In January 2017, Conan, a cash basis taxpayer, purchases for $4,000 a Series EE savings bond with a maturity value of $4,800 (a 6% annual yield). At the same time, he also purchases for $5,000 a 3-year bank certificate of deposit with a maturity value of $6,650 (a 10% annual yield). Both securities mature in 2019. Must Conan recognize any income in 2017? How much income must Conan recognize in 2019?
> Clarece has the option of receiving 2 shares of common stock as a stock dividend on the 10 shares of Ramble Company common stock that she owns. She paid $30 per share for her 10 shares. The common stock is now selling for $20 per share. In lieu of rec
> On September 5 of last year, Edwina purchases 100 shares of Atlantis Corporation common stock for $5,000. In December of the current year, she receives a nontaxable stock dividend of 10 shares of preferred stock from Atlantis. At the date of the divide
> On January 5, 2017, Henry purchases 500 shares of Wichmann, Inc., common stock at a cost of $24,700. On April 1, 2017, he purchases an additional 300 shares for $19,500. On November 13, 2017, Wichmann, Inc., declares and distributes a 30% stock dividen
> Phoebe opens a bait delivery service during the current year. In starting up the business, she decides to use her personal truck as a delivery vehicle. She had paid $16,000 for the truck, which was worth $10,000 when she turned it into a delivery truck
> Daryl purchases land in 2013 at a cost of $65,000. In 2017, he sells the land for $100,000. a. How much gain or loss does Daryl realize on the sale of the land? b. Assume that the sales contract on the land calls for the buyer to pay Daryl $40,000 at th
> Alexis purchases a duplex by paying $18,000 cash and assuming the seller's $80,000 mortgage. She pays legal fees of $3,000 and spends $9,000 on painting and carpeting the 2 units before renting out 1 unit and moving into the other (i.e., 1 unit is her p
> Demetri starts a public accounting practice during the current year. He converts 10% of his home into an office. Demetri purchased the property four years ago for $100,000. The portion of the purchase price allocated to the house was $80,000. The hou
> Joe Bob is an employee of Rollo Corporation who receives a salary of $14,000 per month. How much Social Security tax will be withheld from Joe Bob's salary in a. March? b. November?
> Return to the facts in problem 60. Assume that the securities have a fair market value of $2,000. What positive tax strategy exists in this situation? Explain. Data from Problem 60: Phong would like to begin planning her estate. She owns marketable sec
> Phong would like to begin planning her estate. She owns marketable securities that cost $10,000 twelve years ago. The market value is $40,000. She wonders whether she should sell her securities and distribute the proceeds to her son before she dies or j
> Taylor dies on February 19 of the current year. Among the assets in his estate are 500 shares of Dane Company preferred stock. Ten years earlier, Taylor paid $14 per share for the stock. Market values per share for Dane preferred stock on various date
> Jesse's grandfather dies on April 13 of the current year. Jesse inherits the following property: a. What is Jesse's basis in the inherited property? b. What is Jesse's basis in the property if the executor of the estate elects the alternate valuation
> Chanetra inherits land from her aunt, Tameka. Tameka's adjusted basis in the land was $150,000 and the fair market value at the date of her death was $200,000. Six months after Tameka's death, the land is appraised at $225,000. Plans for a nearby shop
> Refer to problem 55. Yohanse used the warehouse for 4 years and sells it. During this period, he properly deducts a total of $25,000 in depreciation. What is Yohanse's gain or loss on the warehouse if he sold it for a. $285,000? b. $215,000? c. $245,00
> Yohanse's aunt Millie gives him a storage warehouse valued at $250,000 to use in his delivery business. The warehouse has been vacant since Millie inherited it from her grandfather several years ago. At that time, the warehouse had a value of $300,000
> How much income would an accrual basis taxpayer report in 2017 in each of the following situations? a. Toby's Termite Services Inc. provides monthly pest control on a contract basis. Toby sells a 1-year contract for $600 and a 2-year contract for $1,080
> Jolene owns a dry-cleaning business. During the current year, a rainstorm causes a roof leak that shorts out a dry-cleaning machine. The cost of repairing the machine is $300, none of which is compensated by Jolene's insurance. The adjusted basis of th
> During the current year, Horace's personal residence is damaged by a tornado. It had an adjusted basis of $40,000 before the tornado. The cost of repairing the damage is $11,000. Horace's insurance company reimburses him $8,000 for the repairs. Horace
> Leineia owns 1,000 shares of Serous Corporation common stock. She paid $26 per share several years ago. On December 31 of the current year, Serous distributes a $5 per share cash dividend. It reports that $3 per share is taxable and $2 is a nontaxable
> The country of Boodang is the leading producer of sausage. Boodang imposes three taxes on its residents and companies to encourage production of sausage and discourage its consumption. Each applies as follows: • Income tax: Rates apply to each taxpayer'
> How is a sales tax different from an excise tax?
