10. Arlington LLC traded machinery used in its business to a machinery dealer fo
ID: 2411708 • Letter: 1
Question
10. Arlington LLC traded machinery used in its business to a machinery dealer for some new machinery. Arlington originally purchased the machinery for $62,000 and it had an adjusted basis of $29,000 at the time of the exchange. The new machinery had a fair market value of $35,500. Arlington also received $3,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?
MULTIPLE CHOICE
$0
$3,000
$6,500
$9,500
None of the choices are correct
11. Maren received 11 NQOs (each option gives her the right to purchase 11 shares of stock for $9 per share) at the time she started working when the stock price was $7 per share. When the share price was $16 per share, she exercised all of her options. Eighteen months later s he sold all of the shares for $21 per share. What is the amount of Maren's bargain element?
MULTIPLE CHOICE
$0
$847
$1,089
$1,936
None of these choices are correct
12. Grace's employer is now offering group-term life insurance. The company will provide each employee with $205,000 of group-term life insurance. It costs Grace's employer $920 to provide this amount of insurance to Grace each year. Assuming that Grace is 45 years old, use the table to determine the monthly premium that Grace must include in income as a result of receiving the group-term life benefit.
EXHIBIT 12-10 Uniform Premiums for $1,000 of Group-Term Life Insurance Protection
5-Year Age Bracket
Cost per $1,000 of Protection for One Month
Under 25
$0.05
25 to 29
0.06
30 to 34
0.08
35 to 39
0.09
40 to 44
0.10
45 to 49
0.15
50 to 54
0.23
55 to 59
0.43
60 to 64
0.66
65 to 69
1.27
70 and above
2.06
MULTIPLE CHOICE
$0
$23.25
$34.05
$73.80
5-Year Age Bracket
Cost per $1,000 of Protection for One Month
Under 25
$0.05
25 to 29
0.06
30 to 34
0.08
35 to 39
0.09
40 to 44
0.10
45 to 49
0.15
50 to 54
0.23
55 to 59
0.43
60 to 64
0.66
65 to 69
1.27
70 and above
2.06
Explanation / Answer
10.Arilngton’s gain or loss on exchange (involving boot):
Step-1: Accounting treatment
Step-2: Applying to current situation:
Particulars
Amount (in $)
Fair market value of new asset
35500
Add: value of boot received
3000
Less: Machinery adjusted base
(29000)
Realised gain
9500
Step-3: Conclusion:
11. Step-1: Calculation of Bargain element:
No of share options received
No of shares per option
No of shares (11*11=121)
121 Shares
Market Price at the time of exercise
Option of share purchage rate
Bar Gain (121*$(16-9)=847
Step-2: Conclusion: Answer-$847
12.Step-1: Pre-Requisites:
Step-2: Calculation of Monthly Premium
Particulars
Note
Amount (in$)
Group Life Insurance amount
205000
Tax free benefit limit
50000
Taxable amount
($205000-$50,000)
155000
Monthly Premium
1000
No of Years
155000/1000=155
155 Years
Cost per $1000
Exhibit 12-10
.15
Monthly Premium
155*.15
23.25
Particulars
Amount (in $)
Fair market value of new asset
35500
Add: value of boot received
3000
Less: Machinery adjusted base
(29000)
Realised gain
9500
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