Tutorial: Trusts

1.         X’s will created a trust under which the income is to be distributed as follows:

To his widow                                                 - 50%

To his 25 year old insane son                   - 25%

To be accumulated for the benefit of his 17

year old daughter to vest upon her attaining

the age of 21                                                 - 25%

The trustee also has a discretion to pay or apply part or all of the daughter’s share of the income for her education, welfare, betterment or advancement in life.

During the last tax year the trust had net income of $50,000. The trustee paid $7,500 towards the cost of the daughter’s education.

The widow received, as other income, net rents of $10,000. The son received $15,000 under a trust created by his grandfather’s will and the daughter earned $3,750 from working part time in a cafe.

Who is assessable on the income of the trust estate? Indicate the basis upon which they would be assessed and calculate the taxable incomes (indicating any entitlements to credits) of the widow, son and daughter.

2          Jack creates a trust under which the beneficiaries are his two infant children. The children both receive distributions. How may the Commissioner assess those distributions? How might Jack avoid this result?

3          Under the terms of the Golf family trust (which earns half of its $160,000 income from Australian sources (business profits from a permanent establishment) and the balance from overseas sources), 25% of the trust's income is to be paid to Harry Golf, a 24 year old accountant in practice in Townsville. An additional 25% is paid to Ian Golf, Harry's 17 year old brother who lives in New Zealand with his mother and the balance is to be paid, at the trustee's discretion, to Jim Golf, a cousin who has been an Australian resident since he turned 21 on 31st December last year. The trustee did in fact exercise his discretion in Jim's favour and decided to pay him the same amount that Harry and Ian were receiving. The trustee retained the balance of the trust's income for reinvestment.

            Who will be taxed, on what amounts, at what rates and subject to what credits

           (if any)? Provide detailed reasons for your answer.

Carly’s Winery was founded 10 years ago by owner manager Carla. Carly’s Winey is buying wines from wholesalers and sell them to retailers. Carla decided to start producing wine. She thinks that the company can produce wines for the next 7 years. In order to produce wines the company needs a new grape masher. The masher will cost $80,000 and an extra $10,000 will be needed for shipping and installation. This masher will be depreciated as a 5-year MACRS asset. Carla expects to sell the masher at the end of year 7 for $10,000. Carla estimates that the revenues will be $35,000 during year 1 and the revenues will grow by 10 percent per year for the next 7 years. Also she forecasts that annual year 1 operating expenses will be $10,000 and the expenses will grow at an annual rate of 5 percent per annum. For this new production Carla plans to use a factory which has been rented out for $7,500 per year for now. At the time the masher is purchased, Carla will invest $5,000 in net working capital. Additional investments in net working capital are required at the end of year 1 ($3,000) and year 2 ($2,000). The marginal tax rate for Carly’s Winery is 40% and the required rate of return for Carly’s Wineryis 12%.

a) Calculate the relevant cash flows for the evaluation of this project.

b) DecidewhetherCarlashouldinvestinthisproductionlineornot.

c) You think that this new production is riskier that Carly’s Winery’s ongoing operations. Briefly discuss if this new information changes your decision in part (b).

Match the category of healthcare professional/provider with the correct definition:

A. A professional who is fundamental in the management of mental illnesses, offering diagnostic services, treatment, and social support to those suffering from mental illness.

B. An academic professional who studies the interaction between a person's brain function and his or her behaviors, as well as the environment and the person's behaviors

C. A medical professional who is sometimes to as an allopathic physician

D. A type of physician who places a special emphasis on the alignment and health of the body's musculoskeletal system, preventive medical care, and holistic patient care

E. A healthcare professional who is highly educated and helps to treat patients, coordinate patient care, and provide patient education to individual patients, families, and the public about a variety of health conditions.

F. A healthcare professional who helps to improve individuals’ quality of life through the coordination of available programs and services.

