Dana is an attorney who specializes in family law. She uses the cash method of accounting and is a calendar-year taxpayer. Last year, she represented a client in a lawsuit and billed the client $5,000 for her services. Although she made repeated attempts, Dana was unable to collect the outstanding receivable. Finally, in November of the current year, she finds out that the individual has moved without leaving any forwarding address. Dana’s attempts to locate the individual are futile. What is the amount of deduction that Dana may take with respect to this bad debt?
> What difference does it make for income tax purposes whether an intangible asset is (1) acquired in connection with a business acquisition, (2) acquired by the purchase of an individual asset (e.g., a patent), or (3) created internally? Explain.
> On March 1, 2017, Sarah entered into a three year lease of an automobile used exclusively in her business. The automobile’s FMV was $58,500 at the inception of the lease. Sarah made ten monthly lease payments of $600 each during 2017. Is Sarah able to a
> Circle Corporation, an accrual method taxpayer, manufactures and sells mainframe computers. In January of the current year, Circle Corporation donates a mainframe that was part of its inventory to City College. City College will use the computer for phys
> In recent years, Congress has enacted provisions in the tax law that permitted bonus depreciation for certain assets. a. What types of assets typically qualified for bonus depreciation? b. How does bonus depreciation interface with Sec. 179 first-year
> Your client is a self-employed attorney who is considering the purchase of a $32,000 automobile that will be used 80% of the time for business and a $4,000 personal computer that will be used 100% of the time for business, but is located in his home. a.
> Luby Corporation has maintained an office in a leased building for several years. The corporation has decided to make some significant leasehold improvements to enhance the property. How should Luby Corporation depreciate the lease hold improvements?
> Rudy is considering whether to make the election under Sec. 179 to expense the maximum amount of the acquisition cost related to certain fixed asset additions. What advantages are associated with the Sec. 179 election?
> During the current year, Irene, a married individual who files a joint return, reports the following items of income and loss: Salary…………………………………………………………………………………$130,000 Activity X (passive)……………………………………………………………..….10, 000 Activity Y (rental real e
> Would the straight-line MACRS method (using the ADS) be preferable to the regular MACRS method in the following cases? Explain. a. Ray incurs NOLs in his business for a number of years and has NOL carryovers he would like to use. b. Rhonda’s marginal t
> Jose is considering acquiring a new luxury automobile costing $45,000 that will be used 100% in his business. The salesperson at the automobile dealership states that Jose will be entitled to substantial tax benefits in the initial year (2017) including:
> Is a deduction allowed under the MACRS rules for depreciable real estate (used in a business or held for investment) in the year the property is sold? If so, explain how it is calculated.
> Goodrich Corporation uses the calendar year as its tax year. It acquires and places into service two depreciable assets during 2017: • Asset #1: 7-year property; $950,000 cost; placed into service on January 20. • Asset #2: 5-year property; $400,000 co
> Robert is a sole proprietor who uses the calendar year as his tax year. On July 20, 2017 he acquired and placed in service a business machine, a 7-year asset, for $50,000. No other property was acquired in 2017. Robert elects out of bonus depreciation.
> Daytona Corporation, a manufacturing corporation, acquires the following business assets in the current year: • Furniture • Plumbing fixtures • Land • Goodwill and a trademark acquired in the acquisition of a business • Automobile • Heavy truck •
> During the current year, Melissa reports AGI of $200,000. As part of some estate planning, she donates $30,000 to her alma mater, Middle State University, and $65,000 to a private nonoperating foundation. a. What is the amount of Melissa’s charitable de
> Rita acquired a personal residence two years ago for $120,000. In the current year, she purchases another residence and attempts to sell her former residence. Due to depressed housing conditions in the town where she used to live, Rita is unable to sell
> Rick is a sole proprietor who has a small business currently operating at a loss. He would like to discontinue depreciating the fixed assets of the business for the next few years and to carry the deductions over to a future period. What tax consequences
> Which of the following assets are subject to either amortization, depreciation, or cost recovery? Explain. a. An automobile held for personal use. b. Excess amounts paid in a business combination that are attributable to goodwill. c. Excess amounts pa
> Early in the current year, Keith meets Dan through a business associate. Dan tells Keith that he is directing a business venture that purchases poorly managed restaurants in order to turn them around and make them profitable. Dan mentions that he is curr
> Dan and Cheryl are married, file a joint return, and have no children. Dan, age 45, is a pharmaceutical salesman and Cheryl, age 42, is a nurse at a local hospital. Dan’s SSN is 400-20-1000 and Cheryl’s SSN is 200-40-8000 and they reside at 2033 Palmetto
> Bender Corporation grants a nonqualified stock option to Penny, an employee, on January 1, 2017, that entitled Penny to acquire 1,000 shares of Bender stock at $80 per share. On this date, the stock has a $100 FMV and the option has a readily ascertainab
