Question: Amy, a cash-basis taxpayer, received a

> Michelle, a single individual, reports 2017 adjusted gross income of $280,000 and has the following itemized deductions before applicable limitations: Medical expenses……………………………………………………………………………………………….$14,000 Interest on home acquisition mortgage wit

> Ashley is single and owns a sole proprietorship. Her annual premium is $2,600 for her high-deductible medical policy with a $2,300 deductible. How much can Ashley set aside in an HSA? How much can she deduct for AGI?

> During 2017, Raymond, a single individual, earned a salary of $196,000. He also had the following items of investment income: $40,000 net short-term capital gain on sale of stock, $7,000 dividend income, $5,000 interest income from corporate bonds, and $

> Wendy is a single individual who works for MTP, Inc. During the entire calendar year, she works in France and pays French taxes of $8,000 on her $95,000 salary. Her taxable income without considering her salary from MTP is $10,000. Should Wendy claim the

> Melissa has $90,000 in salary from her full-time position and $40,000 in net income in 2017 from consulting as an independent contractor. What is her self-employment tax? What portion of this can she deduct?

> Four years ago, Handcock Corporation granted 300 SARs to Maria as a bonus. Handcock’s stock was worth $20 a share on the date of grant. Maria exercises her SARs this year when the stock is worth $60 a share. a. How much income should Maria have recogniz

> Three years ago, Netcom granted an ISO to Karen to buy 2,000 shares of Netcom stock at $6 per share exercisable for five years. At the date of the grant, Netcom stock was selling for $5 per share. This year, Karen exercises the ISO when the price is $30

> Linda’s husband dies, naming her the sole beneficiary of a $500,000 life insurance policy. The insurance company informs her that she has two options: (1) she can receive the entire $500,000 in one lump-sum payment or (2) she can receive annual installme

> Differentiate a consumption-based tax from an income tax and illustrate with an example.

> Justin’s 24-year-old son, Carlos, is a full-time student. In April 2017, Justin gave Carlos 450 shares of Striker Oil stock. Justin purchased the stock 8 months earlier at $18 per share. On the gift date, the stock was worth $31 per share. After the gift

> Clara and Charles decide to form a business. They each plan to contribute $15,000 in exchange for a 50 percent interest. The business will borrow $20,000 to cover the balance of its working capital needs. In their business plan, Clara and Charles show th

> Assume the same facts as problem 53, except that John and June expect the business will have a $44,000 loss in the first year (instead of a $64,000 profit) and will not make any cash distributions. Determine the income tax savings in the current year for

> Assume the same facts as problem 53, except that the business expects to make a cash distribution of $28,000 each to June and John the first year. Determine how much tax the business will pay and how much additional tax they will personally pay if they f

> June and John decide to form a business. They each plan to contribute $20,000 in exchange for a 50 percent interest in the business. They will then take out a bank loan for $30,000 to cover the balance of their working capital needs. They expect that the

> Krystyna, a single individual, invested $20,000 in corporate bonds with a stated interest rate of 5 percent and another $20,000 in tax-exempt municipal bonds issued for governmental activities with a stated interest rate of 4.75 percent. Calculate her af

> Sandle Corporation, an accrual-basis, calendar-year taxpayer, sold $15,000 of its products on account to Jim in November, year 1. In year 2, Jim declares bankruptcy and Sandle writes off the account as a bad debt. In year 3, Jim unexpectedly inherits a l

> Lilikoi Corporation began business in 2015. Lilikoi earned taxable income of $40,000 in 2015 and $120,000 in 2016. For 2017, Lilikoi Corporation has a net operating loss of $50,000 and decides to carry the loss back, filing a refund claim. Compute the am

> Stu and Harriett divorce on January 2 of the current year after eight years of marriage. Under the divorce decree, Harriett receives a vacation home that was held jointly with Stu while they were married. The vacation home was acquired seven years ago fo

> Cynthia and Howard, married taxpayers filing a joint return, have $100,000 in taxable income in 2017. They have 4 children (ages 4 through 12) who have no income that is taxable. If they can legally shift $2,000 in taxable income to each child, how much

> Explain the integration of the gift and estate taxes.