> Harry and Freddi, a married couple, purchased 100 shares of Opaque Mutual Fund in 2002 for $2,800 as joint tenants with the right of survivorship. Freddi dies during the current year. Fair market value of the shares is $5,000 on the date of death. Six
> Several years ago, Steve gave his nephew Rashan his coin collection valued at $12,000 with a basis of $3,000. Steve’s intent was to ensure that Rashan has money for college. Rashan is now a senior in high school, and the coins are worth $16,000. Rasha
> The basis of inherited property is generally the fair market value at the date of death. This enables the person who inherits the property to receive a “step-up” in basis. Use the Internet to find discussions related to this “stepped-up” basis.
> In the United States, gifts of property are subject to the gift tax. To avoid double taxation, the income tax excludes the receipt of a gift from taxable income. To ensure that a subsequent sale of gift property does not tax the gift, a basis is assign
> Blair and Britain divorce in the current year. Blair agrees to transfer her interest in their principal residence to Britain. They had purchased the home for $80,000 four years before the divorce. At the time of the divorce, the house is worth $120,00
> Determine the proper year(s) for reporting the income in each of the following cases: a. Lagoon Inc., an accrual basis taxpayer, owns an amusement park. The park is open April through September. In October, Lagoon begins selling discounted season passes
> Are Social Security benefits taxable? Explain.
> Use the RIA Checkpoint database to answer the following questions. Cut and paste the relevant Internal Revenue Code and Treasury Regulation section(s) into your solution and explain how the authority answers the tax issue in question. Give the most spec
> Use the RIA Checkpoint database to answer the following questions. Cut and paste the relevant Internal Revenue Code and Treasury Regulation section(s) into your solution and explain how the authority answers the tax issue in question. Give the most spec
> Monica owns 1,400 shares of Northeast Utilities common stock. In August of this year, when its stock was selling for $10 per share, Northeast announced a 20% stock dividend. In lieu of receiving the dividend shares, stockholders have the option of rece
> On September 14 of last year, Wenona purchases 100 shares of Campbell Corporation common stock at a total cost of $8,000. In December of the current year, Campbell pays a nontaxable stock dividend of 1 share of preferred stock for every 10 shares of com
> Tommi inherits Dierhopf Corporation common stock from her uncle, Norvel. Norvel's adjusted basis in the stock is $200,000, and the fair market value is $380,000. Six months after Norvel's death, the stock's value is $420,000. Nine months after his dea
> For each of the following, explain whether the rate structure is progressive, proportional, or regressive: a. Plymouth County imposes a 5% tax on all retail sales in the county. Taxpayers with incomes less than $12,000 receive a refund of the tax they
> For his 18th birthday, Kevin gave his son, Gabe, 5 gold coins which he paid $500 each for 2 years earlier. On Gabe's birthday, coins were selling for $450. One month after his birthday, Gabe sells 2 of the coins for $525 each and uses the money to buy a
> Carter wants to retire from his florist business, and his long-time employee, Howard, would like to take over the business. Identify the tax issues posed by the facts presented. Determine the possible tax consequences of each issue that you identify.
> The Lester Partnership wants to develop a shopping mall on a former farm. The farmer wanted $260,000 for the land, $80,000 for the farm buildings, and $130,000 for the farmhouse. Although it wanted only the land, Lester agreed to the farmer's terms. It
> Kendrick pays a construction company $20,000 to remodel a house. Determine the possible tax consequences of each issue that you identify.
> Lorene Inc., owns an apartment complex. The terms of Lorene's lease agreement require new tenants to pay the first and last month's rent as well as a cleaning deposit at the inception of the lease. The cleaning deposit is returned when tenants move out
> Charles buys a car for $15,000 that has a fair market value of $10,000. Determine the possible tax consequences of each issue that you identify.
> Emelio and Charita are married taxpayers with 2 dependent children. Emelio starts a computer consulting business in 2017. Charita works as a real estate broker. During 2017, they have the following property transactions: a. Emelio purchases an office
> Assume you are a CPA. A new client, Mark, a local chiropractor, has brought you the financial information for his business at the close of the past year. Previously, Mark prepared his own tax returns and had them reviewed by Blacke & Co. You find the
> What is the general rule for determining the basis of gift property?
> Are commissions paid to acquire securities a deductible expense? If not, are they ever deductible?
> When is the primary valuation date for valuing inherited property? Does the executor of the estate have to do anything to use the primary valuation date?
> Rory earns $70,000 per year as a college professor. Latesia is a marketing executive with a salary of $140,000. With respect to the Social Security tax, what are Rory and Latesia's a. Total taxes? b. Marginal tax rates? c. Average tax rates? d. Effecti
> Larry is interested in acquiring a business owned by Jane. If Jane's business is organized as a corporation, what options are available to Larry in acquiring the business? Explain to Larry the difference in the options.
