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week 1 homework 3-31.Tom and Linda are married taxpayers who file a joint return. They have itemized deductions of $11,950 and four exemptions. Assuming an adjusted gross income of $40,000.00 what is their taxable income for 2011? 3-32.Compute Marie’s taxable income for 2011, assuming she is single and claims two dependent children. Her adjusted gross income is $70,000, and she has itemized deductions of $9,000. 3-36.Compute Stanley’s taxable income for 2011, assuming he has $1,000 in wages from working in a grocery store and $2,000 in interest income from some bonds he owns. Stanley, age 16, is claimed as a dependent on his parents’ return. 13-55.Mr. Z, a non-dealer, sold assets on an installment plan. Determine Mr. Z’s gross income for 2011. Relevant data include: 13-69. Comprehensive Problem Bill is a cash-basis, calendar-year taxpayer. Which of the following December items result in gross income or deductions for the current year? a. Check received for December rent, $700, not deposited until January 4 b. Check for $1,100 to pay Bill’s state income taxes mailed December 28, cashed January 7 c. Cash received in the amount of $500 for services to be rendered the following year d. Interest of $800 credited to his savings account, added to Bill’s account balance e. Check received for January rent, $700, deposited on January 9 f. Charitable contribution of $300, charged on Bill’s MasterCard g. Bills totaling $2,000 sent for services rendered during the year, uncollected as of year-end week 2 homework Rent and Security Deposits 4-25 Billy Dent, as the owner of an apartment building, receives and makes the following payments during 2012: Received in January 2012 rent that was $5,000 due in December 2011 Received in December 2012 rent not 4,000 due until January 2013 Security deposit which is to be 500 refunded when tenant vacates the apartment How much rental income must Billy Dent include on his 2012 income tax return? Divorce Payments 4-32. Arnold and Barbara Cane were divorced in June 2012. Pursuant to the divorce decree, Arnold is obliged to perform as follows: a. Transfer title of their personal home to Barbara. They purchased the house in 1998 and their basis today is $400,000. The fair market value of the house is $500,000. The house is subject to a 25-year, $250,000 mortgage. b. Arnold is to continue making payments on the house until it is fully paid off. In 2012, Arnold made payments totaling $18,000. c. Arnold is to make $3,000 per month payments to Barbara. Of this amount one-half is for child support. The divorce decree further states that alimony is to cease upon the death of the wife. In 2012, he made six payments. How do the transactions in the divorce agreement affect Arnold’s and Barbara’s taxable income? Investment Income 5-26. A. Fluent, an investor in stocks and bonds, wanted to increase his portfolio but wanted to minimize his tax liability on the income from the bonds. He is presented with the following alternative investments: U.S. Series EE bonds, bonds for industrial development for mass transit, and qualified veterans’ mortgage bonds. Which should he choose for his investment? Why? Trade or Business Deductions 6-29. Which of the following trade or business expenditures of Ajax Inc. are deductible on its current year tax return? If an expenditure is not deductible, explain why it is not a valid deduction. Expenditure Amount Salaries and wages to employees $400,000 Purchase of new office building 250,000 Payment of illegal parking fines of 1,400 President Payment of wedding expenses for 1,600 President’s daughter’s wedding Entertainment expenses related to 25,000 company business Interest on money borrowed to buy 9,000 tax-exempt securities Total expenditures $700,400 Salaries and Wages Deductions 6-34. For the current month, Jackson Cement Co. incurred payroll expenses as follows: Gross salaries and Wages $675,000 Payroll taxes: OASDI (Social Security Tax) employer’s share HI (Medicare tax)-employer’s share 9,788 726,638 Amounts withheld and paid to the government: Employee income taxes withheld (108,990) OASDI Employees’ share (41,850) HI-employees’ share (9,788) a. What amount can Jackson claim as a tax deduction for salary and wage expense? b. How much can Jackson deduct as tax expense? week 3 homework 7-7. Differentiate between the following: active income, passive income, and portfolio income. 7-13. Briefly, what is “material participation”? Why is the determination of whether a taxpayer materially participates important? 7-46. Mary Beth is a CPA, devoting 3,000 hours per year to her practice. She also owns an office building in which she rents out space to tenants. She devotes none of her time to the management of the office building. She has a property management firm make all management decisions for her. During 2012, she incurred a loss, for tax purposes, of $30,000 on the office building. How must Mary Beth treat this loss on her 2012 tax return? 