Question

Chandler and his wife Monica use the filing status of married filing joint. Both are under the age of 65 and neither are blind. They have two dependents and Chandler retired during the year.

           They had the following items of income and expense for 2019:

Chandler’s Salary, prior to retirement	100,000
Interest income from Bank of Albuquerque	8,900
Interest income from State of California bonds	6,800
Pension (use a 65% exclusion ratio)	24,000
Qualified dividends from Intel Corporation	2,600
Alimony paid (divorce finalized in 2015)	4,250
Child support paid	7,000
Income from illegal activities	2,500
Unemployment compensation	5,300
Lottery winnings!	2,700
Long-term capital loss	(3,800)
Personal loan from his parents	10,000
Itemized deductions	23,875

a. What is Chandler and Monica’s Adjusted Gross Income (line 7, Form 1040) for 2019?

b. What is Chandler and Monica’s Tax (line 11, Form 1040) for 2019? Hint! Don’t forget that qualified dividends are taxed at a lower tax rate!

                                   

Answer 1

Question 14
Option (A) is Correct - $(198,000)
Working Note :
EVA = NOPAT - [(Total Assets - Current Liabilities)*WACC]
Calculation of WACC :
	Amount	Weights	After Tax Cost	WACC
Mortgage Bonds	$    10,00,000.00	0.1	0.048	0.0048
Unsecured bonds	$    30,00,000.00	0.3	0.05	0.015
Common Stock	$    60,00,000.00	0.6	0.15	0.09
	$ 1,00,00,000.00			0.1098
NOPAT = $15,00,000*60%		$ 9,00,000.00
EVA = NOPAT - [(Total Assets - Current Liabilities)*WACC]
$900000 - (0-$10,00,000*0.1098)			$ (1,98,000.00)