G. A clinician who is trained to perform many of the routine, time-consuming tasks that physicians face and always work under the general supervision of an MD or DO

select A B C D E F G None of the Above

1. Doctor of Medicine select A B C D E F G None of the Above

2. Doctor of Osteopathic Medicine select A B C D E F G None of the Above

3. Physician Assistant select A B C D E F G None of the Above

4. Psychologist select A B C D E F G None of the Above

5. Psychiatrist select A B C D E F G None of the Above

6. Social Worker select A B C D E F G None of the Above

7. Registered Nurse select A B C D E F G None of the Above

8. A basic-level nursing care provider who provides routine patient care and personal assistance services. select A B C D E F G None of the Above

Carter Company owns a plot of land on which buried toxic wastes have been discovered. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues, Carter wishes to sell the land now. It has located four potential buyers: Buyer A, who is willing to pay $255,000 for the land now; Buyer B, who is willing to make 20 annual payments of $40,000 each, with the first payment to be made 5 years from today; Buyer C, who is willing to make 10 semi-annual payments of $32,000, with the first payment to be made today; and Buyer D, who is willing to make two payments of $150,000, the first to be made today and the second to be paid three years from today. INSTRUCTIONS Calculate the present value of each of the options, assuming that the appropriate rate of interest is 8%. Show all calculations. To whom should Carter sell the land? A:________________ B:________________ C:________________ D:________________

A drug company is developing a new drug called Phantol that it hopes will provide relief to patients who suffer from respiratory infections. Phantol was given to a random sample of 450 patients who had upper respiratory infections and 365 of these patients experienced relief. The drug is marketable if more than 75% of patients experience relief while using Phantol. a) Using a 5% significance level, test the hypothesis that more than 75% of patients who suffer from upper respiratory infections experience relief when using Phantol. (4 points) b) Based on your conclusion what type of error might you be making? (Explain) (2 points) 7 Professor: David Wozniak Final Exam c) What is the 95% confidence interval for the proportion of patients who should experience relief using Phantol? (3 points) d) What sample size would you need to find a 95% confidence interval with a margin of error of 0.02? (Hint: is it likely that the p=0.5?

36. The worldwide market share for a web browser was 20.5​% in a recent month. Suppose that a sample of 120 random students at a certain university finds that 30 use the browser.

b. Suppose that a sample of n=800 students at the same university​ (instead of n=120 determines that 25​% of the sample use the web browser. At the 0.01 level of​ significance, is there evidence that the market share for the web browser at the university is greater than the worldwide market share of 20.5​%?

Calculate the test statistic for the second sample.

What is the​ p-value?

State the conclusion of the test.

Kyle, a single taxpayer, worked as a free-lance software engineer for the first three months of 2019. During that time, he earned $58,000 of self-employment income. On April 1, 2019, Kyle took a job as a full-time software engineer with one of his former clients, Hoogle Inc. From April through the end of the year, Kyle earned $172,000 in salary.

What amount of FICA taxes (self-employment and employment related) does Kyle owe for the year? (Round your intermediate calculations to the nearest whole dollar amount.)

Kyle, a single taxpayer, worked as a free-lance software engineer for the first three months of 2019. During that time, he earned $44,000 of self-employment income. On April 1, 2019, Kyle took a job as a full-time software engineer with one of his former clients, Hoogle Inc. From April through the end of the year, Kyle earned $178,000 in salary. What amount of FICA taxes (self-employment and employment related) does Kyle owe for the year? (Round your intermediate calculations to the nearest whole dollar amount.)

Kyle, a single taxpayer, worked as a free-lance software engineer for the first three months of 2017. During that time, he earned $88,000 of self-employment income. On April 1, 2017, Kyle took a job as a full-time software engineer with one of his former clients, Hoogle Inc. From April through the end of the year, Kyle earned $204,000 in salary. What amount of FICA taxes (self-employment and employment related) does Kyle owe for the year? (Round your intermediate calculations to the nearest whole dollar amount.)