> Bell Corporation grants an incentive stock option to Peggy, an employee, on January 1, 2017, when the option price and FMV of the Bell stock is $80. The option entitles Peggy to buy 10 shares of Bell stock. Peggy exercises the option and acquires the sto
> Paula is a self-employed doctor and is considering whether to establish a defined contribution H.R. 10 plan. Paula’s only employee is a full-time nurse who has been employed by Paula for seven years. Paula’s net earnings from self-employment (before the
> Jack and Katie have five grandchildren, ages 19, 16, 15, 12, and 10. They have established Coverdell Education Savings Accounts (CESA) for each of the grandchildren and would like to contribute the maximum amount allowable to each CESA for the 2017 taxab
> Chatham Mae is single, age 35, and wants to make a contribution to an IRA for the year ended December 31, 2017. She is an active participant in a qualified retirement plan sponsored by her employer. Her AGI for 2017 is $124,000 before considering any IRA
> Phil, age 30, is married and files a joint return with his spouse. On February 15, 2018, Phil establishes a traditional IRA for himself and a spousal IRA for his spouse with a $11,000 contribution, $5,500 for himself and $5,500 for his wife. Phil’s spous
> During the current year, Helen donates stock worth $50,000 to her local community college. Two years ago the stock cost Helen $40,000. Her AGI for the current year is $100,000. Beginning next year, the bulk of her income will be from tax-exempt municipal
> On February 15, 2018, Jamal, who is single and age 30, establishes a traditional IRA and contributes $5,500 to the account. Jamal’s adjusted gross income is $68,000 in 2017 and $57,000 in 2018. Jamal is an active participant in an employer-sponsored reti
> In 2017, Bear Corporation transfers 100 shares of its stock to its employee Patrick. The stock is valued at $10 per share on the issue date. The stock is subject to the following restrictions: • Patrick cannot transfer the stock by sale or other dispos
> In the current year Clay reports income and losses from the following activities: Activity X………………………. $28,000 Activity Y…………………………….. (10,000) Activity Z……………………………. (20,000) Salary……………………………….100, 000 Activities X, Y, and Z are all passive with respe
> Pat is a participant in a qualified pension plan. She retires on January 1, 2017, at age 63, and receives pension payments beginning in January 2017. Her pension payments, which will be received monthly for life, amount to $1,000 per month. Pat contribut
> Identify whether each of the following plan features is associated with a qualified pension plan, a qualified profit-sharing plan, an employee stock ownership plan, a nonqualifed plan, or none of these plans. a. Annual employer contributions are not req
> Darrell is a self-employed consultant who uses 15% of his home exclusively as an office. Darrell operates completely out of his home office and makes all of his appointments from the office as well as keeping his books and records in the office. Darrell’
> Nancy is a self-employed artist who uses 10% of her residence as a studio. The studio portion is used exclusively for business and is frequented by customers on a regular basis. Nancy also uses her den as an office (10% of the total floor space of her ho
> Anne works for a CPA firm as a secretary/receptionist and earns approximately $27,000 per year. About five years earlier, she had completed 70 credit hours at State U. To increase her career potential, she decided to enroll at the local university to con
> For each of the following independent situations, determine whether any of the expenditures qualify as deductible education expenses in connection with a trade or business (Reg. Sec. 1.162-5). Are the expenditures classified as for AGI or from AGI deduct
> Michael graduates from New York University and on February 1, 2017, accepts a position with a public accounting firm in Chicago. Michael is a resident of New York. In March, Michael travels to Chicago to locate a house and starts to work in June. He incu
> Latrisha is an employee of the Cooper Company and incurs significant employment-related expenses. During the current year, she incurred the following expenses in connection with her job: Travel: Airfare ……………………………... $ 5,850 Lodging ……………………………... 1,80
> Assume the same facts as Problem I:7-54, except that the qualified organization is a private nonoperating foundation. Determine the amount of the charitable contribution for Parts a through e. Problem 7- 54: In each of the following independent cases, d
> Able Corporation is a manufacturer of electrical lighting fixtures. Able is currently negotiating with Ralph Johnson, the owner of an unincorporated business, to acquire his retail electrical lighting sales business. Johnson’s assets in
> In the current year Alice reports $150,000 of salary income, $20,000 of income from activity X, and $35,000 and $15,000 losses from activities Y and Z, respectively. All three activities are passive with respect to Alice and are purchased during the curr
> In preparing the tax return for one of your clients, Jack Johnson, you notice that he has listed a deduction for a large business bad debt. Jack explains that the loan was made to his corporate employer when the corporation was experiencing extreme cash
> a. What is the NOL carryback and carryover period? b. Does a taxpayer have any choice in deciding the years to which the NOL should be carried? c. Explain the circumstances under which a taxpayer might elect not to use the regular carryback or carryove
> List the adjustments to an individual taxpayer’s negative taxable income amount that must be made in computing an NOL for the year. What is the underlying rationale for requiring these adjustments for individuals?
