Question 1 (10 Points) In 2011, Brian was granted 4,000 stock options by his employer, Dozier Corporation.The options must be exercised within 8 years from the grant date. Each option allowed Brian to purchase one share of Dozier Corporation stock for $12 per share.On the date the options were granted to Brian in 2011, Dozier Corporation stock was selling for $12 per share.In 2016, when Dozier Corporation stock was selling for $23 per share, Brian exercised his options and purchased 4,000 shares of Dozier Corporation.In 2018, Brian sold all 4,000 shares in Dozier Corporation stock for $39 per share.

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a. What are the federal income tax consequences to Brian and Dozier Corporation in 2011, 2016, and 2018 if the Dozier Corporation options granted to Brian were nonqualified stock options (NQSOs)?You may ignore alternative minimum tax (AMT) for this question.Please show your work and explain your calculations.(5 points)

b. What are the federal income tax consequences to Brian and Dozier Corporation in 2011, 2016, and 2018 if the Dozier Corporation options granted to Brian were qualified incentive stock options (ISOs)?You may ignore alternative minimum tax (AMT) for this question.Please show your work and explain your calculations.(5 points)

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Question 2 (14 Points)

Dubnyk Corporation, a calendar year, accrual method C-corporation, purchased and placed in service the following new assets on the following dates:

Date 3/20/2017 5/5/2017 9/14/2017

Asset Computers Copiers Office furniture

Cost $500,000 $300,000 $1,400,000

Dubnyk Corporation purchased no other assets during 2017 and its net income for 2017 is $4,000,000 before taking cost recovery deductions into account.a.

b.

What is the maximum federal cost recovery deduction Dubnyk Corporation may take in 2017?Please show your work and explain your calculations. (6 points)

What is the federal cost recovery deduction Dubnyk Corporation may take in 2018 on the office furniture asset? (You do not need to calculate the federal cost recovery deduction on the computer or copier assets in 2018).Please show your work and explain your calculations. (2 points)

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c.

d.

What is Dubnyk Corporation's adjusted basis in the office furniture at the end of 2018?(You do not need to calculate adjusted basis on the computer or copier assets at the end of 2018).Please show your work and explain your calculations. (2 points)

How would your answer to question 2(a) above change if the assets were placed in service on the same dates but in 2018?That is, what is the maximum federal cost recovery deduction Dubnyk Corporation may take in 2018 if the computer, copier, and office furniture assets had been placed in service on 3/20/2018, 5/5/2018, and 9/14/2018, respectively? (4 points)

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Question 3 (6 Points)

Reliable Manufacturer, Inc. is a calendar year, accrual method C corporation that is in the business of manufacturing widgets.Its taxable income averages $2,000,000 each year.On June 1, 2010, Reliable Manufacturer purchased a new manufacturing building in Minneapolis for $2,500,000.The land was allocated $500,000 and the building was allocated $2,000,000 of the purchase price.The building will be placed in service immediately upon purchase.Reliable Manufacturer occupied the building from June 1, 2010 through October 29, 2018.Reliable Manufacturer has entered into a purchase agreement to sell the land and the manufacturing building on October 29, 2018.a. What is the maximum tax cost recovery deduction Reliable Manufacturer can take on the manufacturing building in 2010?Please show your work and explain your calculations.(2 point)

b. What is the maximum tax cost recovery deduction Reliable Manufacturer can take on the manufacturing building in 2015 and 2016?Please show your work and explain your calculations.(2 points)

c. What is the maximum tax cost recovery deduction Reliable Manufacturer can take on the manufacturing building in 2018?Please show your work and explain your calculations.(2 points)