Question: Arnold is a single individual and has

> Larry wants to purchase a new car for personal use. He anticipates financing $40,000 of the purchase price. The car dealer is offering a special 3.5 percent interest rate on new cars. Alternatively, Larry could use a home equity loan with a 5 percent int

> Lauren is single, age 60, and has an annual salary of $68,000. She paid off her mortgage in December 2016 but expects that her annual real estate taxes will continue to be approximately $5,800. Lauren contributes $2,500 each year to her favorite qualifie

> John has a vacation condo in the Florida Keys that he rented out for two weeks in December for $250 a day. John has used this vacation home himself for a total of three weeks during the year. His total (unallocated) expenses for the condo are Taxes……………

> Ken, owner of Kendrick Corporation, needs to send an employee on a temporary assignment at a plant in another state. He can either send one employee for 18-months or two employees for 9-months each. Kendrick Corporation will pay for all the meal and lodg

> Bob lives in Atlanta and needs to set up three days of business meetings with customers in San Francisco. While he is in California, he would like to spend two days sightseeing in the wine country. Bob’s customers are willing to meet any weekday with him

> Jorge, a single individual, agrees to accept an assignment in Saudi Arabia, a country that imposes no income tax on compensation, beginning on January 1. Jorge will be paid his normal monthly salary of $5,000, plus an additional $1,400 per month for each

> Robert, age 55, plans to retire when he reaches age 65. He is not currently an active participant in any qualified retirement plan. His budget will allow him to contribute no more than $3,000 of his income before taxes to either a traditional IRA or a Ro

> Carol has recently incorporated her sole proprietorship and is considering making an S election. The corporation has $200,000 of gross revenue and expenses of $75,000 before Carol’s salary. She plans to take a gross salary of $60,000 from the business an

> Jeremy is setting up a service business. He can either operate the business as a sole proprietorship or he can incorporate as a regular C corporation. He expects that the business will have gross income of $80,000 in the first year with expenses of $12,0

> What basic tax rates apply to the ordinary income, dividend income, and interest income of an individual? What are they for a corporation?

> John and Martha are planning to be married. Both are professionals each with taxable incomes of $89,700 annually. They are deciding on a wedding date. They have two dates to choose from: December 14, 2017, or January 11, 2018. If they marry on December 1

> Palace Company (an accrual-basis taxpayer) is writing the lease agreements for its new apartment complex, Palace Apartments, which will rent for a minimum of $2,000 per month. Palace wants tenants to pay $6,000 when they sign the lease and is considering

> Robert plans to start a new business that he believes will have steady growth in profits for the next 15 years. He needs to select a method of accounting to use: cash or accrual. He would like to select the method that will provide the higher net present

> Kevin and Elizabeth are negotiating a divorce settlement. Kevin is in the 33 percent marginal tax bracket and Elizabeth is in the 15 percent marginal tax bracket. Kevin has offered to pay Elizabeth $15,000 each year for 10 years; payments would cease if

> Sandra, a single taxpayer in the 39.6 percent marginal tax bracket, has $60,000 she can invest in either corporate bonds with a stated interest rate of 9 percent or general revenue bonds issued by her municipality with a stated interest rate of 6 percent

> Marlin Corporation must decide between two mutually exclusive projects because it lacks sufficient personnel to complete both projects. Each project takes two years to complete and the project selected will be Marlin’s only source of taxable income for t

> The manager at Striker Corporation can hire either Ken, a marketing student, who will do research on a marketing plan, or Lisa, a tax student, who will research tax strategies to reduce corporate taxes. If she hires Ken, his wages and benefits will total

> Debbie owns investment land that she purchased 10 years ago for $12,000. The land consists of two adjoining lots recently appraised at $80,000. She needs $40,000 cash for another investment opportunity and considers two alternatives: (1) sell half of the

> Norman considers the purchase of some investment land from his neighbor, Robin, a high school math teacher. Robin purchased the land 10 years ago for $6,000. They have agreed on payments of $800 every month for the next three years for a total of $28,800

> Richard plans to invest $100,000 for a 50 percent interest in a small business. His friend, Jack, will also invest $100,000 for the remaining 50 percent interest. They expect to generate a 10 percent before-tax return on their investment the first year.

> Differentiate a progressive tax system from a proportional and a regressive system and give examples of each.

> Jessica plans to invest $150,000 in a second business. She expects to generate a 12 percent before-tax return on her investment the first year. Her marginal tax rate is 25 percent due to the income from her other business. She needs to decide whether to

> William, an employee for Williamson Corporation, receives an annual salary of $120,000 and is in the 28 percent marginal tax bracket. He is eligible to contribute to Williamson’s 401(k) plan and could contribute the pretax amount of $12,000. Alternativel

> Maria, age 42, just resigned from Bygone Corporation to accept a new job with Future, Inc. Bygone informed Maria that she has a $38,000 balance in its qualified retirement plan and wants to know if she plans to roll over this balance into another plan or

> Global Corporation is looking for a new CEO. The board of directors selected Miguel as the top candidate. During negotiations, Miguel indicated he wanted a $2 million salary in addition to the stock-based compensation the board was offering. Although thi

> Melinda has been offered two competing employment contracts for the next two years. Argus Corporation will pay her a $75,000 salary in both years 1 and 2. Dynamic Corporation will pay Melinda a $100,000 salary in year 1 and a $49,000 salary in year 2. Me

> Martin Galloway, the sole proprietor of a consulting business, has gross receipts of $45,000 in 2017. His address is: 1223 Fairfield Street, Westfield, New Jersey and his SSN is 158-68-7799. Expenses paid by his business are Advertising………………………………………………

