Question

Problem 1 (20 points total) Whirlwind Cycles is owned 100% by Daniel, a single taxpayer. Both Whirlwind Cycles and Daniel use the cash method of accounting for tax purposes. Whirl Cycles is organized as a C Corporation and the corporation pays all of its after-tax cash flows to Daniel as a dividend. The business incurred the following items of income and expense in Year 2: $225,000 3,000 Cash Sales Interest received from City of Flint Bonds (this is a municipal bond) Cost of Goods Sold (assume cash paid in Year 2) Cash payments for Year 2 utilities Cash payments for Year 2 rent Tax depreciation Cash contribution to the Democratic party (not deductible for tax purposes) 45,000 3,500 18,000 40,000 1,000 On 1/1, Year 1, Whirlwind Cycles purchased a 60-month zero coupon bond with a 5% yield and a $20,000 maturity value for $15,670 (compounded annually). Daniel's taxable income is $100,000 before any profits from the business are considered.

Answer 1

Answert Summarized the data provided in the question, whiclewind Cycles is ourned 100*%. by Berniel--- I Consolidated Income Amount ($) Cash sales $ 2,25,000 Cost of goods sold | $ (45,000) Interest received $3,000 Utilities $ (3, 500) Rent $ 18,000) Depoeciation $ (40,000) Political exp $ (1,000) Consolidated income $ 1,20,500 (A) before tax Daniel income before $1,00,000) (B) This is tax question Whioldwind income $ 20,500 C= (A-B) before taxes ☺ Interest income does whidlwind cycles need to recognize from the zero coupon -bond in year-2 materöity of the bond 420,000 (A) (cost of the Bond $15,670 (B) Discount at face value $4, 390 C=A-B) Yeadly interest $1.000 20000 x 5.6.p.a) given in the

2 6 Taxable income of whirlwind Cycles in Year 2: Total Income $ 1,20,500/A) Daniel Income $1,00000 ) whiolwind $20,500 C= A-B) Income @ the after tax cash flow of whiclwind cycles in year-2 @ Calculating Daniel year -2 aftes tax cash flows from the whoolwind cycle, Total income $4, 330 (A) Daniel income le$ 10,0000 10,0000 (8) whiolwind income $ 95,6,70 c = (A-B) )
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