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ACC/307 ACC307 ACC 307 WEEK 9 HOMEWORK 1

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ACC 307 WEEK 9 HOMEWORK 1 Chapter 12 Homework 1. Problem 12-26 (LO 12-1) Lynette is the CEO of publicly traded TTT Corporation and earns a salary of $200,000 in the current year. Assume TTT has a 35 percent marginal tax rate. a. What is TTT Corporation’s after-tax cost of paying Lynette’s salary? After-tax cost $130,000 2. Problem 12-33 (LO 12-2) Antonio received 40 ISOs (each option gives him the right to purchase 20 shares of Zorro stock for $3 per share) at the time he started working for Zorro Corporation six years ago. Zorro’s stock price was $3 per share at the time. Now that Zorro’s stock price is $50 per share, he intends to exercise all of his options and immediately sell all the shares he receives from the options exercise. (Input all amounts as positive values.) a. What are Antonio’s taxes due on the grant date, the exercise date, and the date the shares are sold, assuming his ordinary marginal rate is 30 percent and his long-term capital gains rate is 15 percent?(Leave no answer blank. Enter zero if applicable.) Taxes Due Grant date $0 Exercise date & sale date $11,280 b. What are Zorro’s tax consequences on the grant date, the exercise date, and the date Antonio sells the shares assuming its marginal tax rate is 25 percent? (Leave no answer blank. Enter zero if applicable.) Tax Benefit Grant date $0 Exercise date & sale date $9,400 c. What are the cash flow effects of these transactions to Antonio, assuming his ordinary marginal rate is 25 percent and his long-term capital gains rate is 15 percent? (Leave no answer blank. Enter zero if applicable.) Cash Flow Consequences Grant date $0 None of these Exercise date & sale date $28,200 Net cash inflow d. What are the cash flow effects to Zorro Corporation resulting from Antonio’s option exercise if Zorro’s marginal tax rate is 35 percent? (Leave no answer blank. Enter zero if applicable.) Cash Flow Consequences Grant date $0 None of these Exercise date & sale date $15,560 Cash inflow 3. Problem 12-44 (LO 12-1, LO 12-3) JDD Corporation provides the following benefits to its employee, Ahmed (age 47): Salary $ 300,000 Health insurance 10,000 Dental insurance 2,000 Life insurance 3,000 Dependent care 5,000 Professional dues 500 Personal use of company jet 200,000 ________________________________________ Assume the life insurance is a group-term life insurance policy that provides $200,000 of coverage for Ahmed. (Use EXHIBIT 12-10.) a. Assuming Ahmed is subject to a marginal tax rate of 30 percent, what is his after-tax benefit of receiving each of these benefits(ignoring FICA taxes)? Description Amount Taxable benefits Salary $300,000 Personal use of company jet 200,000 Life insurance (taxable portion) 270 Taxable total $500,270 Marginal tax rate 30 % Income tax on benefits $150,081 After-tax benefit of taxable items $350,189 Nontaxable benefits Health insurance $10,000 Dental insurance 2,000 Life insurance (nontaxable portion) 2,730 Dependent care 5,000 Professional dues 500 Nontaxable total $20,230 After-tax benefit of salary and benefits $370,419 4. Problem 12-48 (LO 12-3) Sharmilla works for Shasta Lumber, a local lumber supplier. The company annually provides each employee with a Shasta Lumber shirt so that employees look branded and advertise for the business while wearing the shirts. Are Shasta’s employees required to include the value of the shirts in income? No 5. Problem 12-50 (LO 12-3) Jasmine works in Washington, D.C. She accepts a new position with her current firm in Los Angeles. Her employer provides the following moving benefits: • Temporary housing for one month—$3,000. • Transportation for her household goods—$4,500. • Flight and hotel for a house-hunting trip—$1,750. • Fli

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