Deitz J.E., Southam J.L. Contemporary Business Mathematics for Colleges

Подождите немного. Документ загружается.

B (24 points) Solve the following problems. (6 points for each correct answer)

The Griffin Company is located in a state in which assessed valuation is 100% of market value. The tax

rate this year is $1.35 on each $100 of market value. The market value of the company building is

$190,000. How much property tax will Griffin pay this year?

$2,565

224 Part 3 Accounting Applications

Assignment 11.2 Continued

$190,000 4 $100 5 $1,900

$1,900 3 $1.35 5 $2,565

$635,000 3 0.80 5 $508,000

$508,000 3 0.017 5 $8,636

$635,000 3 0.75 5 $476,250

$476,250 3 0.017 5 $8,096.25

$8,636.00 2 $8,096.25 5 $539.75

$320,000 3 0.80 5 $256,000

$256,000 4 $100 5 $2,560

$2,560 3 $1.40 5 $3,584

6. The Balford Corp. is located in an area in which assessed valuation is 80% of market value. The tax rate

this year is 1.7%. The market value of Balford’s property is $635,000. How much property tax will

Balford pay this year?

$8,636

7. Next year, the assessed valuation in Balford’s area (problem 6) will decrease to 75% of market value and

the tax rate will remain the same as this year. How much less tax will Balford pay next year than it paid

this year?

$539.75

8. Perez, Inc., is headquartered in an area in which assessed valuation is 80% of market value. The tax rate

this year is $1.40 on each $100 of assessed valuation. Its property has a market value of $320,000. How

much property tax will Perez pay this year?

$3,584

Score for B (24)

C (24 points) Solve the following problems. Round to the nearest dollar. (3 points for each correct answer)

9a. There are four towns in Hogan county: Lawton, Johnsville, Dover, and Gault. Using the total assessed val-

uations given and the amount of money the town must raise for operating expenses, compute the neces-

sary tax rate for each town.

Total Assessed Money That Tax Rate as

Town Valuation Must Be Raised a Percent

Lawton $200,000,000 $3,400,000

Johnsville $340,000,000 $5,100,000

Dover $280,000,000 $3,780,000

Gault $620,000,000 $12,400,000

b. Convert each of the percentage rates in part a to mills per dollar of assessed valuation.

Lawton

Johnsville

Dover

Gault

Score for C (24)

20 mills

13.5 mills

15 mills

17 mills

2.0% (0.02)

1.35% (0.0135)

1.5% (0.015)

1.7% (0.017)

D (12 points) Solve the following problems. Round to the nearest dollar. (6 points for each correct answer)

10.

A home with annual tax payments of $624 was sold at the end of the fifth month of the taxable year.

The seller had already paid the entire tax for the year. How much tax was the seller reimbursed on

proration of taxes at the time of the sale?

$364

Chapter 11 Taxes 225

Assignment 11.2 Continued

$624 4 12 5 $52 per month taxes

12 2 5 5 7 months prepaid

$52 3 7 5 $364 reimbursed to seller

11. A senior citizen lives in a state that grants a 20% exemption on property taxes. Her property is valued

at $290,000 and is assessed at 75% of value. The current tax rate is 1.6%. How much tax is due each six

months?

$1,392

Assessed valuation: $290,000 3 0.75 5 $217,500

Regular yearly tax payment: $217,500 3 0.016 5 $3,480

Tax after exemption: $3,480 3 0.80 5 $2,784

Due each 6 months: $2,784 4 2 5 $1,392

Score for D (12)

226 Part 3 Accounting Applications

2. Adams Company purchased a new copy machine priced at $2,650 less a 10% discount

plus delivery and setup charges of $150. Determine the amount of the discount, the

sales tax at 6.5%, and the total amount of the sale including delivery and setup costs.

Set up the table below on an Excel worksheet and complete by adding formulas for

calculations. Hint: Discounts are subtracted before and delivery costs are added after

calculating sales tax.

