Question: In December 2017, Nell, Inc., an accrual

> Durell and Earline are married, file a joint return, and claim dependency exemptions for their two children, ages 5 years and 6 months. They also claim Earline’s 18-year-old son from a previous marriage as a dependent. Durell and Earline’s combined AGI i

> Compute the income tax liability for each of the following unrelated C corporations. a. Darter Corporation has taxable income of $68,000. b. Owl Corporation has taxable income of $10,800,000. c. Toucan Corporation, a personal service corporation, has tax

> Cherry Corporation, a calendar year C corporation, is formed and begins business on April 1, 2017. In connection with its formation, Cherry incurs organizational expenditures of $54,000. Determine Cherry Corporation’s deduction for organizational expendi

> Yancy’s personal residence is condemned as part of an urban renewal project. His adjusted basis for the residence is $480,000. He receives condemnation proceeds of $460,000 and invests the proceeds in stocks and bonds. a. Calculate Yancy’s realized and r

> Crane and Loon Corporations, two unrelated C corporations, have the following transactions for the current year: a. Compute the dividends received deduction for Crane Corporation. b. Compute the dividends received deduction for Loon Corporation. Cr

> Compute the charitable contribution deduction (ignoring the percentage limitation) for each of the following C corporations. a. Amber Corporation donated inventory of clothing (basis of $24,000, fair market value of $30,000) to a qualified charitable org

> Your client supplies water to a housing development. The company requires new customers to pay for the extension of the water lines to their homes. The water lines are the company’s property. The company has consistently treated the amounts received from

> Your client is not permitted to deduct a year-end accrual for vacation pay earned but not paid. This result occurs because the tax law considers this to be deferred compensation that is ineligible for the recurring item exception, unless it is paid by Ma

> Why did the AICPA object to former Congressman Dave Camp’s tax reform proposal introduced in February 2014 (later officially introduced as H.R. 1 of the 113rd Congress) regarding the use of the cash method of accounting?

> Hakim’s rental building was not insured when it was destroyed by a hurricane. His adjusted basis for the building was substantial, but was less than he had paid for the building in 2013. The building was Hakim’s only asset that was damaged by the hurrica

> In 2017, your client, Clear Corporation, changed from the cash to the accrual method of accounting for its radio station. The company had a positive § 481 adjustment of $2.4 million as a result of the change and began amortizing the adjustment in 2017. I

> Your client is a manufacturer. For several years, the company buried empty paint cans on its property. The paint was used in the production process. Recently, a state environmental agency informed the company that it was required to dig up the paint cans

> Zorn conducted his professional practice through Zorn, Inc. The corporation uses a fiscal year ending September 30 even though the business purpose test for a fiscal year cannot be satisfied. For the year ending September 30, 2017, the corporation paid Z

> Ann and Bill were on the list of a local adoption agency for several years seeking to adopt a child. Finally, in 2016, good news comes their way and an adoption seems imminent. They pay qualified adoption expenses of $5,000 in 2016 and $11,000 in 2017. T

> Reba, who is single, does a lot of business entertaining at home. Lawrence, Reba’s 84-year-old dependent grandfather, lived with Reba until this year, when he moved to Lakeside Nursing Home because he needs medical and nursing care. During the year, Reba

> Which of the following results in a recognized gain or loss? a. Kay sells her vacation cabin (adjusted basis of $100,000) for $150,000. b. Adam sells his personal residence (adjusted basis of $150,000) for $100,000. c. Carl’s personal residence (adjusted

> How do the all events and economic performance requirements apply to the following transactions by an accrual basis taxpayer? a. The company guarantees its products for six months. At the end of 2017, customers had made valid claims for $600,000 that wer

> What accounting method (cash or accrual) would you recommend for the following businesses? a. A gift shop with average annual gross receipts of $900,000. b. An accounting partnership with annual gross receipts of $12 million. c. A drywall subcontractor w

> Compute Mary’s income or deductions for 2017 using (1) the cash basis and (2) the accrual basis for each of the following: a. In May 2017, Mary paid a license fee of $1,200 for the period June 1, 2017, through May 31, 2018. b. In December 2017, Mary coll

> Gold, Inc., is an accrual basis taxpayer. In 2017, an employee accidentally spilled hazardous chemicals on leased property. The chemicals destroyed trees on neighboring property, resulting in $30,000 of damages. In 2017, the owner of the property sued Go

