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# January 28, 2015

ACCY 312: Principles of Taxation
Department of Accountancy / 3 credit hours / Spring 2015/ 20 points

Problem Set 1 Designing Your Own Tax System
Due: Wednesday, February 11, 2015, in class and electronically
You are the elected supreme ruler of your own country. You need to raise \$60,000 in taxes for road
repairs, garbage removal, etc., from the following three households in your country:
1.

Ms. Amy Co invested in an oil stock 20 years ago (at a cost of \$100,000) that now has a fair market
value of \$1,000,000. This year she received \$100,000 in cash dividends from her stock. She spent all
\$100,000 on living expenses. She also sold half of her stock for \$500,000 that she bought for \$50,000.
She reinvested the \$500,000 in a different company. Ms. Amy Co is single.

2.

Mrs. Bonnie Worm owns and operates a small bookstore with her husband, Blake. The bookstore had
a profit (sales less all expenses) of \$200,000. Bonnie and Blake spent \$20,000 on living expenses and
saved the rest of their income. They also donated \$10,000 to a local food bank.

3.

Mr. Hus Lerr works as a salesman. He earned a salary of \$70,000. He paid \$10,000 for training to
keep abreast of the latest negotiating techniques and sales pitches. These seminars took place in the
Bahamas. He is married and has 3 children, and spent \$20,000 on living expenses.

Requirement:
You have the chance to design your own tax system. You need to raise \$60,000 from these three
households. What will be each household’s taxable income? At what rate will you tax the income? Why?
How much should each taxpayer pay?
Taxpayer

Taxable Income

Tax Rate

Tax Paid

1. Ms. Amy Co

2. Bonnie & Blake Worm

3. Mr. Hus Lerr

________
Total:

\$60,000

Name: ____________________________

ACCY  312  Spring  2015  Chorvat

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