Compute the Undervaluation Penalty for Each of the Following Independent $\begin{array}{lll} &\text { Reported Value }&\text {Corrected IRS Value }\\\end{array}$

question 123

Essay

Compute the undervaluation penalty for each of the following independent cases involving the executor's reporting of the value of a closely held business in the decedent's gross estate. In each case, assume a marginal Federal estate tax rate of 40%.
$\begin{array}{lll} &\text { Reported Value }&\text {Corrected IRS Value }\\\end{array}$
A) $\begin{array}{lll} && \$ 10,000 &&&&& \$ 20,000 \\\end{array}$
B) $\begin{array}{lll}&& 60,000 &&&&&& 100,000 \\\end{array}$
C) $\begin{array}{lll} && 80,000 &&&&&& 150,000 \\\end{array}$
D) $\begin{array}{lll}&& 50,000 & &&&&&300,000\end{array}$

• A)\(\begin{array}{lll} && \$ 10,000 &&&&& \$ 20,000 \\\end{array}\)
• B)\(\begin{array}{lll}&& 60,000 &&&&&& 100,000 \\\end{array}\)
• C)\(\begin{array}{lll} && 80,000 &&&&&& 150,000 \\\end{array}\)
• D)\(\begin{array}{lll}&& 50,000 & &&&&&300,000
• \end{array}\)

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Definitions:

Fixed Budget Variance

The difference between the actual incurred expenses and the expenses budgeted for a set period, under the assumption of fixed operational conditions.

Standard Costing System

An accounting system that assigns fixed costs for materials, labor, and overhead to the production of goods, facilitating budgeting and performance evaluation.

Direct Labour Hours

The total hours worked by employees directly involved in the manufacturing process, contributing to the transformation of raw materials into finished goods.

Unfavourable Variance

A financial term indicating that actual results are worse than expected or budgeted results, leading to a negative impact on profitability.