Question: How can gifts be used to lower

> Explain the hybrid method of accounting.

> Fran and Tom purchase a home in 2011 for $1,500,000. To finance the purchase, they borrow $1,450,000 from Buttars Mortgage Brokers. In 2012 they borrow an additional $100,000 from Buttars, secured by the residence, to add a game room. They become unemplo

> Helena has assets of $130,000 and liabilities of $160,000. One of her debts is for $120,000. Discuss the tax consequences of the reduction of this debt in each of the following circumstances: a. The debt was incurred by Helena for medical school expens

> Determine the amount of income that must be recognized in each discharge of indebtedness situation that follows. a. Marvin owes Central State Bank $80,000. The bank agrees to reduce the debt to $60,000. Prior to the debt reduction, Marvin’s assets total

> Vito is having financial difficulties. Among other debts, he owes More Bank $300,000. Rather than lend Vito more money to help him out, More Bank agrees to reduce his debt to $200,000. a. How much gross income must Vito recognize if his assets total $6

> Return to the facts of problem 58. Assume that Maysa bought $5,000 par value of Rondo Corporation bonds for $4,500. The bonds pay 8% interest annually. Three years later, the price of the bonds has increased to $6,200. Maysa can purchase municipal bo

> What are the three types of IRS examinations?

> Maysa is considering making an investment in municipal bonds yielding 4%. What would the yield on a taxable bond have to be to provide a higher after-tax return than the municipal bond if Maysa is in a 33% marginal tax rate bracket?

> Determine the amount of gross income Elbert must recognize in each of the following situations: a. In October, Elbert sells city of Norfolk bonds with a face value of $6,000 for $5,800. Elbert had purchased the bonds 2 years ago for $5,200, and had rece

> Horatio owns Utah general purpose bonds with a face value of $50,000 that he purchased last year for $52,000. During the current year, Horatio receives $2,400 in interest on the bonds. In December, Horatio sells the bonds for $48,000. What is the effe

> Determine Rona's gross income from the following items she receives during the current year: Interest on savings account…………………………………………$ 300 Dividends on Microsoft stock …………………………………………....200 Interest on Guam development bonds…………………………..2,000

> Detail any significant differences in the recognition of income using the cash method and using the accrual method of accounting.

> Determine the tax treatment of the payments received in each of the following cases: a. Anastasia is covered by her employer's medical insurance policy. During the current year, the policy reimburses her for $960 of the $1,200 in medical costs she incurr

> Bill was severely injured when he was hit by a car while jogging. He spent one month in the hospital and missed three months of work because of the injuries. Total medical costs were $60,000. Bill received the following payments as a result of the acc

> Determine the taxability of the damages received in each of the following situations: a. Helio Corporation sues Wrongo Corporation, charging that Wrongo made false statements about one of Helio's products. Helio claims that the statements injured its bus

> Janet, 43, is an employee of Primus University. Her annual salary is $44,000. Primus provides all employees with health and accident insurance (Janet's policy cost $1,800) and group term life insurance at twice their annual salary rounded up to the nea

> Becky, 45, is a senior vice president for South Publishing Co. During the current year, her salary is $125,000 and she receives a $25,000 bonus. South matches employee contributions to its qualified pension plan up to 10% of an employee's annual salary

> Dow, 42, is a manager for Winter Company. In addition to his $90,000 salary, he receives the following benefits from Winter during the current year: Winter pays all its employees' health and accident insurance. Premiums paid by Winter for Dow's health

> Briefly describe the types of programs used by the IRS to select a return for audit.

> Than's grandmother dies and leaves him jewelry worth $40,000. In addition, he is the beneficiary of a $100,000 life insurance policy that his grandmother had bought before she retired. Identify the tax issue(s) posed by the facts presented. Determine t

> Binh met Anika 10 years ago at a cocktail party. Anika was a wealthy investor with extensive holdings in the oil and gas industry. Binh was a real estate agent earning about $35,000 a year. Several months later, Binh proposed marriage and Anika accept

> Hersh inherits $50,000 from his grandfather. He receives the money on January 1 and immediately invests $25,000 in General Motors bonds that pay 8% annual interest and $25,000 in Lane County highway improvement bonds with a 6% annual interest rate. Ide

> What is an exclusion?