Original price of copy machine

Discount amount

Net price after discount

Sales tax at 6.5%

Delivery and setup

Total sale amount

3. Kingstrom Corporation is located in an area in which assessed valuation is 70% of

market value. The current tax rate is 1.35%. Determine Kingstrom’s property tax for

the year on property with a market value of $652,000. Enter the data below into an

Excel worksheet and complete by adding formulas for calculations.

Market value of property

Assessed valuation at 70%

Property tax at 1.35%

Try Microsoft

Excel (Continued from page 217.)

Chapter 11 Taxes 227

Assignment 11.3: Federal Income Tax

Name

Date Score

A (52 points) Complete all problems, using the exemptions, deductions, and tax rates given in the

chapter. Round all amounts to the nearest dollar. (Rounding is allowed so long as it is done

consistently.) (12 points for correct answers to 2a and 3a; 4 points for other correct answers)

1. Determine the taxable income for each of the following taxpayers.

Adjusted Number of Type of Taxable

Gross Income Exemptions Return Deductions Income

a. $28,700 1 Single Standard

b. $52,450 4 Head of household Standard

c. $34,700 2 Joint Standard

d. $16,452 1 Single $5,960

e. $43,700 6 Joint $12,218

$11,082

$7,092

$17,200

$31,000

$19,950

Learning Objectives

5 6

a. $28,700 2 $3,400 exemption 2 $5,350 deduction 5 $19,950

b. $52,450 2 $13,600 exemption 2 $7,850 deduction 5 $31,000

c. $34,700 2 $6,800 exemption 2 $10,700 deduction 5 $17,200

d. $16,452 2 $3,400 exemption 2 $5,960 deduction 5 $7,092

e. $43,700 2 $20,400 exemption 2 $12,218 deduction 5 $11,082

Income $28,700

Less standard deduction 2

7,950

20,750

Minus exemption 2

3,400

Taxable income $17,350

Income $21,000

Less standard deduction 2

13,850

7,150

Minus 2 exemptions $

26,800

Taxable income $ 350

$350 3 0.10 5 $35

$782.50 1 15% of amount over $7,825 ($17,350 2 7,825) 3 0.15 5 $1,428.75 1 $782.50 5 $2,211.25

(rounded to $2,211)

2. Sadie Gilford is a single, 70-year-old blind person who lives alone. She takes the standard deduction. Her

income during the year was $28,700.

a. What is Sadie’s taxable income?

$17,350

b. What is Sadie’s tax?

$2,211

3. George Sampson is 82 years old. His wife Marcia is 83 and is blind. They have $21,000 total income. They

file a joint return and take the standard deduction.

a. What is the Sampsons’ taxable income?

$350

b. What is the Sampsons’ income tax?

$35

Score for A (52)

B (48 points) Solve the following problems. (12 points for correct taxable income; 4 points for correct

income tax)

Alfred Wild is 66 years old; his wife Silvia is 64. They file a joint return. Alfred’s salary for the year was

$45,000. Silvia’s salary was $47,000. They paid mortgage interest of $12,600 and property tax of $1,200 on

their home. They paid state income tax of $3,800 during the year. They itemize their deductions.

a. What is their taxable income? b. What is their income tax?

$9,748$67,600

228 Part 3 Accounting Applications

Assignment 11.3 Continued

Income $92,000 $8,772.50 1 ($67,600 2 $63,700) 3

Itemized deductions: $12,600 0.25 5 $9,747.50 (rounded to $9,748)

1,200

03,800 217,600

(standard deduction 5 $11,750)

$74,400

Minus 2 exemptions ($3,400) 2

06,800

Taxable income $67,600

Income from state bond is not taxable. From Schedule Y-1:

Adjusted gross income $63,250

Minus standard deduction 02

10,700 No child tax credit because both children are

52,550 17 or older.

