Question: Irene contributes land to Micro Development

> Assume that Wrigley Juice is a corporation owned by Cora. Explain the effect of Wrigley’s results on Cora’s tax return. Wrigley Juice has the following income, expense, and loss items for the current year. Sales………………………………………………………………$850,000 Tax-exem

> Assume that Wrigley Juice is a partnership owned equally by Vinnie and Chandra. Explain the effect of Wrigley's results on Vinnie's and Chandra's tax returns. Wrigley Juice has the following income, expense, and loss items for the current year: Sales……

> Assume that Wrigley Juice is owned by Calvin as a sole proprietorship. Explain the effect of Wrigley’s results on Calvin’s tax return. Data for Problem 14: Wrigley Juice has the following income, expense, and loss items for the current year: Sales…………

> The Internal Revenue Service provides various types of help to taxpayers on its World Wide Web site (http://www.irs.gov/). Its publication series explains the tax treatment of many different transactions and situations. Find the publication(s) that disc

> Michelle owns all the shares of Lockett Corporation which operates as an S corporation. Her basis in the stock is $41,000. What are the tax consequences for Michelle and Lockett Corporation if a. Michelle receives a liquidating cash distribution of $24

> Marco owns all the shares of Craig Corporation which operates as an S corporation. Its basis in the stock is $47,000. What are the tax consequences for Marco and the Craig Corporation if a. Marco receives a nonliquidating cash distribution of $18,000 f

> In the current year, Jose receives a liquidating property distribution from Valenzuela Corporation. The basis of the property distributed is $25,000. What is the tax effect of the distribution for Valenzuela and for Jose if a. The property distributed

> In the current year, Simon receives a liquidating cash distribution of $32,000 from Torborg Corporation. What is the tax effect of the distribution for Torborg and for Simon if: a. Simon has a basis in his stock of $42,000? b. Simon has a basis in his s

> In the current year, Penelope receives a nonliquidating distribution of land from the Royal Corporation. The corporation has earnings and profits of $300,000. What is the tax effect of the distribution for Royal and for Penelope if a. The land has a fa

> During the current year, Snowden Corporation distributes $600,000 in cash ($2 per share) to its shareholders. Yong owns 300 shares of Snowden stock with a basis of $9,000. What are the tax consequences for Yong if Snowden’s current and accumulated earn

> Toy Corporation distributes $175,000 in cash ($1.75 per share) when its current and accumulated earnings and profits are $40,000. What is the effect of the distribution for Bernice, who owns 500 shares of Toy stock for which she paid $8,000? Write a le

> Dance Corporation distributes $150,000 in cash to its shareholders during the current year. Accumulated earnings and profits are $25,000 at the beginning of the year. Current earnings and profits are $75,000. Jack, the sole shareholder of Dance Corpora

> Machela, a single individual, owns all the stock in the Gordon Corporation, which reports taxable income of $55,000. The corporation distributes the $55,000 in earnings as a dividend. Machela also receives a salary from the company of $67,000. She has

> The Hartford Group is a partnership owned and operated by June and Joyce. June owns a 60% interest and her basis in the partnership is $33,000. Joyce owns a 40% interest, and her basis is $18,000. At the end of the year, both June and Joyce decide to

> As discussed in this chapter, planning for capital gains and losses is an important aspect of tax practice. Use the Internet to find information that provides year end tax planning opportunities. Trace the process you used to find the information (searc

> The Boyle Brothers own and operate a microbrewery. The partnership has two equal partners, Ed and John. At the close of the current year John's basis in the partnership is $42,000, and Ed's basis is $31,000. What are the tax and basis effects if, at y

> Maurice, Lawrence and Kerwin own and operate a chain of sandwich shops as a partnership. Maurice owns 40% and his basis in the partnership is $80,000. Lawrence, a 35% owner, has a basis of $50,000 and Kerwin who owns 25% has a basis in the partnership o

> Myrna operates a plumbing business as a sole proprietorship. During the year she sells the business to Tonya for $175,000. The assets sold and the allocation of the purchase price are as follows: Myrna acquired the building 10 years ago for $70,000.

