Question

In: Accounting

On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK...

On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $7 per share. Dave’s restricted shares will vest at the end of year 2. He intends to hold the shares until the end of year 4 when he intends to sell them to help fund the purchase of a new home. Dave predicts the share price of RRK will be $31 per share when his shares vest and will be $40 per share when he sells them. If Dave’s stock price predictions are correct, what are the tax consequences of the date of vesting to Dave if his ordinary marginal rate is 32 percent and his long-term capital gains rate is 15 percent?

On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $7 per share. Dave’s restricted shares will vest at the end of year 2. He intends to hold the shares until the end of year 4 when he intends to sell them to help fund the purchase of a new home. Dave predicts the share price of RRK will be $31 per share when his shares vest and will be $40 per share when he sells them. If Dave’s stock price predictions are correct, what are the tax consequences of the date of sale to Dave if his ordinary marginal rate is 32 percent and his long-term capital gains rate is 15 percent?

On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation, On that date, the stock price was $6 per share. On receiving the restricted stock, Dave made the §83(b) election. Dave’s restricted shares will vest at the end of year 2. He intends to hold the shares until the end of year 4 when he intends to sell them to help fund the purchase of a new home. Dave predicts the share price of RRK will be $30 per share when his shares vest and will be $40 per share when he sells them. Assume that Dave’s price predictions are correct. What are the tax consequences of the date of grant to Dave if his ordinary marginal rate is 32 percent and his long-term capital gains rate is 15 percent?

Solutions

Expert Solution

Note: in the mentioned question, lines 1 to 7 are repeated again (line 8 to 14 are same as line 1 to 7)

so considering it as repetition i am ignoring line 8 to 14, I have solved the rest of question.

taking line 1 - 7 as part a of the question and rest as part b of the question.

Part a

Dave has no tax consequences on the grant date. On the vesting date he will recognize ordinary income of $31000 and pay taxes of $9920 which is calculated below:

a) shares acquired                                 $ 1000

b) fair market value at vesting date    $31

c) ordinary income on vesting date      $31000 (1000*31)

d) ordinary marginal tax rate                32%

e) tax due when shares vest                    $9920 (31000*32%)           

Dave will owe $1350 on the sale date as calculated below:

f) amount realized                                    $ 40000 (1000 shares*40 per share)

g) adjusted basis                                      $31000 (given above c point)

h) long term capital gain                     $9000 (40000 – 31000)

i) long term capital gain rate          15%

j) tax due when shares sold                1350 (9000*15%)     

Part b. On receiving the restricted stock, Dave made the §83(b) election

Dave will owe no tax on vesting date since he made the §83(b) election

Dave tax consequences on the grant date is that he will recognize $6000 of ordinary income and pay taxes of $1920 as calculated below:

a) shares acquired                                 $ 1000

b) fair market value at granting date    $6

c) ordinary income on granting date      $6000 (1000*6)

d) ordinary marginal tax rate                32%

e) tax due on grant date                                $1920 (6000*32%)          

Dave will owe $5100 on the sale date as calculated below:

f) amount realized                                    $ 40000 (1000 shares*40 per share)

g) adjusted basis                                      $6000 (given above c point)

h) long term capital gain                     $34000 (40000 – 6000)

i) long term capital gain rate          15%

j) tax due when shares sold                5100 (34000*15%)   