8-34. Mike and Sally Card file a joint return for the 2012 tax year. Their adjusted gross income is $65,000 and they incur the following interest expenses: Qualified education loans: $3,500 Personal loan 1,000 Home mortgage loan 4,000 Loan used to purchase a variety of stocks, Bonds, and securities 15,000 Investment income and related expenses amount to $7,000 and $500, respectively. What is Mike and Sally’s interest deduction for the 2012 tax year? 8-40. In each of the following independent cases determine the amount of charitable contributions allowed the individual before consideration of any percentage limitations. a. Charlie Chubbs contributed an item of inventory from his sole proprietorship to a public charity for its use. The fair market value of the asset was $800 and his basis was $600. b. Durwood Dodson contributed some shares of common stock that he had held long-term to a private charity. The basis of the stock was $8,000 and it had a fair market value of $7,000. c. Esther Ensign contributed tangible personal property that she had held long-term to a public charity. The asset had a fair market value of $10,000 and a basis of $6,000. The charity intended to sell the asset and use the proceeds for charitable purposes. week 4 homework After you have reviewed these recommendations, please contact me so we can go over any additional questions you may have. John’s Tax Issues 1. (a) How is the $300,000 treated for purposes of federal tax income? (b) How is the $25,000 treated for purposes of federal tax income? (c) What is your determination regarding reducing the taxable amount of income for both (a) and (b) above? (d) Is it more beneficial to continue leasing the business space or to buy the building? Jane’s Tax Issues 2. (a) What are the different tax consequences between paying down the mortgage (debt) and assuming a new mortgage (debt) for federal income tax purposes? (b) Can John and Jane Smith utilize a 1031 tax exchange to buy a more expensive house using additional money from John’s case? What is a 1031 Tax Deferred Exchange? week 5 homework Questions: 14-24 and 14-51, 17-1 and 17-24 Problems (Show your work.): 14-52, 17-40, and 17-49 14-24 What is the purpose of the dividends received deduction? What corporations are entitled to claim this deduction? What dividends qualify for this deduction? What is the purpose of the dividends-received deduction? What corporations are entitled to claim this deduction? What dividends qualify for this deduction? The purpose of the dividends received deduction is so that corporations would not be taxed at a corporate level a shareholder level or if when dividends or a recipient corporation. 14-51 What is the purpose of the reconciliation of taxable income with book income? 17-1 Identify and briefly describe the seven types of corporate reorganization. Type A: Mergers and Consolidations Type B: Acquisition — Target Corporation Subsidiary Type C: Acquisition — Target Corporation Liquidation Type D: Transfer Type E: Recapitalization Type F: Identity Change Type G: Transfer 17-24 Define and differentiate a spin-off, split-off, and split-up. Spin off – Split off- Split up – 14-52 Sam Rogers forms a corporation. Sam transfers to the corporation property having a basis to him of $15,000 and a fair market value of $27,000 for 900 shares of the $10 par stock of the corporation. A year later, Bill Morrison, who is not related to Sam, transfers property having a basis to him of $1,000 and a fair market value of $3,000 for 100 shares of the corporate stock. The corporation issued no other stock. • a. How much gain does Sam recognize on his exchange? What is the basis to Sam of his 900 shares? • b. How much gain does Bill recognize on his exchange? What is the basis to Bill of his 100 shares? • c. What gain or loss is recognized by the corporation when it issues its shares to Sam? What is the basis to the corporation of the property it received from Sam? • d. What is the gain or loss recognized by the corporation when it issues its shares to Bill? What is the basis to the corporation of the property it received from Bill? 17-40 Superior Corporation acquired Taylor Corporation pursuant to a statutory merger under state law. As a result of the merger, Taylor Corporation’s former shareholders received common stock in Superior having a value of $300,000, long-term bonds of Superior with a principal amount (and fair market value) of $500,000, and cash of $200,000. What type of reorganization has taken place? Describe the tax consequences to Taylor Corporation, its former shareholders, and Superior Corporation. 17-49 Shipyard Corp. acquired Boatworks Corp. in a Type A reorganization on July 1, 2012. On the date of acquisition, Boatworks had a deficit in its earnings and profits of $30,000. Although Shipyard had no accumulated earnings and profits, its current earnings and profits from its calendar-year 2012 operations totalled $40,000. What amount of the acquired earnings and profits deficit of $30,000 can be used to off -set Shipyard’s current earnings and profits for 2012?