> Explain the difference between a property's initial basis and its adjusted basis.
> Explain the role an asset's initial basis plays in determining the income to be recognized upon disposal of the asset.
> How is personal property different from personal use property?
> Explain the difference between tangible property and intangible property
> What is the difference between a property's use and its type?
> What effect does a property's use have on the cost recovery allowable on the property?
> When is the alternate valuation date for valuing inherited property? When elected, are all assets valued on the alternate date? Explain.
> What type(s) of asset acquisitions do not follow the general rule for determining when the holding period of the asset begins?
> What is the general rule for determining when the holding period of an asset begins?
> A taxpayer has $95,000 of taxable income for the current year. Determine the total tax, the marginal tax rate, and the average tax rate if the taxpayer is a a. Single individual b. Married couple c. Corporation
> Janine is planning to make a gift of 50 shares of Acran, Inc., stock to her nephew to help with his college tuition. The stock cost Janine $5,000, and its current value is $4,000. Explain to Janine why the gift might not be the best way to achieve her
> A person who receives property as a gift makes no investment to receive the property. Why is a basis assignment to the gift property necessary even though the donee has no investment in the property?
> Determine how much interest income Later Federal Loan Company, a cash basis taxpayer, must recognize on each of the following loans in 2017: a. A $10,000, 8.5%, 6-month loan made on October 1, 2017. The principal and interest are due on April 1, 2018. b
> Why are gifts of property not income to the person receiving the gift?
> List some costs that are normally expensed that must be capitalized when a taxpayer self-constructs an asset for use in a trade or business.
> What are the tax implications of a taxpayer's self-construction of assets for use in the taxpayer's trade or business?
> What tax problems does a taxpayer encounter when purchasing more than one asset for a single price? Explain.
> Monica is planning to start her own accounting, tax, and financial planning business. Her uncle Gus has given her file cabinets, a desk, computer equipment, and bookcases that were in his den until he sold his house. Gus recently moved to a lakefront c
> Terry purchased stock in Yippee Corporation for $10,000 in May 1983. He bought stock in Zapper Corporation for $20,000 in June 1986. The Yippee Corporation stock is currently worth $90,000, and the Zapper Corporation stock is worth $15,000. Terry is i
> Lauren owns stock for which she paid $70,000 several years ago. She is considering donating the stock to the United Way. The fair market value of the stock is $80,000. Her adjusted gross income is $90,000. Lauren has $5,000 worth of other itemized de
> Beverly and Charlie are married and have one child, Carla, who is 8 years old. With all the changes in the tax law concerning higher education expenses, Beverly and Charlie realize they need to plan for their daughter’s college education. They intend t
> Susan is single with a gross income of $120,000 and a taxable income of $98,000. In calculating taxable income, she properly excluded $10,000 of tax-exempt interest income. Using the tax rate schedules in the chapter, calculate Susan's a. Total tax
> Reg and Rhonda are married and have 2 children, ages 5 and 3. Rhonda has not worked outside the home since the birth of their first child. Now that the children are older, she would like to return to work and has a job offer that would pay her $27,000
> Arlene is a lawyer. She begins the current year with $12,000 in accounts receivable from customers. During the year, she bills customers $210,000 in fees and receives $180,000 in payments on account. She writes off $8,000 of the receivables as uncolle
> Arthur and Cora are married and have 2 dependent children. They have a gross income of $95,000. Their allowable deductions for adjusted gross income total $4,000, and they have total allowable itemized deductions of $14,250. a. What is Arthur and Cora'
> Hongtao is single and has a gross income of $89,000. His allowable deductions for adjusted gross income are $4,200 and his itemized deductions are $12,900. a. What is Hongtao’s taxable income and tax liability for 2017? b. If Hongtao has $13,500 withhel
> Determine the maximum deduction from AGI in 2017 for each of the following taxpayers: a. Selen is single and has itemized deductions for the year of $6,500. In addition, Selen's mother lives with her, but she does not claim her mother as a dependent. b.