> Charger, Inc., has the following items for the current year: Net operating income ………………………………………….$130,000 Dividend income (50% owned corporation) …………….40,000 Charitable cash contributions………………………………….20,000 Net operating loss carryover …………………………………

> The Viking Corporation has the following items of income for 2017: Operating income………………………………………………………$350,000 Dividend income (12%-owned corporations)…………………..15,000 Long term capital gains…………………………………………………9,000 Short term capital gains………………………………

> Tarhari Enterprises, Inc., donates $70,000 worth of computer equipment and related software to Northwest Gifford High School. The property's basis is $30,000. How much may Tarhari deduct for the charitable contribution of the computer equipment and rel

> Mel's Super Groceries, Inc., donates $70,000 worth of canned food with a basis of $50,000 to St. Rebecca's Homeless Shelter, a qualified charitable organization. How much may Mel's deduct for the charitable contribution of the canned food?

> The New Tech Corporation contributes some of its inventory of scientific equipment to the computer department of Great University during the current year. At the date of the contribution, the equipment has a fair market value of $38,000. New Tech's basis

> Fairplay Corporation has gross income of $150,000 and taxable income of $50,000. The company includes no special deductions in the calculation of its taxable income. While reviewing the tax return, Fairplay's accountant finds $20,000 in charitable contri

> The Baker Corporation has the following entries on its books for the current tax year: Net income from operations…………………………………………………………$120,000 Dividends received (70% rules)……………………………………………………….14,000 Charitable contributions made in current year……………

> In 2016, Nuts & Seeds Inc., purchased a new “high-tech” shelling machine from Soft-Core Corporation. Nuts & Seeds paid $1,000 in cash and gave Soft-Core a $29,000 note. The note is non-recourse and Soft-Core’s only recourse in the event of default by N

> Christoffe sells 1,000 shares of HoTech Corporation preferred stock for $37 per share on August 3 of the current year. Sales commissions total $300. The stock's price has been falling since after HoTech's management was sued for patent infringement fou

> Assume the same facts as in problem 35, except that Lacy is an S corporation equally owned by Jorge and Gloria. How should Lacy report the gains on the sale of the equipment and the building? Data from Problem 35: Lacy Corporation sells equipment and a

> Lacy Corporation sells equipment and a building during the current year. The equipment, which cost $14,000 in 2014, is sold for $9,000. The equipment was expensed using the Section 179 election in 2014. The building, purchased in 2009 for $130,000, is

> Lulu Enterprises sells a building with an adjusted basis of $40,000 for $85,000. Lulu paid $60,000 for the building five years ago. What is the treatment of the gain on the sale of the building if a. Lulu is a sole proprietorship owned by Horace b. Lul

> Elvira owns 100% of the stock of Midnite Corporation, a manufacturer of galobnotites. During the current year, Midnite has operating income of $50,000, dividend income of $16,000 from investments in other corporations, and losses from investments in limi

> Adele owns 60% of Trouble, Inc., a corporation. During the current annual accounting period, Trouble has an operating income of $19,000, dividend income from investments in stock of other corporations of $2,800, interest income from First National of $2

> The Bat Ball Corporation incurs a net loss from operations of $62,000 for the current year. Bat Ball receives $175,000 in cash dividends from 30% owned domestic corporations. What is the dividends received deduction and the actual taxable income for the

> The John Corporation suffers a $22,000 net loss from operations for the current year but receives $150,000 in dividend income from corporations in which it owns 50% of the stock. What is the dividends received deduction and the corporation's actual taxab

> The Boo Ball Corporation receives dividend income of $200,000 from Flew Ball, a domestic corporation. Boo Ball owns 70% of Flew Ball. Boo Ball's net income from operations is $50,000. What is Boo Ball's dividends received deduction?

> Natrone pays $35,000 for stock in an S corporation and receives shares equal to a 20% interest in the corporation in the current year. At the same time he pays $35,000 for a 20% interest in a general partnership. Both entities incur mortgage debt of $60,

> Louis is the president and 40% owner of Adams Company. His basis in Adams at the beginning of the year is $8,000. Adams suffers a net operating loss of $15,000 during the current year. Louis receives a $5,000 cash distribution from Adams during the ye

> Tawana purchased real property in 2015 at a cost of $200,000. In 2017, she is experiencing cash-flow problems and sells the property for $220,000. The adjusted basis of the property is $185,000. Identify the tax issue(s) posed by the facts presented.