> Kermit receives a $1,000, 6% bond of General Foods, Inc., from his uncle Ed as a graduation present. The bond pays interest on June 30 and December 31. Kermit receives the bond on May 1. Identify the tax issue(s) posed by the facts presented. Determin

> A tornado extensively damaged the community in which Bodine Company had its primary manufacturing facilities. Bodine gives $1,000 to each household that suffered damage from the tornado to help residents while repairs are being made. Some (but not all)

> Calculate Carmin's adjusted gross income on her 2017 tax return. Then do one (or both) of the following, according to your professor's instructions: a. Include a brief explanation of how you determined each item that affected adjusted gross income and an

> Edna, 63, is a widow and works for Rhododendron Corporation. Her annual salary is $40,000. Rhododendron provides the following benefits to all employees: • Medical insurance—The cost of Edna’s policy is $1,800. She incurs $950 in valid medical expenses a

> This is the second part of a six-part problem that will allow you to prepare the 2016 tax return for Laurie and Lynn Norris. As with the previous parts, this part of the problem will ask you to prepare a portion of their tax return. You should complete

> Christina Ruiz provides you with the following information regarding her investment income. Interest received: Cavendar State Bank checking account…………..………..$ 43 Federal Employee’s Credit Union……………………………….881 City of Singapore bonds…………………………………………….9

> Reggie receives a 2-year scholarship to Big University. The scholarship stipulates that, to improve his teaching skills, he must spend his first year teaching at an affiliated school. He will be paid his scholarship by the affiliated school based on th

> What is the statute of limitations, and what role does it play in the filing of tax returns?

> Oliver and James are equal owners of OJ Company. During the current year, when OJ Company is insolvent by $100,000, a creditor reduces one of OJ's debts by $50,000. For the year, OJ incurs a $20,000 operating loss. Oliver and James are both solvent. Oliv

> In the U.S. tax system, employers can provide a wide array of nontaxable fringe benefits to employees. Excluding fringe benefits from taxation is one method of encouraging employers to provide such benefits to their employees. Australia takes a differe

> Why is it important that a conduit entity separate the reporting of its capital gains and losses from its reporting of other forms of income?

> The Small Business Job Protection Act of 1996 limited the exclusion for damages received to nonpunitive damages received on account of a personal physical injury or physical sickness. The new law specifically disqualifies emotional distress as a physica

> In April, a tornado damages the house owned by Delbert and Debbie. The damaged residence required extensive repairs, making it necessary for Delbert and Debbie to move into a motel and eat their meals in restaurants. During the repair period they incur

> Perry Corporation leases a building to Jimison Corporation for $10,000 per month. The terms of the lease provide that any improvements to the building will revert to Perry upon termination of the lease. During the current year, Jimison adds a wing to t

> Bud borrows $20,000 from a friend. Before he can repay any of the loan, the friend dies. His friend's will provides that any amounts owed to him are to be forgiven upon his death. Identify the tax issue(s) posed by the facts presented. Determine the

> Sonya purchases a house for $65,000. The seller had listed the house for sale at $80,000 but got into financial trouble and had to accept Sonya's $65,000 offer to avoid bankruptcy. Identify the tax issue(s) posed by the facts presented. Determine the p

> Taki was injured in an airplane crash. He sues the airline and receives $4,400 for his pain and suffering, $3,300 for lost wages while he recuperated from his injuries, and $7,000 in punitive damages. He also uses $1,000 from his Medical Savings Accoun

> Salina is an apartment manager and is paid $6,000 per year. The owner of the apartments offered her the option of a $300-per-month living allowance or the use of an apartment rent-free. Salina chose to live in the apartment, which normally rents for $4

> Ikleberry is a self-employed fisherman. He buys a health insurance policy by donating 1,000 salmon filets to the Nordisk Insurance Company’s annual Christmas party. During the year, Ikleberry receives $321 in reimbursements from the plan. Identify th

> If you were in the 28% marginal tax bracket and you could choose either a $1,000 tax credit or a $3,000 tax deduction, which would give you the most tax savings? Why?

