Corporate tax : Project
Project description
Project Introduction:
Lifestyle Corporation: Comprehensive Problem
Course Objectives Tested:
• Analyze income tax requirements of partnerships and corporations.
• Evaluate non-liquidating distributions of corporations.
• Determine additional corporate tax levies.
• Analyze liquidating distributions of corporations.
• Explore corporate acquisitions and reorganizations.
• Evaluate consolidated tax returns of a corporation.
• Evaluate taxation of foreign-related transactions. PROJECT SUBMISSION PLAN
Description/Requirements of Project
Evaluation Criteria
Assessment Preparation Checklist:
• Complete the weekly reading assignment as well as all course readings and notes
• Review all the weekly lessons
• Begin Project in Week 3
• Continue to work on Project in Weeks 4, 5 and 6
• Submit Project in Week 6
Title: Lifestyle Corporation: Comprehensive Problem
The following facts pertain to Lifecycle Corporation.
1. Able owns a parcel of land (land A) having a $30,000 FMV and $16,000 adjusted basis.
2. Baker owns an adjacent parcel of land (land B) having a $20,000 FMV and $22,000 adjusted basis.
3. On January 2, 2011, Able and Baker contribute their parcels of land to newly formed Lifecycle Corporation in exchange for 60% of the
Click here to see how the narrative portion of your project submission will be graded.
Description/Requirements of Project
Evaluation Criteria
corporation’s stock for Able and 40% of the corporation’s stock for Baker.
4. The corporation elects a calendar tax year and the accrual method of accounting.
5. On January 2, 2011, the corporation borrows $2 million and uses the money to build a factory ($1 million), purchase equipment ($500,000), produce inventory ($450,000), pay other operating
expenses ($30,000), and retain working cash ($20,000). Assume the corporation sells all inventory produced and collects on all sales immediately so that the corporation has no accounts
receivable or inventory balances at the end of the year.
6. In 2011, the corporation has no net income or net loss.
7. In 2012, Lifecycle Corporation invests $10,000 of excess cash in Macro Corporation stock (less than 20% ownership) and $20,000 in tax-exempt bonds. Lifecycle receives a $2,000 dividend.
8. Lifecycle sells a portion of the Macro stock for $4,000 that originally cost $3,000 eight months earlier.
9. In addition, the corporation pays Able a $12,000 salary and distributes an additional $42,000 to Able and $28,000 to Baker.
10. The corporation also makes a $100,000 principal payment on the loan.
11. Results of 2012 operations are:
Sales $990,000
Cost of goods sold $500,000
Interest paid on loan $130,000
Depreciation:
Equipment $125,000 ($50,000 for E&P)
Description/Requirements of Project
Evaluation Criteria
Building $25,000 ($25,000 for E&P)
Operating expenses $40,000
Salary paid to Able $12,000
Dividend received on Macro Corp. $2,000
Short-term capital gain $1,000
Tax-exempt interest received $1,500
Charitable contributions $500
12. Of these amounts, qualified production activities income is $158,000. The deduction percentage is 9%.
13. Results of 2013 operations are:
Sales $500,000
Cost of goods sold $280,000
Interest paid on loan $125,000
Depreciation:
Equipment $90,000 ($50,000 for E&P)
Building $25,000 ($25,000 for E&P)
Operating expenses $60,000
Long-term capital gain on sale of
remaining Macro stock $2,000
Long-term capital gain on sale of
tax-exempt bond $1,000
Qualified production activities income is zero.
14. The corporate tax rate for 2012 and 2013 is 35%. Able and Baker are in the 23% tax bracket.
15. What changes to the taxes would occur if in 2011 Lifecycle Corporation had a NOL of $14,000?
16. Lifecycle wants to purchase a piece of equipment for $200,000. It
Description/Requirements of Project
Evaluation Criteria
has the option of paying cash and receiving a 5% deduction in price, or it can finance 100% of it for six years at 1.9%. Which option is the best financial decision to make and why? What would be
the first year’s depreciation expense, assuming this is the only acquisition for the year?
You will use the data above to determine the tax consequences of the corporate formation to Able, Baker, and Lifecycle Corporation.
Submission Requirements:
• Complete and submit 2012 schedules for corporate taxable income, taxes, and E&P activity. Assume that Lifecycle pays its taxes in the same year they accrue, assuming the previous year’s
NOL.
• Complete and submit 2013 schedules for corporate taxable income, taxes, and E&P activity. Assume that Lifecycle pays its taxes in the same year they accrue, assuming the previous year’s
NOL.
• Submit an explanation for line 14.
In a 2 pages Word document, answer the following questions using APA formatting. Assume you are the accountant for Lifecycle Corporation, and Able and Baker come to you with the following
questions. Research these through the ITT Tech Virtual Library or the IRS.gov website.
• Explain how the taxes would be different if the business was a partnership. You do not have to calculate the taxes but rather explain how the process would be different. In addition, answer
the following questions:
o What would be the tax benefits of being a corporation, even with the higher tax rate?
Description/Requirements of Project
Evaluation Criteria
o What are the tax benefits of partnership formation?
o What could we do as a corporation, throughout the year, and minimize our tax liability?
• Font: Arial, 12 point
• Line spacing: double
• Remember to use APA citation formatting
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