> Kimo Corporation, a cash-basis, calendar-year taxpayer, is in the 25 percent marginal tax bracket this year. Kimo owes a $15,000 expense that it may pay before the end of this year or in January of next year. a. If it expects its marginal tax rate to be

> Monico Corporation, a cash-basis, calendar-year taxpayer, is in the 25 percent marginal tax bracket this year. If it bills its customers at the beginning of December, it will receive $5,000 of income prior to year-end. If it bills its customers at the en

> The 4,000 shares of Medco stock that Diana purchased 11½ months ago for $12 per share are now trading at $19 per share. Diana’s regular marginal tax rate is 28 percent and her tax rate for long-term capital gains is 15 percent. a. What is Diana’s after-

> Conrad, who has $180,000 of taxable income, plans to marry Anita, a college student with no taxable income. If they marry on December 21, 2017, they will file jointly and have $180,000 of taxable income for the year. If they wait until January of 2018 to

> Thomas received $30,000 in a legal settlement in 2017. The tax treatment of the item is not certain. Thomas’s research results were ambiguous and he is not sure if the income is taxable. Because some doubt remained and because he did not think he would b

> Alison accidentally omitted $40,000 of gross income from the restaurant she owned on her 2016 tax return. The return showed gross income of $150,000 when filed on October 15, 2017. When can the IRS no longer pursue Alison with the threat of collection of

> Kevin deliberately omitted $40,000 of gross income from his restaurant on his 2017 tax return. The return indicated gross income of $200,000 when filed on April 14, 2018. When can the IRS no longer pursue Kevin with the threat of collection of the relate

> Five years ago, Cargo Corporation granted Mark a nonqualified stock option to buy 3,000 shares of Cargo common stock at $10 per share exercisable for five years. At the date of the grant, Cargo stock was selling for $9 per share. This year, Mark exercise

> Robert decided not to file his return on April 15 because he knew that he could not pay the balance due. He files his return on August 3, paying the full $4,000 balance. What are Robert’s expected late-payment/late-filing penalties?

> Vera, a single individual, receives $18,000 of dividend income and $38,000 of interest income from tax-exempt bonds. Vera also receives Social Security benefits of $16,000. What is Vera’s gross income?

> What types of investments are favored by tax law and why?

> George has $91,700 in salary from his full-time position and $43,000 in net income in 2017 from his sole proprietorship. What is his self-employment tax? What portion of this can he deduct?

> Barney retired from the Marlin Corporation where he worked for 25 years. Barney elects to receive his retirement benefits as an annuity over his remaining life, resulting in annual payments of $15,000. His plan balance consists of $70,000 employer contri

> Charles pays $120,000 for a single-life annuity that will pay him $11,000 a year for life. Treasury Department tables estimate his expected remaining life at 15 years. a. How much of each $11,000 payment must Charles report as gross income? b. If Charl

> Jill worked for a business in Denver. She took a new job with a different company in Colorado Springs, 90 miles away. Her commuting distance from her old home to her old employer in Denver was 15 miles. If she does not move to Colorado Springs, her commu

> Larry, age 32, works for Horizon Corporation. His annual salary is $60,000 and he is not a key employee. Horizon provides the following benefits to all employees: • Group term life insurance (each employee is provided with $80,000 worth of coverage that

> Sheldon Corporation loans $80,000 interest free for one year to Lynn, an employee. Assume that the applicable federal interest rate is 4 percent. Lynn uses the loan to pay for personal debts. What are the loan’s tax consequences for Sheldon and Lynn? How

> Joshua loans his son, Seth, $100,000 interest free for five years. Seth uses the money for a down payment on his home. Assume that the applicable federal interest rate is 4 percent. a. What are the tax consequences of this loan to Joshua and to Seth? b

