Reference no: EM13576841

Nick and Jolene are married. Nick is 61 and retired in 2011 from his job with Amalgamated Company. Jolene is 56 and work part-time as a special education teacher. Nick and Jolene have a substantial amount of investment savings and would like to reorganize it to achieve the best after-tax return on their investments. They give the following list of projected cash receipts for 2012:

Jolene's Salary $13,000---Nick's pension--fully taxable---12,500.---Interest income---4,000.---Dividend income---2,500.---Social Security benefits--7,000.=== Farmer's Funds annutiy---6,000. In addition, Nick tells you that he owns a duplex that he rents out. The duplex rents for 2012 are $18,000.,and Nick estimates expenses of $22,000. related to the duplex. The annuity was purchased 18 years ago for $20,000. and pays $500 per month for 10 years. Nick and Jolene's investments consist of the following:

6-month certificates of deposit (CDs) $100,000.

1,000 shares of Lardee's common stock (current market value = $7 per share, projected 2012 dividend = $7 per share) - cost $10,000

2,000 shares of Corb Company common stock(current market value =$20 per share , projected 2012 dividend = $.75 per share )-cost $20,000

A. Assuming that Nick and Jolene have total allowable itemized deductions of $12,350 in 2012 and that they have no dependents, determine their 2012 taxable income and tax liability based on the projections they gave you .

B. The 6-moth CDs consist of two $50,000 certificates, both of which ield 4% interst. One CD matures on Janiary 3, 2012 Nick's banker tell he can renew the CD for one year at 4%. Nicks stockbroker tells him that he can purchase tax-exempt bonds provide him a better after-tax return than the CD.

C. Jolene is concerned that they are not getting the best return on their Corb Company Stock. When they purchased the stock in 2001, the $.75 per share dividend was yielding 10% befoe taxes. However, the rise in market value has far outpaced the dividend growth, and it is yielding only 3.75% based on the curent market value. Jolene thinks they should sell the stock and purchase either the 3% tax-exempt securities or the 4% CD if it would be a better deal from an income tax viewpoint. Calculate the tax effect on their 2012 income of selling the shares, and determine whether they should sell the shares and invest the after tax proceeds in tax exempt securities or the 4%m CD. So this calculation agter you have determine the best option regarding the CD that matures in January

Second Question

During the current year, the Harlow Corporation, which specializes in commercial construction, has the following property trasaction:

A. In April a tornado damages a crane and a dump truck at one of its construction sites. The crane was acquired in 2009 for $120,000 and has an adjusted basis of $39,650. The dump truck was acuired in 2007 for $70,000 and has an adjusted basis of $33,880. The insurance company reimburses Harlow $35,000. for the crane and $42,000. for the dump truck. The company decides not to replace the dump truck and uses the insurance proceeds to purchase a new crane for $110,000.

B. The company trades a road grader with a fair market value of $72,000. for a bulldozer worth $60,000. Harlow recives $12,000. in the exchange. The road grader originally cost $90,000. and has an adjusted basis of $50,000. The bulldozer cost $85,000., and its adjusted basis is $37,000.

C. A fire destroys the company's supply warehouse. The warehouse originally cost $300,000. and has an adjusted basis of $200,000. Its fair market value before the fire was $250,000. The insurance company pays Harlow $230,000., which it uses to acquire a warhouse costing $280,000.

D. The city of PeaceDale condemns land that Harlow had acuired in 1978 for $22,000. and held as an investment. The city pays Harlow the $195,000. fair market value of the land. Harlow uses the proceeds to acquire a commercial office park for $350,000.

E. Harlow sells an automobile used by its president for business purposes for $10,000. to a local car dealership. The car originally cost $32,000. and its adjusted basis is $15,000. The company had an agreement to replace the automobile with a customized four-wheel-drive vehicle from a company that specializes in custome cars. However, the day the company sells theautomobile, it is informed that the custom car company will not be able to deliver the vehicle for a t 10 weeks. Harlow terminates its contract with the custome car company and buys a new automobile from the local car dealership for U,000.

Determine the realized and recognzed gain or loss on each of Harlow's property transactions and the basis of any property acquired in each trasaction.