revenues and expenses:
Revenue $18,000
Property taxes 3,000
Materials and supplies 4,500
Utilities 2,000
Advertising 5,000
Insurance 750
Depreciation 4,000
Without regard to this activity, Alex’s AGI is $42,000. Determine the amount of income
Alex must report, the amount of the expenses he is permitted to deduct, and his taxable income.
49. LO.3 Samantha, an executive, has AGI of $100,000 before considering income or loss from her miniature horse business. Her outside income comes from prizes for winning horse shows, stud fees, and sales of yearlings. Samantha’s home is on 20 acres, half of which she uses for the horse activity (i.e., stables, paddocks, fences, tack houses, and other related improvements).
Samantha’s office in her home is 10% of the square footage of the house. She uses the office exclusively for maintaining files and records on the horse activities. Her books show the following income and expenses for the current year:
Income from fees, prizes, and sales $22,000
Expenses
Entry fees 1,000
Feed and veterinary bills 4,000
Supplies 900
Publications and dues 500
Travel to horse shows (no meals) 2,300
Salaries and wages of employees 8,000
Depreciation—
Horse equipment $3,000
Horse farm improvements 7,000
On 10% of personal residence 1,000 11,000
Total home mortgage interest 24,000
Total property taxes on home 2,200
Total property taxes on horse farm improvements 800
The mortgage interest is only on her home because the horse farm improvements are not mortgaged.
a. What are Samantha’s tax consequences if the miniature horse activity is a hobby?
b. If it is a business?
