Problem 1 (Use the facts below to answer Problem 1, Questions 1, 2, and 3) Whirlwind Cycles is owned 100% by Daniel, a single taxpayer. Both Whirlwind Cycles and Daniel use the cash method of accounting for tax purposes. The business incurred the following items of income and expense in the year 2021: Cash Sales $250,000 Interest received from City of Eugene Bonds 3,000 Cost of Goods Sold (assume cash paid in 2021) 42,000 Cash payments for 2021 utilities 4,500 Cash payments for 2021 rent ($1,200 per month) 14,400 Tax depreciation (deductible for tax purposes) 30,000 Cash contribution to the political party he supports (not deductible for tax purposes) 1,000 On 1/1/2020 (last year) Whirlwind Cycles purchased a 60-month zero coupon bond with a 4% yield and a $30,000 maturity value for $24,657 (compounded annually). Daniels marginal tax rate is 37% (i.e. he has $600,000 of income from other sources) before any profits from the business are considered. 1. (1 point) What is the taxable income of the business assuming it operates as a sole proprietorship (choose the answer within 1 or 2 dollars of your exact answer to allow for rounding differences)? a. $159,100 b. $160, 086 c. $160,126 d. None of the above

2. (1 point) Calculate the tax liability for the sole proprietorship assuming your answer to part a is $155,000 (i.e. assuming the taxable income of the business is $155,000). Choose the answer within 1 or 2 dollars of your exact answer to allow for rounding differences. a. $31,000 b. $31,221 c. $32,550 d. 57,350 3. (1 point) Calculate Daniels 2021 after-tax cash flows from the business assuming your answer to part B is $35,000 (i.e. assuming the tax liability for the business is $35,000) and Daniel withdraws all after-tax cash flows from the business. a. $156,100 b. $191,100 c. $153,100 d. None of the above