Question

Problem 19-49 (Algorithmic) (LO. 8)

Julio Gonzales is in the 32% tax bracket. He acquired 1,000 shares of stock in Gray Corporation seven years ago at a cost of $180 per share. In the current year, Julio received a payment of $135,000 from Gray Corporation in exchange for 500 of his shares in Gray. Gray has E & P of $6,000,000. What income tax liability would Julio incur on the $135,000 payment in each of the following situations? Assume that Julio has no capital losses and taxpayers in the 32% tax bracket are subject to the long-term capital gains and qualified dividends tax rate of 15%.

a. The stock redemption qualifies for sale or exchange treatment.
Julio has a capital gain  of $______??.

Julio's tax liability would be $_____??.

b. The stock redemption does not qualify for sale or exchange treatment.
Julio has dividend income  of $_____??.

Julio's tax liability would be $______??.

Answer 1

Requirement A
No changes are made
Carey Company
CVP income statement
For the year ended 2016
	Total	Per Unit
Sales	$ 18,31,200.00	$   28.00
Variable Costs	$ 10,46,400.00	$    16.00
Contribution margin	$   7,84,800.00	$    12.00
Fixed Costs	$   4,50,000.00
Net income	$   3,34,800.00
Requirement B
Working :
Variable cost per unit	$               16.00
Revised variable cost per unit = $16 - $3.2	$               12.80
Sales price per unit	$              28.00
Revised selling price = $28 - (3.2*1/2)	$              26.40
Fixed costs	$   4,50,000.00
Revised fixed costs = 450000+96000	$   5,46,000.00
Sales units	65400
Revised sales units = 65400*105%	68670
Carey Company
CVP income statement
For the year ended 2016
	Total	Per Unit
Sales	$ 18,12,888.00	$   26.40
Variable Costs	$   8,78,976.00	$    12.80
Contribution margin	$    9,33,912.00	$    13.60
Fixed Costs	$   5,46,000.00
Net income	$    3,87,912.00