Minus 5 exemptions 2

17,000

Taxable income $35,550 $1,565 1 ($35,550 2 $15,650) 3

0.15 5 $4,550

Principal, groceries, and utilities are not deductible. $13,125 3 0.10 5 $1,312.50

Adjusted gross income $46,000 rounded to $1,313

Itemized deductions: $3,100 Minus child tax credit 2

1,000

6,200 Net tax after credits $ 313

2,175

500

0500 212,475

$33,525

Minus 6 exemptions 2

20,400

Taxable income $13,125

5. Michael and Martha Miller are married and have three dependents living with them: their children, aged

17 and 19, and Martha’s mother. Michael’s salary for the year was $30,000, and Martha’s salary was

$32,000. They received taxable interest of $1,250 and $500 interest from a state bond. They take the

standard deduction and file a joint return.

a. What is their taxable income? b. What is their net tax after credits?

$4,550$35,550

6. Renaldo and Rita Hernandez have three children aged 17, 18, and 12. Renaldo’s father lives with them and

has no income. Renaldo earned a salary of $46,000 during the year. Rita is not employed. They paid $3,100

property tax and $6,200 mortgage interest on their home. They paid $2,600 principal on their mortgage.

They paid state income tax of $2,175. They donated $500 to their church and $500 to the Salvation Army.

They spent $5,600 on groceries and $1,100 on utilities. They itemize their deductions.

a. What is their taxable income? b. What is their net income tax after

credits?

$313

$13,125

Score for B (48)

Insurance

Chapter 12 Insurance 229

Learning Objectives

By studying this chapter and completing all assignments, you will be able to:

Compute costs and savings for auto insurance.

Compute auto insurance premium rates for high- and low-risk drivers.

Compute short-rate refunds.

Compute coinsurance on property losses.

Compute life insurance premiums.

Compute cash surrender and loan values.

Compute medical insurance contributions and reimbursements.

Learning Objective

Auto insurance falls into three categories: liability and property damage, comprehensive,

and collision. A policy that fully protects the insured will contain all three types.

Auto liability and property damage insurance protects the insured against claims

resulting from personal injuries and property damage. Some states require all drivers to

carry auto liability and property damage insurance. The amount of protection generally

ranges from $50,000 to $1,000,000 per accident.

Auto comprehensive insurance protects the vehicle of the insured against water,

theft, vandalism, falling objects, and other damage not caused by collision.

Auto collision insurance protects the vehicle of the insured against collision damage.

Such damage may result from a collision with another vehicle or a one-car accident, such

as hitting a tree.

The payment for an insurance policy is called a premium. Premium rates for auto

insurance depend primarily on the coverage included in the policy, the driving record of the

insured, the geographical area where the driver lives, and government laws and regulations.

Auto collision insurance policies usually contain a deductible clause, which

stipulates that the insured will pay the first portion of collision damage, usually $50 to

$500, and that the insurance company will pay the remainder up to the value of the

insured vehicle. A deductible clause not only reduces the amount of damages for which

the insurance company must pay but also keeps the insurance company from having to

get involved in and do paperwork for small repairs costing less than the deductible.

Therefore, a deductible clause lowers the premium for collision insurance.

230 Part 3 Accounting Applications

Computing Auto Insurance Costs

Learning Objective

Compute costs and savings for auto

insurance.

12.1 A building or an auto on which a

mortgage or loan is held by a lending

institution is generally insured for at

least the amount of the loan.The

lending institution holds the insurance

policy,which states that the lending

institution will be paid first in case of

damage or loss.Without the insurance

industry,the lending industry would

have to undergo major changes.

EXAMPLE A

A car was insured for collision damage with a $250 deductible. The premium was $1,750

per year. The insured hit a tree, causing $2,530 damage to his car. How much more did

the insured receive than he paid in premiums for that year?

$2,530 damage 2 $250 deductible 5 $2,280 paid by insurance

$2,280 received by insured 2 $1,750 premium paid 5 $530.

EXAMPLE B

The driver of car A carried auto liability and property damage insurance only. She struck

car B, causing $1,400 damage to car B and $700 in injuries to the driver. Car A suffered

$940 damage.

a. How much did the insurance company pay for this accident?

$1,400 for damage to car B 1 $700 for injuries to driver 5 $2,100

b. How much did this accident cost the driver of car A?