week 1 homework

3-31.Tom and Linda are married taxpayers who file a joint return. They have itemized deductions of $11,950 and four exemptions. Assuming an adjusted gross income of $40,000.00 what is their taxable income for 2011?

3-32.Compute Marie’s taxable income for 2011, assuming she is single and claims two dependent children. Her adjusted gross income is $70,000, and she has itemized deductions of $9,000.

3-36.Compute Stanley’s taxable income for 2011, assuming he has $1,000 in wages from working in a grocery store and $2,000 in interest income from some bonds he owns. Stanley, age 16, is claimed as a dependent on his parents’ return.

13-55.Mr. Z, a non-dealer, sold assets on an installment plan. Determine Mr. Z’s gross income for 2011. Relevant data include:

13-69. Comprehensive Problem

Bill is a cash-basis, calendar-year taxpayer. Which of the following December items result in gross income or deductions for the current year?

a. Check received for December rent, $700, not deposited until January 4

b. Check for $1,100 to pay Bill’s state income taxes mailed December 28, cashed January 7

c. Cash received in the amount of $500 for services to be rendered the following year

d. Interest of $800 credited to his savings account, added to Bill’s account balance

e. Check received for January rent, $700, deposited on January 9

f. Charitable contribution of $300, charged on Bill’s MasterCard

g. Bills totaling $2,000 sent for services rendered during the year, uncollected as of year-end

week 2 homework

Rent and Security Deposits 4-25

Billy Dent, as the owner of an apartment building, receives and makes the following payments during 2012:

Received in January 2012 rent that was $5,000

due in December 2011

Received in December 2012 rent not 4,000

due until January 2013

Security deposit which is to be 500

refunded when tenant vacates the

apartment

How much rental income must Billy Dent include on his 2012 income tax return?

Divorce Payments 4-32.

Arnold and Barbara Cane were divorced in June 2012. Pursuant to the divorce decree, Arnold is obliged to perform as follows:

a. Transfer title of their personal home to Barbara. They purchased the house in 1998 and their basis today is $400,000. The fair market value of the house is $500,000. The house is subject to a 25-year, $250,000 mortgage.

b. Arnold is to continue making payments on the house until it is fully paid off. In 2012, Arnold made payments totaling $18,000.

c. Arnold is to make $3,000 per month payments to Barbara. Of this amount one-half is for child support. The divorce decree further states that alimony is to cease upon the death of the wife. In 2012, he made six payments.

How do the transactions in the divorce agreement affect Arnold’s and Barbara’s taxable income?

Investment Income 5-26.

A. Fluent, an investor in stocks and bonds, wanted to increase his portfolio but wanted to minimize his tax liability on the income from the bonds. He is presented with the following alternative investments: U.S. Series EE bonds, bonds for industrial development for mass transit, and qualified veterans’ mortgage bonds. Which should he choose for his investment? Why?

Trade or Business Deductions 6-29.

Which of the following trade or business expenditures of Ajax Inc. are deductible on its current year tax return? If an expenditure is not deductible, explain why it is not a valid deduction.

Expenditure Amount
Salaries and wages to employees $400,000
Purchase of new office building 250,000
Payment of illegal parking fines of 1,400
President
Payment of wedding expenses for 1,600
President’s daughter’s wedding
Entertainment expenses related to 25,000
company business
Interest on money borrowed to buy 9,000
tax-exempt securities
Total expenditures $700,400

Salaries and Wages Deductions 6-34.

For the current month, Jackson Cement Co. incurred payroll expenses as follows:

Gross salaries and Wages $675,000
Payroll taxes:
OASDI (Social Security Tax)
employer’s share
HI (Medicare tax)-employer’s share 9,788
726,638
Amounts withheld and paid to the government:
Employee income taxes withheld (108,990)
OASDI Employees’ share (41,850)
HI-employees’ share (9,788)

a. What amount can Jackson claim as a tax deduction for salary and wage expense?

b. How much can Jackson deduct as tax expense?

week 3 homework

7-7. Differentiate between the following: active income, passive income, and portfolio income.

7-13. Briefly, what is “material participation”? Why is the determination of whether a taxpayer materially participates important?

7-46. Mary Beth is a CPA, devoting 3,000 hours per year to her practice. She also owns an office building in which she rents out space to tenants. She devotes none of her time to the management of the office building. She has a property management firm make all management decisions for her. During 2012, she incurred a loss, for tax purposes, of $30,000 on the office building. How must Mary Beth treat this loss on her 2012 tax return?