Related Solutions

On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK...
On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $7 per share. Dave’s restricted shares will vest at the end of year 2. He intends to hold the shares until the end of year 4, when he intends to sell them to help fund the purchase of a new home. Dave predicts the share price of RRK will be $30 per share when his shares...
On January 1, year 1, Dave received 1,600 shares of restricted stock from his employer, RRK...
On January 1, year 1, Dave received 1,600 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $17 per share. On receiving the restricted stock, Dave made the 83(b) election. Dave’s restricted shares will vest at the end of year 2. He intends to hold the shares until the end of year 4 when he intends to sell them to help fund the purchase of a new home. Dave predicts the share price...
T received restricted stock in 2019 from his employer for services rendered. The restriction required T...
T received restricted stock in 2019 from his employer for services rendered. The restriction required T to remain employed for one additional year, otherwise the stock would be forfeited. T was prohibited from selling the stock during that one-year period. The value of the stock at the time received was $8,000. In 2020, when the restrictions lapsed, the stock was worth $50,000. T has not sold the stock. A. Assuming no §83(b) election was made, indicate the amount of income,...
Brent received 1,000 shares of Alabama Corporation stock from his uncle as a gift on July​...
Brent received 1,000 shares of Alabama Corporation stock from his uncle as a gift on July​ 20, 2017​, when the stock had a $275,000 FMV. His uncle paid $ 100,000 for the stock on April​ 12, 2002. The taxable gift was $ 275,000​, because his uncle made another gift to Brent for $25,000 in January and used the annual exclusion. The uncle paid a gift tax of $13,750. Without considering the transactions​ below, Brent's AGI is $75,000 in 2018. No...
Johnny received a $2,100 grant from his employer and, as required by his employer, used all...
Johnny received a $2,100 grant from his employer and, as required by his employer, used all of the money for tuition and fees to take three graduate-school courses during the period September 1 to December 31 of the current year. Johnny is not a candidate for a degree and has never received a scholarship or fellowship grant before. He had previously met the minimum educational requirements for his employment position; however, due to new requirements established by his employer, these...
Computing EPS: Restricted Stock Awards West Inc. granted 5,000 shares of restricted common stock shares at...
Computing EPS: Restricted Stock Awards West Inc. granted 5,000 shares of restricted common stock shares at the beginning of 2020 to company managers that will vest after 4 years of service. Net income for the year is $360,000, and 250,000 common shares were outstanding the entire year. The fair value of the shares on January 1, 2020, is $25 per share. The average market price of common shares in 2020 is $25 per share. a. Compute basic earnings per share....
Culver Company issues 8,900 shares of restricted stock to its CFO, Mary Tokar, on January 1,...
Culver Company issues 8,900 shares of restricted stock to its CFO, Mary Tokar, on January 1, 2020. The stock has a fair value of $445,000 on this date. The service period related to this restricted stock is 5 years. Vesting occurs if Tokar stays with the company until December 31, 2024. The par value of the stock is $10. At December 31, 2020, the fair value of the stock is $363,000. (a) Prepare the journal entries to record the restricted...
Brock received 800 shares of Jackson Corporation stock from his uncle as a gift on July​...
Brock received 800 shares of Jackson Corporation stock from his uncle as a gift on July​ 20, 2018 when the stock had a $176,000 FMV. His uncle paid $80,000 for the stock on April​ 12, 2002. The taxable gift was $176,000​, because his uncle made another gift to Brock for $25,000 in January and used the annual exclusion. The uncle paid a gift tax of $26,400. Without considering the transactions​ below, Brock's AGI is $35,000 in 2019 No other transactions...
On January 1, the Voluntary Action Agency received a cash contribution of $325,000 restricted to the...
On January 1, the Voluntary Action Agency received a cash contribution of $325,000 restricted to the purchase of buses to be used in transporting senior citizens. On January 2 of that same year, buses were purchased with the $325,000 cash. The buses are expected to be used for five years and have no salvage value at the end of that time. 2. Record the journal entries on January 1, January 2, and December 31 for the receipt of cash, the...
On January 1, the Voluntary Action Agency received a cash contribution of $325,000 restricted to the...
On January 1, the Voluntary Action Agency received a cash contribution of $325,000 restricted to the purchase of buses to be used in transporting senior citizens. On January 2 of that same year, buses were purchased with the $325,000 cash. The buses are expected to be used for five years and have no salvage value at the end of that time. *only need answer to #3. 1.Record the journal entries on January 1, January 2, and December 31 for the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT