Question

Charlie was hired by Ajax this year as a corporate executive anda member of the board of directors. During the current year,Charlie received the following payments or benefits paid on hisbehalf.

Salary payments $ 123,500
Contributions to qualified pension plan 10,600
Qualified health insurance premiums 10,850
Year-end bonus 21,500
Annual directorâs fee 15,700
Group-term life insurance premiums (face =$40,000) 1,195
Whole life insurance premiums (face = $100,000) 2,130
Disability insurance premiums (no special elections) 5230

1) Charlie uses the cash method and calendar year for taxpurposes. Calculate Charlieâs gross income for the currentyear.

2) Assume that in lieu of a year-end bonus Ajax transferred1,380 shares of Bell stock to Charlie as compensation. Furtherassume that the stock was listed at $29 per share and Charlie wouldsell the shares by year-end, at which time he expected the price tobe $32 per share. Calculate the value of compensation Charlie wouldreport and gain on the sale that would be included in Charlie'sgross income.

a) value of compensation?___

b) Gain on sale?___

3) Suppose that in lieu of a year-end bonus Ajax made Charlieâshouse payments (a total of $27,500). Calculate the value of thehouse payments Charlie would report as income?______

Answer 1

1) Charlie's gross income for the current year is $191,705.

2)a. The value of compensation Charlie would report is $40,020.

b.The gain on the sale that would be included in Charlie's gross income is $4,140.

3) The value of the house payments Charlie would report as income is $27,500.

Step-by-step explanation:

1) To calculate Charlie's gross income for the current year, we need to sum up all the payments and benefits he received:

• Gross income = Salary payments + Contributions to qualified pension plan + Qualified health insurance premiums + Year-end bonus + Annual director's fee + Group-term life insurance premiums + Whole life insurance premiums + Disability insurance premiums
• Gross income = $123,500 + $10,600 + $10,850 + $21,500 + $15,700 + $1,195 + $2,130 + $5,230
• Gross income = $191,705

Therefore, Charlie's gross income for the current year is $191,705.

2a) If Ajax transferred 1,380 shares of Bell stock to Charlie as compensation, the value of the compensation would be calculated as:

• Value of compensation = Number of shares * Market price per share
• Value of compensation = 1,380 * $29
• Value of compensation = $40,020

Therefore, the value of compensation Charlie would report is $40,020.

2b) If Charlie sells the shares by year-end at a price of $32 per share, the gain on the sale would be calculated as:

• Gain on sale = (Selling price per share - Market price per share) * Number of shares
• Gain on sale = ($32 - $29) * 1,380
• Gain on sale = $3 * 1,380
• Gain on sale = $4,140

Therefore, the gain on the sale that would be included in Charlie's gross income is $4,140.

3) If Ajax made Charlie's house payments totaling $27,500, the value of the house payments Charlie would report as income is simply the amount of the payments:

Value of house payments = $27,500

Therefore, the value of the house payments Charlie would report as income is $27,500.

Answer 2

$ 27,500 , the actual payment made would be reported by Charlie as income

Step-by-step explanation:

1) Charlie's Gross Income Calculation

Salary Paid 123,500

Contributions to qualified pension plan 10,600

Qualified health insurance premiums 10,850

Year-end bonus 21,500

Annual director’s fee 15,700

Group-term life insurance premiums (face = $40,000) 1,195 exempt below face value 50,000

Whole life insurance premiums (face = $100,000) 2,130

Disability insurance premiums (no special elections) 5,230

Total Gross Income $ 189,510 excluding 1,195 as specified.

2)

Value of compensation Charlie would report and gain on the sale that would be included in Charlie's gross income.

a) value of compensation 1380 x 29 = $ 40,020

b) Gain on sale 1380 X 3 = $ 4,140

3)

$ 27,500 , the actual payment made would be reported by Charlie as income.