> Determine the maximum deduction from AGI in 2017 for each of the following taxpayers: a. Pedro is single and maintains a household for his father. His father is not a dependent of Pedro’s. Pedro’s itemized deductions are $6,400, of which $800 are for r
> Determine the 2017 filing status in each of the following situations: a. Michaela and Harrison decide to separate on October 12, 2017. Before filing their 2017 tax return on February 18, 2018, Michaela files for and is granted a formal separation agreeme
> Determine the filing status in each of the following situations: a. Angela is single for most of the year. She marries Tim on December 30. b. Earl is divorced during the current year. Their son lives with Earl's former spouse. Earl lives alone. c. Rita
> Determine whether each of the following individuals can be claimed as a dependent in the current year. Assume that any tests not mentioned have been satisfied. a. Victor gives his mother, Maria, $10,000 a year to help pay for her food, rent, and other h
> Determine whether each of the following individuals can be claimed as a dependent in the current year. Assume that any tests not mentioned have been satisfied. a. Nico is 20 and a full-time college student who receives a scholarship for $11,000. Tuitio
> Determine whether each of the following taxpayers must file a return in 2017: a. Felicia is a dependent who has wages of $6,200 and interest income of $225. b. Jason is a dependent who has interest income of $800. c. Jerry is self-employed. His gross bu
> Explain why each of the following payments does or does not meet the IRS definition of a tax: a. Jack is a licensed beautician. He pays the state $45 each year to renew his license to practice as a beautician. b. Polly Corporation pays state income taxe
> Bonnie opens a computer sales and repair service during the current year. Her records show the following for the year: Sales Cash Liability Cash Made Received Incurred Pa
> Determine whether each of the following taxpayers must file a return in 2017: a. Jamie is a dependent who has wages of $4,050. b. Joel is a dependent who has interest income of $1,200 c. Martin is self-employed. His gross business receipts are $24,050,
> Brendan and Theresa are married and have three children in college. Their twin daughters, Christine and Katlyn, are freshmen and attend the same university. Their son, Kevin, is a graduate student. Brendan and Theresa pay $12,000 in tuition and fees (
> Martina is single and has two children in college. Matthew is a sophomore and Christine is in her fifth year of college. Martina pays $3,600 in tuition and fees for Matthew, $700 for textbooks, and $2,000 for his room and board. Christine's tuition an
> Determine the amount of the child-and-dependent care credit to which each of the following taxpayers is entitled: a. Caryle and Philip are married and have a 4-year-old daughter. Their adjusted gross income is $48,000, and they pay $2,100 in qualified c
> Determine the amount of the child and dependent care credit to which each of the following taxpayers is entitled: a. Michael and Gladys are married and have a 7-year-old child. Their adjusted gross income is $44,050, and they pay $3,300 in qualified chi
> Determine the total allowable 2016 earned income credit in each of the following situations: a. Rina is single and earns $6,800 in salary for the year. In addition, she receives $2,200 in unemployment compensation during the year. b. Lachlan is single wi
> Determine the total allowable 2016 earned income credit in each of the following situations: a. Judy is single and earns $6,500 in salary for the year. In addition, she receives $3,500 in unemployment compensation during the year. b. Monica is a single
> Miguel and Katrina have 2 children under age 17, have earned income of $16,000, and pay $1,836 in Social Security tax. Their tax liability is $1,050 before the child credit. a. What amount can they claim as a child credit, and what portion of the cred
> Neville and Julie are married and have two children ages 19 and 14. Their adjusted gross income for the year is $85,000. a. What amount can they claim for the child credit? b. What amount can they claim for the child credit if their children are ages
> Anika and Jespar are married and have two children ages 16 and 14. Their adjusted gross income for the year is $98,000. a. What amount can they claim for the child credit? b. What amount can they claim for the child credit if their adjusted gross inco
> During the last five months of the year, Dwana opens a new internet telecommunications business called Dwan-Com. Dwan-Com bills $50,000 of revenues, but only receives $40,000 cash. Dwan-Com incurs $3,000 of supply expenses and $41,000 of labor costs.
> State whether each of the following payments is a tax. Explain your answers. a. To incorporate his business, Alex pays the state of Texas a $2,000 incorporation fee. b. The city paves a road and assesses each property owner on the road $4,000 for his or
> Calculate the 2017 tax liability and the tax or refund due for each situation: a. Mark is single with no dependents and has a taxable income of $60,000. He has $10,700 withheld from his salary for the year. b. Harry and Linda are married and have taxab
> For each of the dependents in problem 63, calculate the income tax on their taxable income. In each case, assume that their parents' taxable income is $128,000. Data from Problem 63: Determine the taxable income of each of the following dependents in
> Determine the taxable income of each of the following dependents in 2017: a. Louis is 12 and receives $1,250 in interest income. b. Jackson is 16. He earns $2,050 from his newspaper route and receives $700 in dividends on GCM stock. c. Loretta is 18 an
> Jeff and Marion are married with 3 dependents. Their adjusted gross income in 2017 is $338,300. Their itemized deductions total $34,600, including $4,900 in investment interest. a. What is their 2017 taxable income? b. Assume that their adjusted gross i
> Orley is a single individual with no dependents who has an adjusted gross income of $279,000 in 2017. Orley's itemized deductions total $19,400, which includes $1,200 in deductible medical costs and $5,700 in investment interest. a. What is Orley's 2017
> Michael owns a hair salon. During the current year, a tornado severely damages the salon and destroys his personal automobile, which is parked outside. It costs Michael $12,000 to make the necessary repairs to the salon. He had paid $21,500 for the au