> Barley Corporation used the FIFO method for inventory valuation when it began operations because this reflected the true physical flow of inventory. Its inventory under FIFO is valued at $375,000 at the end of its first year of operations. If Barley inst

> Refer to the information in problem 42 for Arnold Corporation. a. Identify which of Arnold Corporation’s book/tax differences result in a deferred tax asset or a deferred tax liability. b. Prepare the journal entry to record the federal tax expense and

> Arnold Corporation (a calendar-year, accrual-basis taxpayer) reported $500,000 pre-tax income on its financial statements for the year. In examining its records, you find the following: • $3,000 of interest income from municipal bonds • $200 of expense

> Maxwell Corporation has income per books before tax of $400,000. Included in the income per books is $8,000 interest income from tax-exempt municipal bonds. In computing income per books, Maxwell deducted $22,000 for meals and entertainment expenses, $3,

> Over what ranges of taxable income in 2017 will the total income tax liability for two persons with equal incomes who file as single individuals equal their income tax liability if they file jointly as a married couple?

> Neil owns a ski lodge in Aspen. His use of this lodge varies from year to year. The annual expenses for the lodge are as follows: Mortgage interest………………………………………$24,000 Property taxes………………………………………………12,000 Snow removal……………………………………………….1,000 Yard mai

> Teresa is an accomplished actress. During the summer, she rented a vacant store to stage productions of four plays, using the local townspeople as actors and stagehands. She sold $24,000 of tickets to the various plays. Her expenses included $10,000 for

> Maureen operates a cosmetics sales business from her home. She uses 400 of 1,600 square feet of the home as an office for the entire year. Her income before her home office deduction is $3,400 and unapportioned expenses for the home are as follows: Mortg

> Jim, the owner of a tabloid magazine, is sued by an actor for libel and pays $15,000 in legal fees. Jim is found guilty. Jim also received many parking tickets while attending various business meetings in areas where legal parking spaces are extremely di

> Maria earns $50,000 from consulting contracts during the year. She collects only $48,000 from her clients and expects the $2,000 will remain uncollectible. a. If Maria’s business uses accrual basis, what is her gross income for the year and how much can

> Tim accepts a temporary assignment that is 500 miles away from his office. The assignment is expected to last 7 months. Tim spends $7,000 for lodging and transportation and $3,000 for meals during these 7 months. At the end of the 7 months, Tim is notifi

> Mark flew from Baltimore to Phoenix on business. He spent four days on business and visited friends for two days before returning home. He stayed at a hotel for the four business days but he stayed at his friend’s home the last two days. He paid the foll

> In January, Marco incurs $2,800 in expenses traveling to San Diego to investigate the feasibility of acquiring a new business. He acquires the business and on March 1 forms a new corporation, Marco Enterprises, Inc. and pays $6,000 for organization costs

> Foster Corporation, a cash-basis taxpayer, borrowed $100,000 on January 1, year 1, but received only $98,000. The loan matures in 10 years with the $100,000 principal due on that date. Interest of $10,000 is payable on January 1 of each year beginning Ja

> When Kelley couldn’t make several monthly payments on a business loan, her brother Mike made three of the monthly payments of $700 each, a total of $2,100 ($1,950 for interest expense and $150 for principal) for Kelley’s loan. Kelley made the other nine

> Distinguish tax planning from tax compliance.

> Marco and Lisa are married and file a joint tax return. Lisa has salary income of $260,000 and Marco has salary income of $400,000. They also have the following items of investment income: $60,000 net long-term capital gain on sale of stock, $8,000 divid

> Linda received $90,000 in salary income for 2017. She has no dependents. Determine her income tax liability under each of the following independent situations: a. She files as a single individual. b. She is married and files a joint return with her spo

> Mark and Patricia report adjusted gross income of $380,500 and itemized deductions of $64,000 for the interest on their home acquisition mortgage (principal amount of $890,000), taxes, and charitable contributions. They file a joint income tax return and

> Jessica and Jason are married, file a joint return, and have 4 dependent children. Calculate their 2017 personal and dependency deductions for each of the following independent situations: a. Their AGI is $275,000. b. Their AGI is $375,000. c. Their A

> What is the total deduction for personal and dependency exemptions for the following taxpayers in 2017 if their AGI is $350,500? a. Married filing jointly with three dependents b. Single with no dependents

> Mario and Kaitlin are married and file a joint tax return. They have adjusted gross income of $385,000 that includes $4,700 of investment income ($3,000 short-term capital gains and $1,700 of corporate bond interest). They paid the following expenses for

> Jennifer and Jason Greco are married and file a joint tax return. Their two dependent children (Jim, age 14 and Jessica, age 16); both live at home. The Grecos have the following income and expenses: Income: Jennifer’s salary…………………………………………………..$120,0

> Kelly Martin is divorced; her child, Barbara, lives with her and is her dependent. Kelly has the following items of income and expense: Income: Salary………………………………………………………………………………………..$ 60,000 Cash dividends……………………………………………………………………………….3,000 Interest

> Which of the following individuals must file a tax return in 2017? a. Carolyn is single and age 66. She receives $2,000 of interest income, $3,000 of dividend income, and $6,000 in Social Security benefits. b. Tim is single, age 18, and a full-time stu

> Differentiate a wealth tax from a wealth transfer tax and give examples of each.

> Edward is single with income that places him in the 25 percent marginal tax bracket. He incurs interest expense of $10,000 attributable to his investment in stocks and bonds. His gross investment income is $6,200 ($1,000 of which is from long-term capita

> Jennifer, a single individual, has a $20,000 loss from an S corporation, $11,000 salary from a part-time job, and $2,000 of interest income. Her itemized deductions include $4,000 interest on the $100,000 principal on her home acquisition mortgage, $2,80

> 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