> Ivanna, who has three children under age 13, worked full-time while her husband, Sergio, was attending college for nine months during the year. Ivanna earned $28,000 and incurred $9,100 of child care expenses. Determine the amount of Ivanna and Sergio’s

> Mauve Corporation began operations as a farm supplies business and used a fiscal year ending October 31. The company gradually went out of the farm supplies business and into the mail-order Christmas gifts business. The company has received permission fr

> Red, White, and Blue are unrelated corporations engaged in real estate development. The three corporations formed a joint venture (treated as a partnership) to develop a tract of land. Assuming that the venture does not have a natural business year, what

> Swallow Company is a large real estate construction company that has made a Subchapter S election. The company reports its income using the percentage of completion method. In 2018, the company completed a contract at a total cost of $4.8 million. The co

> Ostrich Company makes gasoline storage tanks. Everything produced is under contract (that is, the company does not produce until it gets a contract for a product). Ostrich makes three basic models. However, the tanks must be adapted to each individual cu

> On March 31, 2015, Big Boats Company entered into a contract with Vacations Unlimited to produce a state-of-the-art cruise ship, to be completed within three years. Big Boats estimated the total cost of building the ship at $300 million. The contract pri

> Same as Problem 32, except that Jimenez paid $2 million in income taxes to other countries. Data from Problem 32 Jimenez Enterprises is incorporated in Arkansas. It generated a $5 million profit on its overseas operations this year. Jimenez paid $1 mill

> Chee purchases Tan, Inc. bonds for $108,000 on January 2, 2017. The face value of the bonds is $100,000; the maturity date is December 31, 2021; and the annual interest rate is 5%. Chee will amortize the premium only if he is required to do so. Chee sell

> Joe was in an accident and required cosmetic surgery for injuries to his nose. He also had the doctor do additional surgery to reshape his chin, which had not been injured. Will the cosmetic surgery to Joe’s nose qualify as a medical expense? Will the co

> Rust Company is a real estate construction company with average annual gross receipts of $4 million. Rust uses the completed contract method, and the contracts require 18 months to complete. a. Which of the following costs would be allocated to construct

> For calendar year 2017, Stuart and Pamela Gibson file a joint return reflecting AGI of $350,000. Their itemized deductions Casualty loss after $100 floor (not covered by insurance)…………..$48,600 Home mortgage interest…………………………………………………………….19,000 Credit

> Charlie sells his antique farm tractor collection at a loss. He had acquired all of the tractors for his personal pleasure and sold all of them for less than he paid for them. What is the tax status of the tractors? Is his gain a 28% loss? Explain.

> The Wren Construction Company reports its income by the completed contract method. At the end of 2017, the company completed a contract to construct a building at a total cost of $800,000. The contract price was $1.2 million, and the customer paid Wren $

> George sold land to an unrelated party in 2016. His basis in the land was $45,000, and the selling price was $120,000—$30,000 payable at closing and $30,000 (plus 10% interest) due January 1, 2017, 2018, and 2019. What would be the tax consequences of th

> On December 30, 2016, Maud sold land to her son, Charles, for $50,000 cash and a 7% installment note for $350,000, payable over 10 years. Maud’s cost of the land was $150,000. In October 2018, after Charles had paid $60,000 on the principal of the note,

> On June 30, 2017, Kelly sold property for $240,000 cash and a $960,000 note due on September 30, 2018. The note will also pay 6% interest, which is slightly higher than the Federal rate. Kelly’s cost of the property was $400,000. She is concerned that Co

> Kay, who is not a dealer, sold an apartment house to Polly during the current year (2017). The closing statement for the sale is as follows: During 2017, Kay collected $9,000 in principal on the installment note and $2,000 of interest. Kayâ€

> Floyd, a cash basis taxpayer, has received an offer to purchase his land. The cash basis buyer will pay him either $100,000 at closing or $50,000 at closing and $56,000 two years after the date of closing. If Floyd recognizes the entire gain in the curre

> Ross Company is a corporation providing medical diagnostic services. Ross has used the cash method since inception because its gross receipts did not exceed $5,000,000. This year its average annual gross receipts for the prior three years crossed the $5,

> Would a tax year ending December 31 be appropriate for a ski lodge? Why or why not?