$940 in uncovered damage to her own car

No-fault insurance is a term that is used to describe an auto insurance system that

requires drivers to carry insurance for their own protection and that limits their ability

to sue other drivers for damages. No-fault insurance requires that the driver of each

vehicle involved in an injury accident submit a claim to his or her own insurance company

to cover medical costs for injuries to the driver and passengers in that person’s own

vehicle. No-fault insurance is mandatory in some states. No-fault insurance doesn’t

cover damage to either vehicle involved in an accident.

Chapter 12 Insurance 231

EXAMPLE C

Drivers A and B live in a state in which no-fault insurance is mandatory. Their two cars

collided. Driver A and his passengers incurred medical expenses of $3,500. Driver B and

her passengers incurred $1,700 in medical expenses. Car A required $1,400 in repairs.

Car B required $948 in repairs. How much did the insurance companies pay under the

no-fault insurance coverage?

Driver A’s insurance company paid $3,500 in medical expenses.

Driver B’s insurance company paid $1,700 in medical expenses.

Car repairs are not covered under no-fault insurance.

Driver A lives in a state in which no-fault insurance is mandatory. He carries all three classifica-

tions of insurance to be fully protected.His total insurance premium is $2,400,with a collision

deductible of $500. Driver A is involved in a major accident when he loses control of his car

and hits two parked cars (cars B and C) before colliding with an oncoming car (car D) contain-

ing a driver and three passengers.Driver A is alone.

Damage to driver A’s car is $3,200.

Damages to cars B, C, and D total $8,600.

Medical expenses for driver A are $2,800.

Medical expenses for the driver and passengers of car D are $7,300.

a. How much does driver A’s insurance company pay?

Damage to car A: $3,200 2 $500 deductible 5 $2,700 covered by collision

Damage to cars B, C, and D: $8,600 covered by liability

Medical expenses for driver A under no-fault: $2,800

$2,700 1 $8,600 1 $2,800 5 $14,100 paid by driver A’s insurance

b. How much does driver D’s insurance company pay?

Medical expenses paid for driver D and passengers (no-fault): $7,300

c. How much more did driver A’s insurance company pay to him and on his behalf for this

accident than he paid in insurance expenses for the year? (This is the amount driver A saved

this year by being fully insured.)

$2,400 premium 1 $500 deductible for repairs in this accident 5 $2,900 paid by driver A

$14,100 from insurance 2 $2,900 5 $11,200

Driver A saved $11,200 this year by being fully insured with a $500 deductible clause.

✔

CONCEPT CHECK 12.1

Computing Low-Risk and High-Risk Rates

Compute auto insurance premium

rates for high- and low-risk drivers.

Learning Objective

Auto insurance premium rates reflect the risk involved. Insurance companies study the

statistics on automobile accidents relative to driving records. Premium rates are adjusted

according to the driving record of the insured. A driver with a clear record of long

standing is considered to be a low-risk driver and may be rewarded with a discount in

the premium rate. Conversely, a driver with a record of numerous citations or accidents

is considered to be a high-risk driver and may pay double, triple, or even a higher

multiple than the normal premium rate.

Short rates are rates charged for less than a full term of insurance. If an insurance policy

is canceled by the insured (the person who receives the benefit of the insurance) before

the policy’s full term is complete, the insured will receive a short-rate return of premium.

If a policy is canceled by the insurance company rather than by the insured, the company

must refund the entire unused premium.

232 Part 3 Accounting Applications

12.2 Insurance premiums reflect

careful and extensive analysis of

historical data by insurance

companies.

EXAMPLE D

Drivers A and B have identical automobiles and amounts of insurance coverage. The

normal premium rate for each is $2,000 per year. Driver A is a low-risk driver and receives

a 15% discount on the premium rate. Driver B is a high-risk driver and must pay double

the normal rate. How much more does driver B pay for insurance than driver A?