> Based solely on the definitions in the chapter, is the Social Security tax a proportional, regressive, or progressive tax? Explain, and state how the tax might be viewed differently.

> Are all losses realized on the sale of capital assets deductible?

> Ariel has worked for Sander Corporation for 30 years. Sander has a pension plan in which it matches employee contributions by up to 5% of the employee's salary. Ariel, who is single, retires during the current year when she is 66 years old. Her pensio

> You are a CPA working for a local firm and have been assigned the 2017 tax return of Bobby Crosser. In going over the data that Bobby gave to the firm, you are surprised to see that he has reported no dividend income or gains from the sale of stock. Yo

> Are punitive damages taxable? Explain

> Why are life insurance proceeds excluded from the gross income of the beneficiary of the policy?

> What is the difference between an exclusion of income and a deferral of income?

> What are the two reasons most commonly advanced for excluding items from income? Give examples of each and explain how they accomplish the purpose of the exclusion.

> Are all stock dividends received excluded from gross income?

> What is the purpose of excluding municipal bond interest from gross income?

> Discuss the difference in the tax treatment of payments received from an employer-provided health and accident insurance policy and a health and accident insurance policy purchased by the taxpayer.

> What is the purpose of the capital gain-and-loss netting procedure?

> How is a tax credit different from a tax deduction?

> Are payments for loss of income taxable? Explain.

> What is a personal physical injury for purposes of excluding damage payments received?

> Why are workers' compensation payments treated differently from unemployment compensation payments for tax purposes?

> What is the difference between a cafeteria plan and a flexible benefits (salary reduction) plan?

> What is the difference between a qualified employee discount and a bargain purchase by an employee?

> What is a Health savings account?

> What is the difference in the tax treatment of a medical insurance plan that is purchased from a third-party insurer and a self-insured medical reimbursement plan?

> Distinguish group term life insurance from whole life insurance.

> How do employees benefit from payments made into a qualified pension plan on their behalf?

> How is capital gain income treated differently from other forms of income?

> What tax relief is provided to U.S. citizens who earn income in a foreign country and pay taxes in that country?

> What is a tax credit?

> Explain the circumstances under which a scholarship would not be excluded from gross income.

> Germaine, 22, is a single individual with no dependents who recently graduated from college and has job offers from two firms. Germaine likes both companies equally well and has decided to base her decision on which company offers more. Details of each

> Marlo and Merlin's son, Alex, needs $20,000 to start a business. They have $30,000 in securities that they can use to give him the capital he needs. Pertinent information regarding the securities is given below: Marlo and Merlin are in the 28% margin

> Peter is a professor of mathematics at State University. His lifetime avocation has been sailing and he owns an ocean going sailing vessel. He plans to retire in five years and spend the remainder of his life "plying" the South Pacific, visiting exotic

> a. Assuming that Nick and Jolene have total allowable itemized deductions of $13,350 in 2017 and that they have no dependents, determine their 2017 taxable income and tax liability based on the projections they gave you. b. The 6-month CDs consist of two

> Albert and Patricia are divorced during the current year. As part of their divorce agreement, Patricia agrees to pay Albert alimony of $85,000 in the current year and $5,000 per year in subsequent years. What tax problem is presented by this agreement?

> Jawan has the following capital gains and losses in the current year: Short-term capital gain…………………….$ 500 Short-term capital loss……………………...3,000 Long-term capital gain………………………6,000 Long-term capital loss……………………..12,000 Collectibles gain……………………………

> Herbert and Geraldine have a taxable income of $28,000 before considering the gain they realize on the sale of 500 shares of Olebolla Corporation common stock for $26 per share. Herbert had acquired the shares for $3 per share while he worked for Olebol

> What is a bargain purchase?

> Jennifer is single and has the following income and expenses: Salary………………………………………….$76,000 Interest income……………………………….5,000 Dividend income……………………………..9,000 Long-term capital gain……………………10,000 Short-term capital loss……………………14,000 Deductions for AG

> Jason and Jill are married and have a six-year-old daughter. During the year they sell one acre of land for $80,000. Three years ago, they paid $70,000 for two acres of land. Their other income and deductions are as follows: Jill’s commissions……………………

> Explain the pay-as-you-go system.