> Pam owns a personal use boat that has a fair market value of $35,000 and an adjusted basis of $45,000. Pam’s AGI is $100,000. Calculate the realized and recognized gain or loss if: a. Pam sells the boat for $35,000. b. Pam exchanges the boat for another

> Jimenez Enterprises is incorporated in Arkansas. It generated a $5 million profit on its overseas operations this year. Jimenez paid $1 million in income taxes to various countries on these profits. Jimenez’s marginal Federal income tax rate is 35%. Comp

> Is a note receivable that arose in the ordinary course of the taxpayer’s retail business a capital asset? Why or why not?

> The Hawk Corporation builds yachts. The vessels it currently produces are practically identical and are completed in approximately 8 months. A customer has approached Hawk about constructing a larger yacht that would take approximately 15 months to compl

> In December 2017, Carl Corporation sold land it held as an investment. The corporation received $50,000 in 2017 and a note payable (with adequate interest) for $150,000 to be paid in 2019. Carl Corporation’s cost of the land was $80,000. The corporation

> Linda, who files as a single taxpayer, had AGI of $280,000 for 2017. She incurred the following expenses and losses during the year: Medical expenses (before the 10%-of-AGI limitation)……………………………..$33,000 State and local income taxes……………………………………………………

> Samantha, an accrual basis taxpayer, subscribes to a service that updates a database used in her business. In December 2017, Samantha paid the $120,000 subscription for the period January 2017 through December 2018. What is Samantha’s deduction for 2017?

> Edgar uses the cash method to report the income from his software consulting business. A large publicly held corporation has offered to invest in Edgar’s business as a limited partner. What tax accounting complications would be created if Edgar and the c

> In 2016, the taxpayer became ineligible to use the cash method of accounting. At the beginning of the year, accounts receivable totaled $240,000, accounts payable for merchandise totaled $80,000, and the inventory on hand totaled $320,000. What is the am

> Fred, a cash basis taxpayer, received a $15,000 bonus from his employer in 2017. The bonus was based on the company’s profits for 2016. In 2018, the company discovered that its 2016 profits were computed incorrectly. As a result, Fred received an additio

> A law practice was incorporated on January 1, 2017, and expects to earn $25,000 per month before deducting the lawyer’s salary. The lawyer owns 100% of the stock. The corporation and the lawyer both use the cash method of accounting. The corporation does

> Pedro, who is a single taxpayer, had AGI of $328,000 for 2017. He incurred the following expenses during the year: Medical expenses before 10%-of-AGI Limitation…………………………………………………$12,000 State and local income taxes………………………..8,900 Real estate taxes…………

> Dino contributes to charity some tangible personal property that he had used in his business and depreciated. At the date of the donation, the property has a fair market value greater than its adjusted basis, but less than the original cost. What is the

> Rafael and Lucy Gonzalez, married taxpayers, each contribute $2,900 to their respective § 401(k) plans in 2017. The AGI reported on their joint return is $38,000. Determine the amount of the couple’s “Saver’s Credit.”

> Assume that a partnership is profitable and that its tax year ends on December 31 but one of the partners’ tax year ends on September 30. Does the partner enjoy a tax benefit or detriment from the partnership’s use of a December 31 tax year-end? Explain.

> William, a high school teacher, earns about $50,000 each year. In December 2017, he won $1 million in the state lottery. William plans to donate $100,000 to his church. He has asked you, his tax adviser, whether he should donate the $100,000 in 2017 or 2

> What are the similarities between the crop method used for farming and the completed contract method used for long-term construction?

> On June 1, 2015, Father sold land to Son for $300,000. Father reported the gain by the installment method, with the gain to be spread over five years. In May 2017, Son received an offer of $400,000 for the land, to be paid over three years. What would be

> Arnold gave land to his son, Bruce. Arnold’s basis in the land was $100,000, and its fair market value at the date of the gift was $150,000. Bruce borrowed $130,000 from a bank that he used to improve the property. He sold the property to Della for $360,

> Evan is single and has AGI of $277,300 in 2017. His potential itemized deductions before any limitations for the year total $52,300 and consist of the following: Medical expenses (before the 10%-of-AGI limitation)……………$28,000 Interest on home mortgage……