> Jessica has $10,000 invested in corporate bonds with a stated interest rate of 7 percent and $10,000 in tax-exempt municipal bonds issued for governmental activities with a stated interest rate of 5.5 percent. Calculate her after-tax cash flow from each

> Luis received 400 shares of his employer’s stock as a bonus. He must return the stock to the company if he leaves before the 5-year vesting period ends. The fair market value of the stock at the time it was issued was $20,000. After five years, the stock

> Mac’s 24-year-old daughter, Alana, is a full-time student. In 2017, Mac gives Alana 600 shares of Highgrowth stock. Mac purchased the stock 10 months ago at $20 per share. On the gift date, the stock is worth $35 per share. After the gift, Highgrowth dec

> Can tax return preparers be assessed penalties?

> In year 1, Highrise Company contracts to manufacture a piece of customized equipment for a customer. The contract will take two years to complete. The contract price is $250,000 and the company estimates total costs of $220,000. Actual costs incurred are

> Betsy receives a salary of $50,000 from her employer (a retail clothing store) and several fringe benefits. Her employer pays premiums of $300 for her $40,000 group term life insurance coverage and pays $3,200 for medical insurance premiums. Her employer

> Realty Corporation, an accrual-basis, calendar-year corporation, agrees to rent office space to Tenant Company for $3,000 per month beginning on January 1, year 2. On December 15, year 1, Tenant gives Realty Corporation a $3,000 deposit in addition to re

> At the end of October, year 1, Dunbar Corporation hired Specialty Training, an accrual-basis, calendar-year taxpayer, to provide a six-week training program for its employees. Dunbar paid Specialty its full training fee of $30,000 on the first day of tra

> Beta Corporation received permission to change its tax year from a calendar year to a year ending August 31. Its income for the eight months ending August 31 is $96,000. What is Beta Corporation’s tax liability for its short tax year?

> On October 1, Bender Company (a calendar-year, cash-basis taxpayer) signs a lease with Realco Corporation to rent office space for 36 months. Bender obtains favorable monthly payments of $600 by agreeing to prepay the rent for the entire 36-month period.

> Tom is 68 years old. His employer pays the premiums for group term life insurance coverage of $110,000. The cost for Tom’s coverage is $3,000. a. If the plan providing this coverage is nondiscriminatory and Tom is not a key employee, how much gross inco

> Charlie, who is in the 39.6 percent marginal tax bracket, is the president and sole owner of Charlie Corporation (a C corporation in the 34 percent tax bracket). His current salary is $700,000 per year. What are the income and FICA tax consequences if th

> Rebecca is single and an employee of Grand Corporation. In 2017 Rebecca’s salary was $190,000 and she earned a bonus of $45,000. How much in Social Security and Medicare taxes must be paid by Grand Corporation and how much of these taxes can it deduct? H

> What is a long-term contract? Briefly describe the two possible accounting treatments for long-term contracts.

> What is the purpose of the DIF formula? What happens if someone has a high DIF score?

> Moore Wholesalers is preparing its merchandise purchases budget. Budgeted sales are $400,000 for April and $480,000 for May. Cost of goods sold is expected to be 65% of sales. The company’s desired ending inventory is 20% of the following month’s cost of

> Bruno Industries expects credit sales for January, February, and March to be $200,000, $260,000, and $300,000, respectively. It is expected that 75% of the sales will be collected in the month of sale, and 25% will be collected in the following month. Co

> Pierre’s Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $300,000. A new salon will normally generate annual revenues of $70,000, with annual expenses (including depreciation) of $41,500. A

> Noble Company classifies its selling and administrative expense budget into variable and fixed components. Variable expenses are expected to be $22,000 in the first quarter, and $4,000 increments are expected in the remaining quarters of 2014. Fixed expe

> For Roche Inc., variable manufacturing overhead costs are expected to be $20,000 in the first quarter of 2014, with $5,000 increments in each of the remaining three quarters. Fixed overhead costs are estimated to be $40,000 in each quarter. Prepare the m

