Question

Julieta Simms is the president and sole shareholder of Simms Corporation. Julieta plans for the corporation to make a charitable contribution to the University of Washington, a qualified public charity. She will have the corporation donate Jaybird Corporation stock, held for five years, with a basis of $11,000 and a fair market value of $25,000. Julieta projects a $310,000 net profit for Simms Corporation in 2020 and a $100,000 net profit in 2021. Julieta calls you on December 11, 2020, and asks whether Simms should make the contribution in 2020 or 2021. Complete the letter advising Julieta about the timing of the contribution. For the present value computations, assume a 5% discount rate and the following present value factors: for 2021, 0.9524; for 2022, þ.9070; for 2023, 0.8638. If required, round your computations to the nearest dollar. Nellen, Cuccia, Persellin, Young, & Maloney, CPAS 5191 Natorp Boulevard Mason, OH 45040 December 17, 2020 Ms. Julieta Simms, President Simms Corporation 1121 Madison Street Seattle, WA 98121 Dear Ms. Simms:

Answer 1

All the blanks are given numbers and are answered below

It is assumed the problem is belonging to before CARES Act. Because after CARES Act, the limit on charitable contribution has increased from 10% of taxable income to 25% of taxable income, so after CARES Act there will not be any difference even if you claim it this year or next year

1. 2020

2. $25,000 (This is the fair market value)

3. $5,250 (21% of $25,000)

4. $10,000 (10% of $100,000)

5. $2,100 (21% of $10,000)

6. 5 years

7. $10,000 (10% of 100,000)

8. $5,000 ($25,000 - $10,000 - $10,000)

9. $15,000 ($10,000 + $5,000)

10. $3,150 (21% x $15,000)

11. $5,250 ($2,100 + $3,150)

12. $,5250

13. $25,000 or $5,250

(tax savings or deduction will be same amount, as the deduction will be claimed in current year itself)

14. $22,913 or $4,812

Workings

For deduction :

= 10,000 x 0.9524 + 10,000 x 0.9070 + 5,000 x 0.8638

= 22,913

For tax :

= $2,100 x 0.9524 + $2,100 x 0.9070 + $1,050 x 0.8638

= $4,811.73 or $4,812

15.

$2,087 ($25,000 - $22,913)

Or

$438 ($5,250 - $4,812)

Here we have taken extra present value of deduction or tax savings by contributing in 2020 and not just contribution or tax savings in 2020, which is asked there.

If we just want the contribution or tax savings, then the answer must be $25,000 or $5,250

Note :

From blank 13 to blank 15, the wordings are not proper. It is not clear whether the question is asking the present value of deduction amount or tax amount. So mentioned both in the respective blank, take the appropriate one