8-34. Mike and Sally Card file a joint return for the 2012 tax year. Their adjusted gross income is $65,000 and they incur the following interest expenses:

Qualified education loans: $3,500

Personal loan 1,000

Home mortgage loan 4,000

Loan used to purchase a variety of stocks,

Bonds, and securities 15,000

Investment income and related expenses amount to $7,000 and $500, respectively. What is Mike and Sally’s interest deduction for the 2012 tax year?

8-40. In each of the following independent cases determine the amount of charitable contributions allowed the individual before consideration of any percentage limitations.

a. Charlie Chubbs contributed an item of inventory from his sole proprietorship to a public charity for its use. The fair market value of the asset was $800 and his basis was $600.

b. Durwood Dodson contributed some shares of common stock that he had held long-term to a private charity. The basis of the stock was $8,000 and it had a fair market value of $7,000.

c. Esther Ensign contributed tangible personal property that she had held long-term to a public charity. The asset had a fair market value of $10,000 and a basis of $6,000. The charity intended to sell the asset and use the proceeds for charitable purposes.

week 4 homework

 

After you have reviewed these recommendations, please contact me so we can go over any additional questions you may have.
John’s Tax Issues
1. (a) How is the $300,000 treated for purposes of federal tax income?
(b) How is the $25,000 treated for purposes of federal tax income?
(c) What is your determination regarding reducing the taxable amount of income for both (a) and (b) above?
(d) Is it more beneficial to continue leasing the business space or to buy the building?

Jane’s Tax Issues
2. (a) What are the different tax consequences between paying down the mortgage (debt) and assuming a new mortgage (debt) for federal income tax purposes?
(b) Can John and Jane Smith utilize a 1031 tax exchange to buy a more expensive house using additional money from John’s case?
What is a 1031 Tax Deferred Exchange?

week 5 homework

Questions: 14-24 and 14-51, 17-1 and 17-24

Problems (Show your work.): 14-52, 17-40, and 17-49

14-24 What is the purpose of the dividends received deduction? What corporations are entitled to claim this deduction? What dividends qualify for this deduction?

What is the purpose of the dividends-received deduction? What corporations are entitled to claim this deduction? What dividends qualify for this deduction? The purpose of the dividends received deduction is so that corporations would not be taxed at a corporate level a shareholder level or if when dividends or a recipient corporation.

14-51 What is the purpose of the reconciliation of taxable income with book income?

17-1 Identify and briefly describe the seven types of corporate reorganization.

Type A: Mergers and Consolidations

Type B: Acquisition — Target Corporation Subsidiary

Type C: Acquisition — Target Corporation Liquidation

Type D: Transfer

Type E: Recapitalization

Type F: Identity Change

Type G: Transfer

17-24 Define and differentiate a spin-off, split-off, and split-up.

Spin off –

Split off-

Split up –

14-52 Sam Rogers forms a corporation. Sam transfers to the corporation property having a basis to him of $15,000 and a fair market value of $27,000 for 900 shares of the $10 par stock of the corporation. A year later, Bill Morrison, who is not related to Sam, transfers property having a basis to him of $1,000 and a fair market value of $3,000 for 100 shares of the corporate stock. The corporation issued no other stock.

• a. How much gain does Sam recognize on his exchange? What is the basis to Sam of his 900 shares?

• b. How much gain does Bill recognize on his exchange? What is the basis to Bill of his 100 shares?

• c. What gain or loss is recognized by the corporation when it issues its shares to Sam? What is the basis to the corporation of the property it received from Sam?

• d. What is the gain or loss recognized by the corporation when it issues its shares to Bill? What is the basis to the corporation of the property it received from Bill?

17-40 Superior Corporation acquired Taylor Corporation pursuant to a statutory merger under state law. As a result of the merger, Taylor Corporation’s former shareholders received common stock in Superior having a value of $300,000, long-term bonds of Superior with a principal amount (and fair market value) of $500,000, and cash of $200,000. What type of reorganization has taken place? Describe the tax consequences to Taylor Corporation, its former shareholders, and Superior Corporation.

17-49 Shipyard Corp. acquired Boatworks Corp. in a Type A reorganization on July 1, 2012. On the date of acquisition, Boatworks had a deficit in its earnings and profits of $30,000. Although Shipyard had no accumulated earnings and profits, its current earnings and profits from its calendar-year 2012 operations totalled $40,000. What amount of the acquired earnings and profits deficit of $30,000 can be used to off -set Shipyard’s current earnings and profits for 2012?

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