> Irene has made Sara an offer on the purchase of a capital asset. Irene will pay (1) $200,000 cash or (2) $50,000 cash and a 6% installment note for $150,000 guaranteed by City Bank of New York. If Sara sells for $200,000 cash, she will invest the after-t

> Emerald Motors is an automobile dealer. The controller consults with you about the type of accounting used for a special offer to its new car customers. Emerald has offered to provide at no charge to the customer the first four recommended service visits

> Compare the cash and accrual methods of accounting for the following events: a. Purchased new equipment, paying $50,000 cash and giving a note payable for $30,000 due next year. b. Paid $3,600 for a three-year service contract on the new equipment. c. Co

> Under what conditions would the cash method of accounting be advantageous as compared with the accrual basis?

> Thomas receives tangible personal property as an inheritance from a decedent who died in 2017. The property was depreciated by the deceased, and Thomas will also depreciate it. At the date of the deceased’s death, the property was worth more than the dec

> Anne sold her home for $290,000 in 2017. Selling expenses were $17,400. She purchased it in 2011 for $200,000. During the period of ownership, Anne had done the following: . Deducted $50,500 office-in-home expenses, which included $4,500 in depreciation.

> In 2017, Chaya Corporation, an accrual basis, calendar year taxpayer, provided services to clients and earned $25,000. The clients signed notes receivable to Chaya that have a fair market value of $22,000 at year-end. In addition, Chaya sold a 36-month s

> In 2017, Aurora received a $25,000 bonus computed as a percentage of profits. In 2018, Aurora’s employer determined that the 2017 profits had been incorrectly computed, and Aurora had to refund the $8,000 in 2018. Assume that Aurora was in the 35% tax br

> Can the earned income credit be characterized as a form of negative income tax? Why or why not?

> Gaffey Corporation obtained permission to change from a calendar year to a fiscal year ending May 31, beginning in 2017. For the short period January 1 through May 31, 2017, the corporation’s taxable income was $140,000. For computing the tax, assume a t

> Delaine is a 90% shareholder in a personal service corporation (PSC). The corporation paid Delaine a salary of $265,000 during its fiscal year ending September 30, 2017. a. Assume that the corporation cannot satisfy the business purpose test for a fiscal

> Shumpert, Inc., entered into a contract that was to take two years to complete, with an estimated cost of $900,000. The contract price was $1,300,000. Costs of the contract for 2016, the first year, totaled $675,000. a. What was the gross profit reported

> Jebali Corporation, a calendar year taxpayer utilizing the completed contract method of accounting, constructed a building for Samson, Inc., under a longterm contract. The gross contract price was $2,300,000. Jebali finished construction in 2017 at a cos

> Bart and Elizabeth Forrest are married and have no dependents. They have asked you to advise them whether they should file jointly or separately in 2017. They present you with the following information: If they file separately, Bart and Elizabeth will

> Mason canceled a note issued by Emma (Mason’s niece) that arose in connection with the sale of property. At the time of the cancellation, the note had a basis to Mason of $30,000, a face amount of $55,000, and a fair market value of $42,000. Presuming th

> Mary receives tangible personal property as a gift. The property was depreciated by the donor, and Mary will also depreciate it. At the date of the gift, the property was worth more than the donor’s adjusted basis. What is the impact of these facts on Ma

> In 2017, Skylar sold an apartment building for $20,000 cash and a $300,000 note due in two years. Skylar’s cost of the property was $250,000, and he had deducted depreciation of $150,000, $60,000 of which was in excess of what the straight-line amount wo

> Missy, age 30, has owned her principal residence (adjusted basis of $225,000) for five years. During the first three years of ownership, she occupied it as her principal residence. During the past two years, she was in graduate school and rented the resi

> On December 30, 2017, Whitney sold a piece of property for $85,000. Her basis in the property was $40,000, and she incurred $1,200 in selling expenses. The buyer paid $5,000 down with the balance payable in $10,000 installments over the next eight years.

> For 2017, Essence Company, a calendar year taxpayer, will change from using the cash method for tax purposes to the accrual method. At the end of 2016, Essence had the following items: Accounts receivable………$200,000 Accounts payable…………….135,000 Bank lo

> The precursor to the Alternative Minimum Tax enacted by the Tax Reform Act of 1986 was the minimum tax, which was first devised in 1969. Find a discussion of the rationale for the original minimum tax and details about its creation. Describe the taxpayer

> Chloe, a self-employed dentist, tells you “My profits for the year total $300,000, so I don’t need to pay any more Federal self-employment taxes.” Evaluate Chloe’s comment.