> What is an NOL deduction, and why is it allowed?
> A taxpayer collects a debt that was previously written off as a bad debt. What tax consequences arise if the recovery is received in a subsequent tax year?
> a. What alternatives do individuals have in deducting a loss on a deposit in a qualified financial institution? b. Explain when it might be better to elect one over the other.
> What is the definition of a nonbusiness debt? What is the character of the deduction for a nonbusiness bad debt?
> Under what circumstances may a taxpayer deduct a bad debt even though another party to the transaction is the creditor?
> Sarah loans $50,000 to her best friend, John. John uses the money to open a pizza parlor next to the local high school. Three years later, when John still owed Sarah $15,000, John closed the pizza parlor and declared bankruptcy. Discuss the appropriate t
> Dr. John Brown is a physician who expects to make $150,000 this year from his medical practice. In addition, Dr. Brown expects to receive $10,000 dividends and interest income. Last year, on the advice of a friend, Dr. Brown invested $100,000 in Limited
> Stan Bushart works as a customer representative for a large corporation. Stan’s job entails traveling to meet with customers, and he uses his personal car 100% for business use. In 2017, Stan must decide whether to buy or lease a new ca
> Complete the following table for Terrell’s Televisions: a. From the information in the table, can you determine whether this firm is a price taker or a price maker? Briefly explain. b. Use the information in the table to draw a graph
> Frank Gunter owns an apple orchard. He employs 87 apple pickers and pays them each $8 per hour to pick apples, which he sells for $1.60 per box. If Frank is maximizing profit, what is the marginal revenue product of the last worker he hired? What is that
> What are the five most important variables that cause the market demand curve for labor to shift?
> Why is the demand curve for labor downward sloping?
> What is the difference between the marginal product of labor and the marginal revenue product of labor?
> Texas who has done a great deal of research on labor markets. According to an article in Forbes, Hamermesh writes that “below-average-looking men earn 17% less than those considered good-looking, while below-average-looking females earn 12% less than the
> In what sense is the demand for labor a derived demand?
> Using the following graph, show the effects on consumer surplus and producer surplus of an increase in supply from S1 to S2. By how much does economic surplus increase? Price S, 's S2 A P, D P2 E F D Q, Q2 Quantity
> Fernando has a monopoly on sales of pizzas in the small town of North Key Largo, Florida. Use the following information on the demand for Fernando’s pizzas to answer the questions. a. If Fernando can produce pizzas at a constant cost
> According to an opinion survey, Snoopy is the most appealing celebrity endorser. The beagle from the popular Peanuts comic strip appears in commercials for the insurance company MetLife. What advantages and disadvantages are there in using Snoopy, rather
> If patents, copyrights, and trademarks reduce competition, why does the federal government grant them?
> Draw a production possibilities frontier that shows the trade-off between the production of cotton and the production of soybeans. a. Show the effect that a prolonged drought would have on the initial production possibilities frontier. b. Suppose that ge
> Many supermarkets provide regular shoppers with “loyalty cards” that the shopper’s swipe each time they check out. By swiping the card, a shopper receives reduced prices on a few goods, and the supermarket compiles information on all the shoppers’ purcha
> Walt Disney World charges residents of Florida lower prices for theme park tickets than it charges non-Florida residents. For example, in 2015, an adult Florida resident was charged $201.29 for a three-day ticket. The price of the same package for a non-
> In 2012, some electronics firms began offering Ultra HD, often called 4K, televisions. These televisions offer a crisper picture than conventional HD televisions. Initially, these televisions had prices as high as $20,000. One electronics industry analys
> Jason Furman and Tim Simcoe, the chair of and a senior economist for President Barack Obama’s Council of Economic Advisors, wrote, “Economists have studied [price discrimination] for many years, and while big data seems poised to revolutionize pricing pr
> In addition to discounting the price of computers purchased by students and faculty, Apple sells certain computer models only to schools and universities. According to a discussion on the Mac Rumors blog: Apple has quietly launched a lower cost $999 iMac
> An article in the New York Times reports that some firms request job applicants to report their SAT scores, even when the job applicant is middle-aged and took the test decades before. The article notes: SATs and other academic artifacts remain relevant
> Use the graphs above to answer the questions. a. If this firm wants to maximize profits, what price will it charge in Market 1, and what quantity will it sell? b. If this firm wants to maximize profits, what price will it charge in Market 2, and what qua
> A state law in California makes it illegal for businesses to charge men and women different prices for dry cleaning, laundry, tailoring, or hair grooming. The state legislator who introduced the law did so after a dry cleaner charged her more to have her
> Online newspapers can earn revenue from subscriptions and from advertisements. The more readers who access the paper’s site, the higher the advertising revenue the paper earns. To increase revenue, in 2011 the New York Times began offering online subscri
> What are the four most important ways a firm becomes a monopoly?
