Strengths:
■ The cash flow of the family is positive; the total income is 122,782 USD per year, and the total outcome is 116,024. The net cash flow per year is 6,758 USD.
■ Both Chris and Grace are economically productive. Both are professionals and invest in the education of their sons. That will guarantee a good economic performance in the present and future.
■ The family is the owner of business. Although they are employees, the business gives to the family an increasing positive cash flow.
Weakness:
■ They don't have almost any asset that generates positive cash flow except the restaurant.
■ The investments in the 401k and deposit certificate are not good investments for the family due to the low return and the high taxes that apply to those investments when the owner takes dividends.
2.
There is enough information to make the analysis of the financial statement of the Johnson family.
3.
Liquid Assets / Monthly Expenses = 19,200 / (116,024/12) = 1.98
Liquid Assets / Current Debt Payments = 19,200 / 5,200 = 3.69
Net Worth / Total Assets = 6,758 / 343,923 = 0.02
Total Debt / Total Assets = 118,036 / 343,923 = 0.34
Total Debt / Annual Total Income = 118,036 / 122,782 = 0.96
Housing and Monthly Debt Payments / Monthly Gross Income = 10,267 / (122,782/12) = 1.00
Housing costs / Monthly Gross income = 1,800 / (122,782/12) = 0.18
Monthly Savings / Monthly Gross Income = (5860/12) / (122,782/12) = 0.05
4.
The liquidity ratios that relate current assets and liabilities and long-term assets and liabilities are important to evaluate the capacity of the family to avoid problems with the banks and creditors. The other important ratio is the relation between income and outcome.
5.
The original mortgage of the house was signed by 103,190 USD, considering thirty years of mortgage and 9.25% and applying the Net Present Value principle the year payment is: 10267 USD.
6.
They made the first payment.
7.
Not yet, they are starting to pay the current mortgage.
8.
With the current mortgage, they will pay at the end of the contract 308,026 USD and with a 15-year mortgage, they will pay 194,867.44. It is bad business for them when they plan to "save" 5,860 USD a year for retirement. The year payment for the 15-year mortgage is 12,991.16 USD.
9.
The other method to renegotiate the mortgage is with the interest rate. The interest rate could go down, at that moment, the family could go to the bank to renegotiate the mortgage.
10 Is the health care insurance coverage adequate?
Yes, the payment is accessible for the family, and the deductible amount (2000 USD) are under the annual savings of the family. The coverage of 100% of medical expenses over 2000 USD is a benefit for the family.
11.
The interests of the residence payment are a tax shield for the income of the family. The value for the previous year is 9545.08 USD.
12.
Yes, she is a dependent for the Johnson Family, because her economic income depends on 100% of the Johnson family.
13.
Yes, she is a dependent for the Johnson Family, because her economic income depends on 100% of the Johnson family.
14.
They gave to Mrs. Johnson 6000 USD a year and to Mrs. Zhang 3600 USD. Under the topic 602 of IRS, the limit for tax purposes is 6000 USD for two or more dependents .
15.
Yes, the 3000 USD that he contributed are totally deductible of taxes.
16.
AGI = 122,782.00 – 2860 – 3000 - 9545.08 – 6000
AGI = 101.376,92
17.
The most convenient retirement plan is to sell a controlling stake in the company to a new partner that will be responsible for the operation of the restaurant. Chris and his wife will receive dividends for the restaurant.
18.
Reduce the time and interests of the mortgage according to the market conditions; translate all the income and expenses to the company (restaurant) or a new company where the family will be the shareholders.
19.
The value is the 116,000 USD which is the current value of the outflow. With an 11% of adjustment, the value will be 127,600 USD
20.
The value is the same to answer 19.
21.
A disability transforms one of the members a dependent of the other, but with an annual limit of 6,000 USD, which is covered by Mrs. Johnson and Mrs. Zhang. There is no benefit.
22.
There are no benefits in the disability of any of the two members of the Johnson family. They covered today the tax benefits for disability with Mrs. Johnson and Mrs. Zhang.
23.
Yes, the dwelling value is near the current mortgage of the house. Besides, the deductible value is convenient for the family.
24
The Liability car insurance with a total amount of 100,000 USD for the two cars is overestimated because each car has a value of 24,000 USD with a total amount of 48,000 USD for the two cars. It is more convenient for the family to have a Liability Car Insurance of 50,000 than 100,000.
25.
■ Concentrate all the income with the existent corporation of a new one.
■ Change the mortgage conditions to reduce the time of payment, interest rate or contract conditions.
■ Use the savings money to invest in the restaurant or another investment tool as a new company, gold, silver, others.
■ Move the Mrs. Johnson and Mrs. Zhang to a place near the family or in the same house to reduce expenses.
Works Cited
IRS. IRS Tax topics: Dependent. 2015. Web. 17 April 2016.