> Erin, a single taxpayer, has a taxable income of $103,000 in the current year before considering the following capital gains and losses: Short-term capital gain……………………………………..$ 3,000 Long-term capital gain………………………………………..22,000 Unrecaptured Section 1

> Polly has the following capital gains and losses for the current year: Short-term capital gain……………………….$ 1,000 Short-term capital loss…………………………..8,000 Long-term capital gain…………………………..5,000 Collectibles gain…………………………………..16,000 Collectibles loss…………

> Rikki has the following capital gains and losses for the current year: Short-term capital gain………………………………$ 1,000 Long-term capital gain……………………………….. 11,000 Long-term capital loss…………………………………..3,000 Collectibles gain…………………………………………….8,000 Collectibl

> Pedro purchases 50 shares of Piper Company common stock on February 19, 2014, at a cost of $4,300. He sells the 50 shares on July 2, 2017, for $9,000. On March 14, 2017, Pedro purchases 100 shares of Troxel common stock for $9,700. He sells the Troxel

> Determine whether the taxpayer has income that is subject to taxation in each of the following situations: a. Capital Motor Company is going out of business. As a result, June is able to purchase a car for $12,000; its original sticker price was $25,000

> Aziza is the sole owner of Azi's Fast Pizza. During the current year, Azi's replaces its fleet of delivery vehicles. Aziza's son purchases one of the old vehicles for $500, its tax basis to Azi's. Similar vehicles are sold for $4,000. What tax proble

> Reggie works during the summer for Dan the Screenman. Dan pays Reggie $4,300 in salary, saves Reggie $200 on free screens for Reggie’s father’s house, and agrees to pay Reggie’s fall college tuition of $2,100. How much gross income does Reggie have fro

> Evaluate the following statement: Whenever another person pays an expense for you, you are in receipt of taxable income.

> Determine whether the following taxpayers have gross income from the payment of their expenses: a. Julia's mother, Henrietta, is short of cash when it comes time to pay her property taxes. Julia pays Henrietta's property taxes of $350. b. Kurt fell asle

> On January 1, Wilton loans Andy $90,000. The loan is to be repaid in 5 years with no interest charged. The applicable federal rate is 5%. Discuss the treatment of the loan for both Wilton and Andy in each of the following independent situations: a. An

> Laura makes the following interest-free loans during the current year. Discuss the income tax implications of each loan for both Laura and the borrower. In all cases, the applicable federal interest rate is 8%. a. On April 15, Laura loans $30,000 to he

> Based on the example in Exhibit 1--2, explain how inflation can have two effects that result in a hidden tax.

> Which of the following interest-free loans are subject to the imputed interest rules? a. Alamor Corporation loans Sandy, an employee, $8,000. The loan is to be repaid over 4 years. Sandy uses the proceeds to buy a used automobile. She has $1,100 in inv

> Erica and Raphael are divorced during the current year. Because Erica made millions in the record industry while Raphael served as the homemaker and primary caretaker to baby Dexter, Erica agrees to give Raphael 20% of the stock in her record business.

> Will and Janine are divorced during the current year. Will is to have custody of their two children and will receive their house as part of the divorce settlement. The house, which Will and Janine bought for $60,000, is worth $100,000. Janine is to re

> Upon returning from lunch, you find the following message on your voice mail: This is Jarrett Ogilvie. I'm not one of your clients, but I need some advice. I received a statement in the mail from the Social Security Administration reporting the $8,500

> Hermano and Rosetta are a retired couple who receive $10,000 in Social Security benefits during the current year. They also receive $3,000 in interest on their savings account and taxable pension payments of $28,000. What is their gross income if a. Th

> Elwood had to retire early because of a job-related injury. During the current year, he receives $10,000 in Social Security benefits. In addition, he receives $6,000 in cash dividends on stocks that he owned and $8,000 in interest on tax-exempt bonds.

> Does the tax treatment of below market-rate loans violate any income tax concepts? If so, how? Explain.

> Chapter 1 discussed how gross income is equal to all income received, less exclusions. Which concepts form the basis for this calculation of gross income? Explain.