UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGNCollege of BusinessD E P A R T M E N T O F F I N A N C E Finance 230 Assignment 11Fall, 2007 Due: November 30, 2007(Remember, all assignments must be turned in by the beginning of class to get credit!)1. A man dies in 2007 with a gross estate of $4,000,000. His funeral expenses are $40,000. He leaves $2,000,000 to the American Red Cross. Assume there are no other allowable deductions, charitable gifts, adjustable taxable gifts, state estate tax credits, previously paid estate and gift taxes or foreign death taxes. Use the attached Unified Rate Schedule to determine the total Federal estate tax owed on his estate.A. 0 B. $600,800 C. $999,200D $1,600,000 E. None of the above 4,000,000 Gross Estate - 40,000 Funeral Expenses Allowable Deductions -2,000,000 Charitable Deductions 1,960,000 Tax Computation Base555,800 + 0.45*(1,960,000-1,500,000) = 762,800 Tentative Federal Estate Tax- 780,800 Unified Credit$0 Federal Estate Tax Due2. A married man dies in 2007 with a gross estate of $6,080,000. His funeral expenses are $80,000. He leaves $3,000,000 to his wife and $3,000,000 to his only son. His wife dies later in 2007 with a gross estate of $3,000,000 (the amount she inherited from her husband). Her funeral expenses are $50,000, and she leaves $2,950,000 to her son. Assume there are no other allowable deductions, charitable gifts,adjustable taxable gifts, state estate tax credits, previously paid estate and gift taxes or foreign death taxes. Use the attached Unified Rate Schedule to determine the total Federal estate tax owed on these two estates.A. 0 B. $427,500 C. $877,500D. $2,439,100 E. None of the aboveHIS Estate Taxes 6,080,000 Gross Estate - 80,000 Funeral Expenses Deduction-3,000,000 Marital Deduction 3,000,000 Tax Computation Base780,800 + 0.45*(3,000,000-2,000,000) = 1,230,800 Tentative Federal Estate Tax- 780,800 Unified Credit $450,000 Federal Estate Tax DueHER Estate Taxes 3,000,000 Gross Estate - 50,000 Funeral Expenses Deduction 2,950,000 Tax Computation Base780,800 + 0.45*(2,950,000-2,000,000) = 1,208,300 Tentative Federal Estate Tax- 780,800 Unified Credit $427,500 Federal Estate Tax DueTOTAL: 450,000 + 427,500 = $877,5003. If you die without a valid will, you are said to have died _________________.A. Intestate B. Penniless C. without a trustD. with an estate E. None of the above4. Which type of trust can be used to reduce the administrative and legal costs of probating an estate?A. Testamentary trust B. Inter vivos trust C. Family incentive trustD. Purpose trust E. None of the above5. Based on intermediate cost assumptions, when is the HI trust fund expected to be exhausted? A. 2015 B. 2019 C. 2041D. 2085 E. None of the above6. You earn $5,880 during your summer 2007 internship and $590 working part-time during December 2007. How many quarters of coverage under Social Security would you have earned in 2007?A. 0 B. 1 C. 4 D. 6 E. None of the aboveFor 2007, you earn one “Quarter” of coverage for each $1000 of annual earnings, subject to a maximum of 4 quarters per year. ($5880 + $590 )/ $1000 = 6.476.47 >= 4, so 4 quarters7. You are single and you earn $115,000 in 2007. What are the total Social Security taxes paid by both you and your employer?A. 0 B. $7,712.50 C. $15,425D. $17,595 E. None of the aboveCurrent (2007) payroll tax is 7.65% of first $97,500 in earnings plus 1.45% of any additional earnings. The employer and the employee both pay this amount. Employer and employee each pay: 0.0765 * 97500 + 0.0145(115,000 – 97,500) = 7,712.502 * 7,712.50 = 15,4258. Refer to the Summary of the 2007 Social Security and Medicare Trustees Report from the hyperlink on the class web page. Which part(s) of Social Security and / or Medicare is / are projected to remain adequately financed into the indefinite future because the current law automatically provides financing each year to meet the next year’s expected costs?I. OASDIII. Medicare Part A (HI)III. Medicare Part B (SMI)IV. Medicare Part D (Prescription Drug Coverage)A. I Only B. I & II Only C. II & III onlyD. III & IV E. None of the above9. Refer to the Summary of the 2007 Social Security and Medicare Trustees Report from the hyperlink onthe class web page. What percentage of an increase in the payroll tax to take effect immediately would be required to bring HI into actuarial balance over the next 75 years?A. 43% B. 67% C. 88%D. 100% E. None of the above (122%)10. According to Dennis Drent, the guest speaker on November 2nd, VPI is licensed in which of the following lines of the insurance industry?A. Life B. Health C. ReinsuranceD. Property & Casualty E. None of the aboveColumn A Column B Column C Column D Taxableamount over Taxable amountnot over Tax on amount incolumn A Rate of tax on excess overamount in column A (Percent) 0 $10,000 0 18$10,000 20,000 $1,800 2020,000 40,000 3,800 2240,000 60,000 8,200 2460,000 80,000 13,000 2680,000 100,000 18,200 28100,000 150,000 23,800 30150,000 250,000 38,800 32250,000 500,000 70,800 34500,000 750,000 155,800 37750,000 1,000,000 248,300 391,000,000 1,250,000 345,800 411,250,000 1,500,000 448,300 431,500,000 2,000,000 555,800 452,000,000 - - - - - - - - 780,800