Q1. Given a decision tree, you have the option of

(a) converting the decision tree to rules and then pruning the resulting rules, or (b) pruning the decision tree and then converting the pruned tree to rules. What advantage does (a) have over (b)?

Q2. See the following Figure and compute the true positive rate .TPR/ , false positive rate .FPR/, Precision and Accuracy. (1 Marks) • There are two possible predicted classes: “yes” and “no”. If we predict the presence of a disease, for example, “yes” would mean they have the disease, and “no” would mean they don’t have the disease. • The classifier made a total of 165 predictions (e.g., 165 patients were being tested for the presence of that disease). • Out of those 165 cases, the classifier predicted “yes” 110 times, and “no” 55 times. • In reality, 105 patients in the sample have the disease, and 60 patients do not. Q3. Compare the advantages and disadvantages of eager classification (e.g., decision tree, Bayesian, neural network) versus lazy classification (e.g., k-nearest neighbor, case-based reasoning). ( 1 Mark) Q4. The following decision tree has been created to predict what someone can do. a. Convert this tree to if then rules (0.25 Mark) b. Using the following testing data: i. Predict the class of each record (0.25 Mark) Parents Visiting Weather Money class Prediction 1 Yes Sunny Rich Shopping 2 Yes Windy Poor Cinema 3 No Windy Poor Play tennis 4 No Rainy Rich Stay in 5 Yes Rainy Poor Stay in 6 No Windy Rich Cinema ii. Calculate the accuracy of this model. (0.25 Mark) iii. Interpret the obtained result (0.25 Mark) iv. How we can improve the performance of the obtained model? (0.25Mark)

 

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Mike and Melissa form the equal MM Partnership. Mike contributes cash of $40,000 and land (fair market value of $100,000, adjusted basis of $136,000), and Melissa contributes the assets of her sole proprietorship (value of $140,000, adjusted basis of $115,000). What are the tax issues that should be considered by Mike, Melissa, and MM on the formation of the partnership? What are the tax consequences of these issues?

Continue with the facts presented in Problem 31. Mike purchased the land (value of $100,000; adjusted basis of $136,000) several years ago as an investment (capital) asset. Mike and MM LLC are trying to decide between two alternatives.

• In Alternative 1, Mike will contribute the land to the LLC. MM will use the property as a § 1231 asset (a parking lot) and then sell it in six years at an estimated $100,000 price. (Disregard any potential improvements to the land.)

• In Alternative 2, Mike will sell the land immediately to a third party and contribute to MM the $100,000 cash proceeds from the sale. MM will use that cash to purchase similar land for $100,000.

Use the following additional assumptions: (1) neither Mike nor MM will realize other capital or § 1231 gains or losses now or in the future, (2) Mike’s marginal tax rate is 35%, (3) a reasonable annual discount rate is 3%, and (4) the tax treatment of capital and § 1231 gains and losses does not change in the foreseeable future.

1. For each alternative, when would the $36,000 loss be recognized, to whom would the loss be allocated, what is the character of the loss, and over what time period can the loss be deducted?

2. In these two alternatives, calculate Mike’s tax savings each year from deducting his share of any loss allocated to him that year. Use the tables in Appendix G (or Microsoft Excel) to calculate the present value of these savings. Considering only tax savings, as Mike’s tax adviser, would you recommend Alternative 1 or Alternative 2? Why? What other issues should Mike consider?

3. How would the results in parts (a) and (b) change if MM were to sell the property in Alternative 1 after only four years? Answer conceptually; do not make calculations.

 

 

My answers

32.

1. Alternative 1
2. The 36,000 loss would be recognized in 6 years upon its sale.
3. The loss would be allocated 50-50 between Mike and Melissa.
4. This is a Section 1231 loss.
5. The loss can be deducted after sale, so in 6 yrs.

Alternative 2

1. The 36,000 loss would be recognized immediately upon sale.
2. The loss would be allocated 100% to Mike.
3. This is a capital loss.
4. The loss can be deducted after sale, so immediately.
5.  

Alternative 1

1. The PV of Mike’s tax savings is 36,000*.35*.5*0.8375[Appendix G] = 5276.25

 

Alternative 2

1. The PV of Mike’s tax savings is the full 36,000*.35 = 12,600 due to the full deduction for the loss.

 

Recommend Alternative 2,  Mike should consider Alternative 2 because he can claim the full deduction. Whereas in Alternative 1, he has to share the deduction.

1. New Alternative 1
2.  
3. The 36,000 loss would be recognized in 4 years upon its sale.
4. The loss would be allocated to Mike 100%.
5. This is a Section 1231 loss.
6. The loss can be deducted after sale, so in 4 yrs

 

1. Still Recommend Alternative 2, Mike should consider Alternative 2 because he can claim the full deduction. Whereas in Alternative 1 he has to share the deduction. Even though the PV deduction would be more than the original alternative 1 deduction, it is still not greater than the full deduction.

 

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Alice Ltd acquired all the issued shares of Springs Ltd for $521 760 cash on 1 July 2019. At this date, the information below was provided: Springs Ltd’s equity comprised of Share Capital, Retained earnings and General Reserve with the following account balances: Share Capital $161 700 Retained Earnings 151 200 General Reserve 72 000 Springs Ltd had recorded Goodwill of $5 760 (see Goodwill account in Consolidation Worksheet in Answer Booklet). Al the identifiable assets and liabilities of Springs Ltd were recorded at fair value equal to their carrying amounts except Buildings that were considered to have a further 5-year useful life.

 

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