> The standard cost of product 777 includes 2 units of direct materials at $6.00 per unit. During August, the company bought 29,000 units of materials at $6.30 and used those materials to produce 16,000 units. Compute the total, price, and quantity varianc

> The Wellstone Division operates as a profit center. It reports the following for the year. Prepare a responsibility report for the Wellstone Division at December 31, 2014. Budget $2,000,000 Actual Sales $1,860,000 Variable costs 800,000 760,000 Con

> Palermo Company estimates that unit sales will be 10,000 in quarter 1; 12,000 in quarter 2; 15,000 in quarter 3; and 18,000 in quarter 4. Using a sales price of $70 per unit, prepare the sales budget by quarters for the year ending December 31, 2014.

> Voorhees, Inc. reports the following financial information. Average operating assets …………………………………. $3,000,000 Controllable margin ……………………………………………$ 660,000 Minimum rate of return ………………………………………………..10% Compute the return on investment and the residu

> Vilas Company is considering a capital investment of $190,000 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is by the straight-line method. During the life of the i

> Jacque Company accumulated the following standard cost data concerning product I-Tal. Direct materials per unit: 2 pounds at $5 per pound Direct labor per unit: 0.2 hours at $15 per hour Manufacturing overhead: Predetermined rate is 125% of direct labor

> Dalby Company has accumulated the following budget data for the year 2014. 1. Sales: 30,000 units, unit selling price $85. 2. Cost of one unit of finished goods: direct materials 2 pounds at $5 per pound, direct labor 3 hours at $15 per hour, and manufac

> Fuqua Company’s sales budget projects unit sales of part 198Z of 10,000 units in January, 12,000 units in February, and 13,000 units in March. Each unit of part 198Z requires 4 pounds of materials, which cost $2 per pound. Fuqua Company desires its endin

> In May 2014, the budget committee of Grand Stores assembles the following data in preparation of budgeted merchandise purchases for the month of June. 1. Expected sales: June $500,000, July $600,000. 2. Cost of goods sold is expected to be 75% of sales.

> Lager Dental Clinic is a medium-sized dental service specializing in family dental care. The clinic is currently preparing the master budget for the first 2 quarters of 2014. All that remains in this process is the cash budget. The following information

> The costs listed below relate to a variety of different decision situations. Cost Decision 1. Unavoidable fixed overhead Eliminate an unprofitable segment 2. Direct labor Make or buy 3. Original cost

> Twyla Company operates a small factory in which it manufactures two products: C and D. Production and sales results for last year were as follows. For purposes of simplicity, the firm averages total fixed costs over the total number of units of C and D

> Cawley Company makes three models of tasers. Information on the three products is given below. Fixed expenses consist of $300,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $30,000 (Tingler

> Aaron Corporation is projecting a cash balance of $30,000 in its December 31, 2013, balance sheet. Aaron’s schedule of expected collections from customers for the first quarter of 2014 shows total collections of $180,000. The schedule of expected payment

> Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its

> On January 2, 2013, Benson Hospital purchased a $100,000 special radiology scanner from Picard Inc. The scanner had a useful life of 4 years and was estimated to have no disposal value at the end of its useful life. The straight-line method of depreciati

> Jobs, Inc. has recently started the manufacture of Tri-Robo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a mobile phone. The cost structure to manufacture 20,000 Tri-Robos is as follows. Cost

> A company manufactures three products using the same production process. The costs incurred up to the split-off point are $200,000. These costs are allocated to the products on the basis of their sales value at the split-off point. The number of units pr

> Duncan Company combines its operating expenses for budget purposes in a selling and administrative expense budget. For the first 6 months of 2014, the following dataare available. 1. Sales: 20,000 units quarter 1; 22,000 units quarter 2. 2. Variable cost

> Adler Company has always done some planning for the future, but the company has never prepared a formal budget. Now that the company is growing larger, it is considering preparing a budget. Instructions: Write a memo to Jim Dixon, the president of Adler