> BMW sells cars in China at a price two to three times higher than in the United States. Some people have purchased BMWs in the United States and exported them for resale in China. An article in the Wall Street Journal quoted a spokesperson for BMW as sta
> In most cities, firms that own office buildings can renovate them for use as residential apartments. According to a news story, in many cities “residential rents are surpassing office rents.” Predict the effect of this trend on the supply of office space
> Do you agree with the following statement: “The problem with economics is that it assumes that consumers and firms always make the correct decisions? But we know that everyone makes mistakes.”
> On most days, the price of a rose is $1, and 8,000 roses are purchased. On Valentine’s Day, the price of a rose jumps to $2, and 30,000 roses are purchased. a. Draw a demand and supply graph that shows why the price jumps. b. Based on this information, w
> Some professional sports teams charge fans a one-time lump sum for a personal seat license. The personal seat license allows a fan the right to buy season tickets each year. No one without a personal seat license can buy season tickets. After the origina
> When asked what was most valuable about the big data Disney was collecting from its MagicBands program, the executive in charge of the program stated, “The biggest value comes from being able to segment customers into better, smarter segments so you know
> While in Shanghai, China, to teach an MBA course, Craig Richardson, an economics professor from Winston- Salem State University, asked his American students to haggle with sellers in a market where prices for the same items can vary widely. Professor Ric
> Why might employers be more likely to interview a job applicant with a white-sounding name than an applicant with an African-American–sounding name? Leaving aside legal penalties, will employers who follow this practice incur an economic penalty? Briefly
> Some people—usually business travelers—have a very strong desire to fly to a particular city on a particular day, and airlines charge these travelers higher ticket prices than they charge other people, such as families who are planning vacations months i
> Is it possible to practice price discrimination across time? Briefly explain.
> Many antibiotics are no longer effective in eliminating infections because bacteria have evolved to become resistant to them. Some bacteria are now resistant to all but one or two existing antibiotics. In 2015, the Obama administration proposed subsidizi
> What is perfect price discrimination? Is it likely to ever occur? Is perfect price discrimination economically efficient? Briefly explain.
> What is yield management? Give an example of a firm using yield management to increase profits.
> In 2015, the Rock and Roll Hall of Fame and Museum charged adults $25.85 for admission. Seniors (65 years and older) and military personnel were charged $20.50, and children between 9 and 12 years old were charged $16.25. Use the admission fees to rank t
> What is price discrimination? Under what circumstances can a firm successfully practice price discrimination?
> Suspicions about arbitrage have a long history. For example, Valerian of Cimiez, a Catholic bishop who lived during the fifth century, wrote: “When something is bought cheaply only so it can be retailed dearly, doing business always means cheating.” What
> Briefly explain whether you agree with the following observation: “Technological change refers only to the introduction of new products, so it is not relevant to the operations of most firms.”
> Suppose California has many apple trees, and the price of apples there is low. Nevada has few apple trees, and the price of apples there is high. Abner buys low-priced California apples and ships them to Nevada, where he resells them at a high price. Is
> A political commentator makes the following statement: The idea that international trade should be based on the comparative advantage of each country is fine for rich countries like the United States and Japan. Rich countries have educated workers and la
> A column in the New York Times has the headline, “Should We Tax People for Being Annoying?” a. Do annoying people cause a negative externality? Should they be taxed? Do crying babies on a bus or plane cause a negative externality? Should the babies (or t
> What are the three most important variables that cause the market supply curve of labor to shift?
> In discussing the NCAA, the late Nobel Laureate Gary Becker, an economist, wrote, “It is impossible for an outsider to look at these [NCAA] rules without concluding that their main aim is to make the NCAA an effective cartel that severely constrains comp
> An article on espn.com about declining attendance at college football games noted that schools in the central time zone had particular problems with attendance at games that started at 11 a.m. The athletic director at the University of Illinois was quote
> Prices for many goods are higher in the city of Shenzhen on the mainland of China than in the city of Hong Kong. An article in the Economist notes that “individuals can arbitrage these differences through what effectively amounts to smuggling.” a. Explai
> Economist Richard Thaler of the University of Chicago notes that most economists consider arbitrage to be one way “that markets can do their magic.” Briefly explain the role arbitrage can play in helping markets to work. Source: Richard H. Thaler, “Unle
> Does a product always have to sell for the same price everywhere? Briefly explain.
