Category: Writing

Calvin, whose tax rate is 35% and 15% for ANCG, is
considering two alternative investments on January 1, 20Yl. He can purchase
$100,000 of 10% bonds due in five years or purchase $100,000 of Hobbes, Inc.
common stock. The bonds are issued at par, pay interest annually on December
31, and mature at the end of five years. Interest received can be reinvested at
10%. Assume that he knows with relative certainty that the value of the stock
will increase 8% each year (i.e., the value of the Hobbes stock will be
$108,000 at the end of 20Yl) and the interest and principal for the bonds will
be paid as scheduled. On December 31, 20Y5, he will sell the stock or receive
the bond principa l plus the last interest payment. Which alternative should
Calvin select if he wants to have the greater amount of money as of January 1,
20Y6? Provide supporting information for your answer.

Short Tax Form. Given the following information for Jane
Cole, complete Schedule D of Form 1040 through Part lll.
• Stock options, which she purchases on February 14 of the
current year for $850, expire on October 1.
• On July 1, she sells for $4,500 her personal -use
automobile acquired on March 31, 2011, for $18,000.
• On August 16, she sells for $3,100 her stock of York
Corporation purchased as an investment on February 16, for $1,600.
• On March 15, she sells for $5,600 an antique ring, a gift
from her grandmother on January 10, 2005, when its FMV was $1,600. The ring was
purchased by her grand – mother on April 2, 1979, for $1,800.
• She has an STCL carryover of $250 from last year.
a. What advice would you give to Dale?
b. What is the cash savings if Dale follows your advice?