> Rachel Rey recently opened her own basketweaving studio. She sells finished baskets in addition to the raw materials needed by customers to weave baskets of their own. Rachel has put together a variety of raw material kits, each including materials at va

> Rodriguez, Inc., is preparing its direct labor budget for 2014 from the following production budget based on a calendar year. Each unit requires 1.5 hours of direct labor. Instructions: Prepare a direct labor budget for 2014. Wage rates are expected t

> Gibbs Company purchases sails and produces sailboats. It currently produces 1,200 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Gibbs purchases sails at $250 each, but the company is considering using the excess c

> On January 1, 2014, the Hardin Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2014. Sales units: First quarter 5,000; second quarter 6,000; third quarter 7,000. Ending raw materials inventory: 40% of

> Dallas Industries has adopted the following production budget for the first 4 months of 2014. Each unit requires 2 pounds of raw materials costing $2 per pound. On December 31, 2013, the ending raw materials inventory was 4,000 pounds. Management wants

> Klean Fiber Company is the creator of Y-Go, a technology that weaves silver into its fabrics to kill bacteria and odor on clothing while managing heat. Y-Go has become very popular as an undergarment for sports activities. Operating at capacity, the comp

> Leno Company manufactures toasters. For the first 8 months of 2014, the company reported the following operating results while operating at 75% of plant capacity: Sales (350,000 units) ……………………………………..$4,375,000 Cost of goods sold …………………………………………...2,6

> Chudrick Inc. makes unfinished bookcases that it sells for $62. Production costs are $36 variable and $10 fixed. Because it has unused capacity, Chudrick is considering finishing the bookcases and selling them for $70. Variable finishing costs are expect

> Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 20,000 golf discs is: Materials ……………………………………$ 10,000 Labor ……………………………………………30,000 Variable overhead ……………………….... 20,000 Fixed overhead ………

> Ortega has prepared the following list of statements about decision-making and incremental analysis. 1. The first step in management’s decision-making process is, “Determine and evaluate possible courses of action.” 2. The final step in management’s deci

> Brady Service Center just purchased an automobile hoist for $35,000. The hoist has an 8-year life and an estimated salvage value of $3,000. Installation costs and freight charges were $3,300 and $700, respectively. Brady uses straight-line depreciation.

> Ueker Company is considering three capital expenditure projects. Relevant data for the projects are as follows. Annual income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Ueker

> BSU Inc. wants to purchase a new machine for $29,300, excluding $1,500 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $2,000,

> Eisler Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $430,000. The company believes that with this new machine it will improve product

> Hiland Inc. manufactures snowsuits. Hiland is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased five years ago at a price of $1.8 million; six months ago, Hiland spent $55,000 to keep it operationa

> BAP Corporation is reviewing an investment proposal. The initial cost and estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All c

> Palo Alto Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company’s current truck (not the least of which is that it runs). The new truck would cost $56,000. Because of the increased capacity, reduced ma

> You have been given the following information about the production of Horatio Co., and are asked to provide the plant manager with information for a meeting with the vice president of operations. Standard Cost Card Direct materials (5 pounds at $4 per p

> Perine Company has 2,000 pounds of raw materials in its December 31, 2013, ending inventory. Required production for January and February of 2014 are 4,000 and 5,000 units, respectively. Two pounds of raw materials are needed for each unit, and the estim

> The following direct materials and direct labor data pertain to the operations of Laurel Company for the month of August. Instructions: (a) Compute the total, price, and quantity variances for materials and labor. (b) Provide two possible explanations

> Lewis Company’s standard labor cost of producing one unit of Product DD is 4 hours at the rate of $12.00 per hour. During August, 40,600 hours of labor are incurred at a cost of $12.15 per hour to produce 10,000 units of Product DD. Instructions: (a) Co

> Monte Services, Inc. is trying to establish the standard labor cost of a typical oil change. The following data have been collected from time and motion studies conducted over the past month. Actual time spent on the oil change ……………………………..1.0 hour Hou