> Samuel had worked for Pearl, Inc., for 35 years when he was discharged and his position filled by a much younger person. He filed and pursued a suit for age discrimination and received an award of $1.5 million. Under the contingent fee arrangement with h

> Jolene receives tax-exempt interest of $33,000 on bonds that are classified as private activity bonds. She properly excludes the $33,000 from her gross income for regular income tax purposes. Jolene asks your advice on the treatment of the interest incom

> Chuck is single and has no dependents. He does not itemize deductions. In 2017, he claims a $4,050 personal exemption and records taxable income of $120,000. Chuck’s AMT preferences total $51,000. What is Chuck’s AMTI for the year?

> Christopher regularly invests in tech company stocks, hoping to become wealthy by making an early investment in the next high-tech phenomenon. In 2011, Christopher purchased 3,000 shares of FlicksNet, a film rental company, for $15 per share shortly afte

> In May, Rebecca’s daughter, Isabella, sustained a serious injury that made it impossible for her to continue living alone. Isabella, who is a novelist, moved back into Rebecca’s home after the accident. Isabella has begun writing a novel based on her rec

> Geoff incurred $900,000 of mine and exploration expenditures. He elects to deduct the expenditures as quickly as the tax law allows for regular income tax purposes. a. How will Geoff’s treatment of these expenditures affect his regular income tax and AMT

> In December of each year, Eleanor Young contributes 10% of her gross income to the United Way (a 50% organization). Eleanor, who is in the 28% marginal tax bracket, is considering the following alternatives for satisfying the contribution.

> Lloyd owns a beach house (four years) and a cabin in the mountains (six years). His adjusted basis is $300,000 in the beach house and $315,000 in the mountain cabin. Lloyd also rents a townhouse in the city where he is employed. During the year, he occup

> Cheryl incurred $8,700 of medical expenses in November 2017. On December 5, the clinic where she was treated mailed her the insurance claim form it had prepared for her with a suggestion that she sign and return the form immediately to receive her reimbu

> Helen Carlton acquired used equipment for her business at a cost of $300,000. The equipment is five-year class property for regular income tax purposes and for AMT purposes. Helen does not claim any additional first-year depreciation. a. If Helen depreci

> Lonzo owns two apartment buildings. He acquired Forsythia Acres on February 21, 1998, for $300,000 ($90,000 allocated to the land) and Square One on November 12, 2017, for $800,000 ($100,000 allocated to the land). Neither apartment complex qualifies as

> Archie runs a small mineral exploration business (as a sole proprietorship). In 2015, he purchased land (for $68,000) where he suspected a magnesium deposit was located. He incurred $18,000 of exploration costs related to the development of the magnesium

> Kathy owns and operates a grocery store as a sole proprietor. She pays wages to her husband Joe and their 17-year-old daughter Marla, both of whom work at the store. Should Kathy withhold FICA taxes from the wages paid to Joe and Marla? Explain.

> Angela, who is single, incurs circulation expenditures of $153,000 during 2017. She is deciding whether to deduct the entire $153,000 or to capitalize it and elect to deduct it over a three-year period. Angela knows that she will be subject to the AMT fo

> Lisa holds nonrefundable Federal income tax credits of $65,000. Her regular income tax liability before credits is $190,000, and her tentative minimum tax is $150,000. a. What is Lisa’s AMT? b. What is Lisa’s regular income tax liability after credits?

> In the current year, an individual taxpayer has net long-term capital gain from disposition of capital assets and has unrecaptured § 1250 gain. What would the circumstances have to be for the unrecaptured § 1250 gain to be taxed at 25%?

> Calculate the 2017 AMT exemption amount for the following cases for a married taxpayer filing jointly, and for a married taxpayer filing separately. In addition, in an Excel formula, express your solution for Case 2 for the taxpayer who is married filing

> In the current year, Dylan earned taxable and tax-exempt interest from the following investments. Investment……………………………………………………………………….Interest Income 10-year municipal bond (issued in 2009)………………………………………….$1,300 10-year private activity bond (issued