Reference no: EM131248189
Sanya and kriti are interested in organizing a new interior decorating business as 80-20 owners. Sanya will contribute $60,000 in exchange for an 60% ownership interest and kriti will contribute $20,000 for a 20% ownership interest. The business will borrow $30,000 as a working capital loan. Sanya and kriti will both actively manage the interior decorating business, but they will not draw a salary or take distributions during the first two years of operations. The two-year business plan projects a first-year loss of $100,000 and a second-year profit of $50,000. In light of the first year projected loss, Sanya and kriti are considering organizing as either a general partnership or an S corporation. Sanya is in the 35% marginal bracket and kriti is in the 25% marginal bracket in the first and second years of operations.
a. Assuming the business plan projections are accurate in the first year, calculate the first year tax savings to Sanya and Kriti arising from the interior decorating business if the business is organized as a general partnership. Please show your work and explain your calculations.
b. Assuming the business plan projections are accurate in the first year, calculate the first year tax savings to Sanya and Kriti arising from the interior decorating business if the business is organized as an S corporation. Please show your work and explain your calculations.
c. Assuming the business plan projections are accurate in the second year, calculate the second year tax liability to Sanya and Kriti arising from the interior decorating business if the business is organized as a general partnership. Please show your work and explain your calculations. You may ignore payroll taxes for this calculation.
d. Assuming the business plan projections are accurate in the second year, calculate the second year tax liability to Sanya and Kriti arising from the interior decorating business if the business is organized as an S corporation. Please show your work and explain your calculations. You may ignore payroll taxes for this calculation.
e. Assuming the business plan projections are accurate in the first and second year, what would Sanya’s and Kriti’s bases be in their ownership interest at the end of the second year if the interior decorating business was organized as a general partnership? As an S corporation? Please show your work and explain your calculations.
|
Calculate the activity proportions for each cost pool
: Calculate the activity proportions for each cost pool in Carlise’s ABC system Activity Cost Pools Cost Driver Cost Assigned to Pool Quantity/Amount Consumed by Indoor Line Quantity/Amount Consumed by Outdoor Line Materials handling Number of moves $ ..
|
|
Spreadsheet delineating the components of hospital budget
: You have just started as an entry level accountant in your small 20 bed hospital. You need to get the buy in of your board to agree to a project to help your organization stay on the cutting edge; however they don’t understand the concept of budgetin..
|
|
Current manufacturing plan and the proposed plan
: SolarFlex is a small but very innovative manufacturer of cutting-edge solar panels. A significant portion of the company's success is due to technologically superior product design. Compute the contribution margin per unit and the breakeven point in ..
|
|
Nonliquidating distribution
: In 2013, Adrianna contributed land with a basis of $16,000 and a fair market value of $25,000 to the A&I Partnership in exchange for a 25% interest in capital and profits. In 2016, the partnership distributes this property to Isabel, also a 25% partn..
|
|
Assuming the business plan projections are accurate
: Sanya and kriti are interested in organizing a new interior decorating business as 80-20 owners. Sanya will contribute $60,000 in exchange for an 60% ownership interest and kriti will contribute $20,000 for a 20% ownership interest. Assuming the busi..
|
|
Payment for the preparation of her return
: Karen engaged Joe, a CPA, to prepare her tax return. Karen received a refund check of $300 from the IRS. She endorsed the check and mailed it to Joe as payment for the preparation of her return. Joe took the check to his bank and deposited the amount..
|
|
Interco the tax rate is the same as in first quarter 1988.
: The tax rate is the same as in first quarter 1988. Other income and corporate expense is the same as in year ending Feb. 29, 1988. Corporate expense was inferred from Exhibit 8, using interest expense and other income data from Exhibit 7.
|
|
Alternative methods of investment appraisal
: Many businesses around the world still fail because their capital investment decisions are based upon a calculation on the back of an envelope and do not take any of the correct factors into account. Do you agree or disagree? Discuss the alternative ..
|
|
After tax rate of return for the city of vacaville bond
: Mitch invests #200,000 in a city of Vacaville bond that pays 6 percent interet. Alternatively, Melinda could have invested the 200,000 in a bond recently issued by sincething Inc. that pays 8 percent interest with similar risk and other nontax charac..
|