1. Big Bucks, a publicly traded corporation, paid its CEO $1,650,000 of base com
ID: 2600936 • Letter: 1
Question
1. Big Bucks, a publicly traded corporation, paid its CEO $1,650,000 of base compensation for the year. What is the after-tax cost of paying the salary assuming a 30 percent marginal tax rate?
2. Sequoia purchased the rights to cut timber on several tracts of land over a fifteen-year period. It paid $510,000 for cutting rights. A timber engineer estimates that 510,000 board feet of timber will be cut. During the current year, Sequoia cut 55,000 board feet of timber, which it sold for $910,000. What is Sequoia's cost depletion expense for the current year?
3. Suzanne received 20 ISOs (each option gives her the right to purchase 20 shares of stock for $12 per share) at the time she started working when the stock price was $13 per share. Three years later, when the share price was $23 per share, she exercised all of her options. If Suzanne holds the shares for ten additional months and sells them when the market price is $30, how much gain will Suzanne recognize on the sale and how much tax will she pay assuming her marginal tax rate is 35 percent?
4.. Sunshine LLC sold furniture for $75,500. Sunshine bought the furniture for $89,900 several years ago and has claimed $24,950 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?
Explanation / Answer
1. After-tax cost of paying the salary = $1650000 x (1- 0.30) = $1155000
2. Cost depletion expense for the current year = ($510000/ 510000) x 55000 = $55000
3.
4. Tax basis of furniture = Purchase price - Depreciation expense
= $89900 - $24950 = $64950
The amount of gain is $10550. It is long-term capital gain.
Amount realized on sale (400 shares x $30) $12000 Less: Tax basis (400 shares x $12) (4800) Gain on sale of shares $7200 Preferential Tax rate 15% Tax payable (7200 x 15%) $1080Related Questions
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