Driver A pays $2,000 3 85% 5 $1,700 (100% 2 15% discount)

Driver B pays $2,000 3 2 5 $4,000

Driver B pays $4,000 2 $1,700 5 $2,300 more

Driver A, a very careful driver, has had the same insurance company for 5 years and has not

had a ticket during that 5-year period.Each year, driver A has received a 10% reduction in

her premium. Driver B has a record of speeding tickets. He has had one or more every year

for 5 years. His premium for year 1 was normal, for years 2 and 3 it was 150%, and for years 4

and 5 it was 200%.The normal annual premium rate for each driver would be $980.

a. How much did driver A pay in premiums over the 5-year period?

$980 3 90% 5 $882

$882 3 5 5 $4,410

b. How much did driver B pay in premiums over the 5-year period?

Year 1: $980

Years 2 and 3: $980 3 1.5 3 2 5 $2,940

Years 4 and 5: $980 3 2 3 2 5 $3,920

$980 1 $2,940 1 $3,920 5 $7,840

c. How much more did driver B pay during the 5-year period than driver A?

$7,840 2 $4,410 5 $3,430

✔

CONCEPT CHECK 12.2

Computing Short Rates

12.3 Figured into premium rates are

expenses incurred for paperwork to

issue and service the policy.If the

insured cancels the policy before a

year’s premium has been earned,

the premium received will not be

commensurate with expenses

already incurred.

Learning Objective

Compute short-rate refunds.

EXAMPLE E

A driver paid an annual premium of $1,960 for auto insurance. After 3 months, the

vehicle was sold and the insurance canceled. The insurance company refunded the

remaining portion of the premium at the short rate, based on a penalty of 10% of

the full-year premium. What was the refund?

Unused premium: $1,960 35$1,470 (9 months canceled 55year)

Penalty: $1,960 3 10% 5 $196

Short-rate refund: $1,470 2 $196 5 $1,274

Property insurance is insurance against loss of or damage to property. A policy can be

written to protect the insured against loss from fire, casualty, liability, and theft.

Premium rates, which are quoted in terms of dollars per $1,000 of insurance, depend

on the nature of the risk, the location of the property, and the length of time covered by

the policy. Short rates and short-rate penalties for less than a full term of insurance apply

to property insurance as they do to auto insurance.

Chapter 12 Insurance 233

A company purchased two cars. Each car was insured at an annual premium of $1,780. At the

end of 6 months, the company sold one car and canceled the insurance on that car. At

the end of 9 months, the insurance company decided to cancel the insurance on the sec-

ond car. The insurance company imposes a 10% penalty for short-rate premiums. Com-

pute the refunds the insurance company paid for car 1 and car 2.

Car 1: $1,780 3 year 5 $890 unused premium

$1,780 3 10% 5 $178 penalty

$890 2 $178 5 $712 refunded

Car 2: $1,780 3 year 5 $445 unused and refunded premium

COMPLETE ASSIGNMENT 12.1.

✔

CONCEPT CHECK 12.3

Computing Coinsurance on Property Losses

Compute coinsurance on property

losses.

Learning Objective

12.4 Property insurance is based on

the old-world “good neighbor”

concept.Before insurance,when one

family in a community lost a home or

barn to fire or other destruction,

neighbors contributed household

goods or hours of labor to rebuild the

structure.The premium and face value

concept of the modern-day insurance

policy accomplishes the same purpose.

EXAMPLE F

A building worth $350,000 is insured for $210,000. The annual premium for the policy is

$5,000. A fire causes $80,000 in damage.

a. How much does the insurance company pay?

$80,000 in damage is less than the $210,000 policy. The insurance company pays the

entire $80,000.

b. How much does the property owner pay?

The property owner does not pay for damages.

c. How much does the property owner pay that year in damages and insurance?

$5,000 for the insurance premium only.

In an ordinary fire insurance policy, the insured will be paid for the loss up to the

amount of the insurance. Policies may be obtained at lower rates if they contain a

coinsurance clause. This clause specifies that if a property is not insured up to a

specified percentage of its value, the owner is responsible for part of the loss and will

not be covered for the full amount of damages.