Karl Stick is president of Stock Company. He also owns 100 percent of its stock. Karl's salary is $220,000. At the end of the year, Karl was paid a bonus of $ 100,000 because the firm had a good year. Stock Company deducted $320,000 as compensation expense for the year. Upon audit, $100,000 of the deduction was disallowed. How could this happen? How would you advise Stock Company?
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- Karl Stick is president of Stock Company. He also owns 100 percent of its stock. Karl's salary is $220,000. At the end of the year, Karl was paid a bonus of $100,000 because the firm had a good year. Stock Company deducted $320,000 as compensation expense for the year. Upon audit, $100,000 of the deduction was disallowed. How could this happen? How would you advise Stock Company?Karl Stick is president of Stock Company. He also owns 100 percent of its stock. Karl's salary is $120,000. At the end of the year, Karl was paid a bonus of $100,0O00 because the firm had a good year. Stock Company deducted $220,000 as compensation expense for the year. Upon audit, $80,000 of the deduction was disallowed. Assume that Karl's tax bracket is 31 percent and Stock Company's is 34 percent. What is the dollar impact of the IRS reclassification?First Link Services granted 6 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $24 per share on the grant date of the restricted stock award. 1. Ignoring taxes, what is the total compensation cost pertaining to the restricted shares?2. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?
- "Now what do I do?" moaned your colleague Matt. "This is a first for me," he confided. You and Matt are recent hires in the Accounting Division of National Paper. A top executive in the company has been given share-based incentive instruments that permit her to receive shares of National Paper equal in value to the amount the company shares rise above the shares' value two years ago when the instruments were issued to her as compensation. The instruments vest in three years. A clause was included in the compensation agreement that would permit her to receive cash rather than shares upon exercise if sales revenue in her division were to double by that time. Because the contingency was considered unlikely, the instruments have been accounted for as equity, with the grant date fair value being expensed over the five-year vesting period. Now, though, surging sales of her division indicate that the contingent event has become probable, and the instruments should be accounted for as a…Kimball, a partner in a one-office firm, inherits 15 shares of Spotless Housekeeping Services stock. The stock has a market value of $25 per share; there is a ready market for them; and there are 300,000 shares outstanding. Spotless is an audit client of the firm, and Kimball does no work or consulting for Spotless engagements. Which of the following is CORRECT regarding Kimball receiving this stock and maintaining the firm's independence with Spotless? As long as Kimball does not work on the engagements for Spotless, nothing need be done. If he works on the engagements for Spotless, then the shares must be promptly sold to preserve the firm's independence. Since the shares are worth only $375 and they were inherited, nothing need be done. If Kimball transfers the shares to a blind trust where he is the beneficiary, independence with Spotless will not be impaired. The shares must be sold within 30 days of their receipt.Forward Corporation is owned by a group of 15 shareholders. During the current? year, ForwardForward pays $550,000 in salary and bonuses to AlvinAlvin?, its president and controlling shareholder. The? corporation's marginal tax rate is 34?%, and AlvinAlvin?'s marginal tax rate is 39.6?%. The IRS audits ForwardForward?'s tax return and determines that reasonable compensation for Alvin is $350,000. ForwardForward agrees to the adjustment. What effect does the disallowance of part of the salary and bonus deduction have on Forward?'s and Alvin?'s respective tax? positions? Ignore payroll? taxes, such as FICA. ?(Assume a? 23.8% capital gains tax? rate, if?necessary.)
- Slytherin Services, Inc. granted 8 million of its $1 par common shares to executives subject to foreiture if employment is terminated within three years. The common shares have a market price of $6 per share on the grant date of the restricted stock award. Ignoring taxes, what is the total compensation cost pertaining to the restricted shares (first answer, no dollar signs or commas, rounded to the nearest whole dollar)?At the beginning of the current year, Brou Inc. sells all of its assets and pays its liabilities. Afterwards, the company has $350,000 in cash which is distributed to the sole shareholder, Mr.Daniel. Mr. Daniel purchased the shares from the former shareholder for $50,000. The Paid up capital of the shares is $10,000. The balance in the capital dividend account is $65,000, and the company makesall appropriate elections with respect to this balance. What is the amount of the deemed dividend to Mr. Daniel?A) $ 300,000. B) $ 340,000. C) $ 275,000. D) $ 65,000.Able owns 100% of ABC Corporation, which operates a restaurant. Able founds the corporation with $1,000 in capital. ABC has its own bank account, and Able does not commingle the corporation's funds with his own. ABC has never had a directors' meeting or a shareholders' meeting. ABC does not employ a bookkeeper, and its financial records are incoherent. ABC operates for six months and does not generate a profit. Shortly thereafter, a customer dies of food poisoning due to contaminated ham served by ABC. Can the customer's estate hold Able personally liable for any judgment rendered against ABC?
- Landry owns 50 of 250 outstanding shares of Kelly Manufacturing corporation. How many of Landry’s shares must be redeemed in order for the redemption to qualify as disproportionate? Assume that Kelly Manufacturing corporation has $100,000 in current earnings & profits, has no accumulated e&p, and there were no dividends or other distributions this year. If Landry’s stock is redeemed for $15,000 on December 31, what is the effect on earnings and profits?27. G is a cash basis consultant. His balance sheet at the end of the year shows receivables of $100 and accounts payable for utilities of $30. b) If G transfers the receivables to a new corporation in exchange for 100% of the stock and the corporation assumes the liabilities is G taxed on the transfer?Bruce buys $9,000 of Sketchy Corporation stock. Unfortunately, a major newspaper reveals the very next day that the company is being investigated for accounting fraud, and the stock price falls by 62%. What is the percentage increase now required for the value of Bruce's stock to get back to what he paid for it?