-Jack has just won the lottery! His prize is $5 million, which he will receive in 10 years. As an alternative, Jack can accept an immediate payment of $2.5 million. Ignore any potential tax consequences. Interest rates are expected to remain at 6% for the entire period. What should Jack do? Make your decision based on the time value of money. A. Accept the $2.5 million now B. Accept the $5 million 10 years from now C. It doesn\'t matter; the two amounts are equivalent -Jack hears that the forecast for interest rates has changed and the interest rate for the next 10 years is expected to increase to 8%. In light of this news, what should Jack do? A. Accept the $2.5 million now B. Accept the $5 million 10 years from now C. It doesn\'t matter; the two amounts are equivalent Solution 1. Future value (FV) = $5 million Year (n) = 10 Interest rate (r) = 6% = 0.06 The rate factor, based on time value of money, in 10 year is 0.5584 Present value (PV) = ? PV = FV/(1+r)^n = $5 million / (1+0.06)^10 = $5 million × 0.5584 = $2.792 million The present value of $5 million is $2.792 million. Since $2.792 million is higher than $2.5 million, Mr. J should accept $5 million 10 years from now. Option B is correct. 2. Future value (FV) = $5 million Year (n) = 10 Interest rate (r) = 8% = 0.08 The rate factor, based on time value of money, in 10 year is 0.4632 Present value (PV) = ? PV = FV/(1+r)^n = $5 million / (1+0.08)^10 = $5 million × 0.4632 = $2.316 million The present value of $5 million is $2.316 million. Since $2.316 million is lower than $2.5 million, Mr. J should accept $2.5 million now. Option A is correct..

1. -Jerry and Jenny are a married couple. They provided financial assistance to several persons
during 2014. For the situations below, determine whether the individuals qualify as dependency
exemptions for Jerry and Jenny on their 2014 Married Filing Joint tax return. Assume in each
case that dependency tests not mentioned have been satisfied. (a) Brian, age 24, is Jerry and
Jenny’s son. Brian is a full-time student, and he lives in an apartment near the college. Jerry and
Jenny provide over 50% of Brian’s support. Brian worked as a stock clerk in a super market and
earned $4,000. (b) Same facts as above, except that Brian is a part-time student. (c) Sheila, age
22, is Jerry and Jenny’s daughter. She’s a full-time student and lives in a college dormitory. Jerry
and Jenny provide over 50% of Sheila’s support. Sheila works part-time as an accounting clerk,
and she earned $5,000. (d) Same facts as in (c), except that Sheila is a part-time student. (e)
Grandma, age 82, is Jenny’s grandmother, and she lives with Jerry and Jenny. In 2014,
Grandma’s only income was her Social Security of $4,800 and interest on U.S. bonds of $4,500.
Grandma uses her income to pay 45% of her total support, and Jerry and provide the rest of
Grandma’s support.
-John and Joan had been married for 20 years before John died in 2012. Joan and her son Marley,
age 21, continued to live at home in years 2012 – 2015. Marley worked part-time (earning
$5,000 in each of the four years). He also attended college on a part-time basis. Joan provided
more than 50% of Marley’s support in each year. What is Joan’s filing status for 2012, 2013,
2014, and 2015? Would Joan’s filing status change if Marley attended school full-time rather
than part-time? If so, how?
-Jake and Janice are a married couple with two dependent children. In 2014, their salaries totaled
$130,000, and they suffered a capital loss of $8,000. They also received $1,000 of taxexempt
interest. They paid home mortgage interest of $10,000, state income taxes of $4,000, and
medical expenses of $3,000. They also contributed $5,000 to charity. On their 2014 Married
Filing Joint tax return what is their (a) adjusted gross income; (b) their total itemized deductions;
(c) the amount of their exemptions; and (d) their taxable income.
-Geraldo rented an office building to Brian for $3,000 per month. On 12/29/13, Geraldo received
a deposit of $4,000 in addition to the first and last months’ rent. Brian commenced occupancy of
the building on 1/02/14. On 7/15/14, Brian closed his business and filed for bankruptcy. Geraldo
collected rent for February, March, and April on the first day of each month. He received the
May rent on 5/10/14, but collected no payments thereafter. Geraldo withheld $800 from Brian’s
deposit because of damage to the property and $1,500 for unpaid rent. He refunded the balance
of the deposit to Brian. What amount of the above payments should Geraldo have reported as
gross income in 2013 and 2014?

2. Solution
A) Brian's age is 24 years.child must be under age 19 or, if a full-time student, under age 24 for
qualifying the dependency exemption. So HE does not qualify for exemption
B)Brian's age is 24 years.child must be under age 19 or, if a full-time student, under age 24 for
qualifying the dependency exemption. So HE does not qualify for exemption
C)Sheila, age 22,child must be under age 19 or, if a full-time student, under age 24 for
qualifying the dependency exemption. So HE does not qualify for exemption
D)Qualify for exemption
E) Your relative must live at your residence all year or be on the list of “relatives who do not
live with you” in Publication 501. About 30 types of relatives are on this list.
Your relative cannot have a gross income of more than $3,950 and be claimed by you as a
dependent.
hENCE she will not qualify