Whirlwind Cycles is owned 100% by Daniel, a single taxpayer.Both Whirlwind Cycles and Daniel...

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Whirlwind Cycles is owned 100% by Daniel, a single taxpayer.Both Whirlwind Cycles and Daniel use the cash method of accountingfor tax purposes. The business incurred the following items ofincome and expense in Year 2: Cash Sales $225,000 Interest receivedfrom City of Flint Bonds (this is a municipal bond) 3,000 Cost ofGoods Sold (assume cash paid in Year 2) 45,000 Cash payments forYear 2 utilities 3,500 Cash payments for Year 2 rent 18,000 Taxdepreciation 40,000 Cash contribution to the Democratic party (notdeductible for tax purposes) 1,000 On 1/1, Year 1, Whirlwind Cyclespurchased a 60-month zero coupon bond with a 5% yield and a $20,000maturity value for $15,670 (compounded annually). Daniel’s taxableincome is $100,000 before any profits from the business areconsidered. Daniel files as a single tax payer. Whirl Cycles isorganized as a C Corporation and the corporation pays all of itsafter-tax cash flows to Daniel as a dividend. (a) How much interestincome does Whirlwind cycles need to recognize from the zero couponbond in Year 2? (5 pts) (b) What is the taxable income of WhirlwindCycles in Year 2? (5 pts) (c) What is the after-tax cash flow ofWhirlwind Cycles in Year 2? (5 pts) Hint: the total tax due in Year2 of Whirlwind Cycles is 25,058. (d) Calculate Daniel’s Year 2after-tax cash flows from the Whirlwind Cycles. (5 pts) Hint: Thisis a dividend payment. So consider what is tax rate Daniel needs topay on the cash payment.

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In: AccountingWhirlwind Cycles is owned 100% by Daniel, a single taxpayer.Both Whirlwind Cycles and Daniel use...Whirlwind Cycles is owned 100% by Daniel, a single taxpayer.Both Whirlwind Cycles and Daniel use the cash method of accountingfor tax purposes. The business incurred the following items ofincome and expense in Year 2: Cash Sales $225,000 Interest receivedfrom City of Flint Bonds (this is a municipal bond) 3,000 Cost ofGoods Sold (assume cash paid in Year 2) 45,000 Cash payments forYear 2 utilities 3,500 Cash payments for Year 2 rent 18,000 Taxdepreciation 40,000 Cash contribution to the Democratic party (notdeductible for tax purposes) 1,000 On 1/1, Year 1, Whirlwind Cyclespurchased a 60-month zero coupon bond with a 5% yield and a $20,000maturity value for $15,670 (compounded annually). Daniel’s taxableincome is $100,000 before any profits from the business areconsidered. Daniel files as a single tax payer. Whirl Cycles isorganized as a C Corporation and the corporation pays all of itsafter-tax cash flows to Daniel as a dividend. (a) How much interestincome does Whirlwind cycles need to recognize from the zero couponbond in Year 2? (5 pts) (b) What is the taxable income of WhirlwindCycles in Year 2? (5 pts) (c) What is the after-tax cash flow ofWhirlwind Cycles in Year 2? (5 pts) Hint: the total tax due in Year2 of Whirlwind Cycles is 25,058. (d) Calculate Daniel’s Year 2after-tax cash flows from the Whirlwind Cycles. (5 pts) Hint: Thisis a dividend payment. So consider what is tax rate Daniel needs topay on the cash payment.