> Assume the same facts as in problem 25, except that Lanny sells the land to the partnership for $60,000. He held the land for investment. Chasteen is a real estate company. How would your answers to parts a and b change? Data from Problem 25: Lanny i

> Lanny is an owner of the Chasteen Partnership. He sells land to the partnership for $40,000 for which he had paid $52,000. Discuss the treatment of the sale under the following assumptions: a. Lanny owns a 30% interest in the partnership. b. Lanny owns

> Assume the same facts as in problem 23, except that the $45,000 debt is a loan that AnnaBell made to Purity. How would your answers to parts a and c change? Assume that the beginning basis numbers do not reflect the debt to AnnaBell. Data from Problem

> AnnaBell and Eva own and manage Purity Forms Development. AnnaBell’s and Eva’s bases in Purity at the beginning of the year are $18,000 and $24,000, respectively. During the current year, Purity suffers a $90,000 net operating loss. Purity’s only debt

> Return to the facts of problem 21. How would your answers change if Binh is not a material participant in the Lamonica Partnership? Assume that Binh has no other passive income in either year. Write a memo to Binh explaining what he has to do to achi

> Assume the same facts as in problem 63, except that LMC, Inc., is an electing S corporation. Data from Problem 63: LMC, Inc., is equally owned by Larry, Maurice, and Charles. The owners are sports agents. LMC's income consists solely of fees from the o

> LMC, Inc., is equally owned by Larry, Maurice, and Charles. The owners are sports agents. LMC's income consists solely of fees from the owners' clients. During the current year, LMC's net income from operations is $380,000, and it receives $20,000 in i

> Myrtle Coast Corporation has a $35,000 operating loss during the current year. Not included in the loss is a $40,000 dividend it received from a corporation in which it owns a 15% interest. Identify the tax issue(s) posed by the facts presented. Determ

> Ramrod, Inc., sells a warehouse for $350,000. It purchased the warehouse 10 years ago for $250,000 and had taken $75,000 in depreciation on the building to the date of sale. Identify the tax issue(s) posed by the facts presented. Determine the possible

> Powell owns a 20% interest in Cooke Partnership. At the beginning of 2016, Powell's basis is $22,000. Cooke reports a $90,000 operating loss in 2016, and Powell withdraws $10,000 from the partnership. Cooke's 2017 operating income is $70,000, and Powe

> Harry sells the automobile he has used in his job as a salesman for $2,000. It cost $15,000 four years earlier. Harry used the automobile 70% of the time in his job and 30% of the time for personal purposes. At the date of sale, Harry had taken $10,000

> Michael buys a piece of property from JFK Partnership for $60,000 that has a $70,000 basis. Michael owns 80% of JFK partnership. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you iden

> Lydia owns 75% of Flower Farms, a partnership. She also owns land that she leases to Flower Farms for $6,000 per month. identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.

> ADC, Inc., is a corporation that was formerly a three-person partnership. It is in the business of acquiring software and distributing it to accounting firms that need specialized software in their operations. ADC, Inc., is still owned and operated by t

> Tim and his daughter, Mary, own and operate Tamar Corporation. Tim is nearing retirement and would like to transfer ownership of the corporation to Mary but would like to stay on as a paid consultant providing retirement planning for the corporation's o

> In addition to the federal income tax, a corporation is subject to the laws of the state in which it is incorporated, including state income tax. Use the Internet to locate sources of tax law that govern the taxation of corporations for your state. Lis

> A limited liability company is becoming a common business form, with most states having passed legislation allowing this entity form. Use the Internet to find out more information about LLCs. Use several search engines and find at least two articles an

> Ballou Corporation distributes $200,000 in cash to its shareholders during the current year. Accumulated earnings and profits at the beginning of the year are $45,000, and current year earnings and profits are $105,000. Buddy owns 80% of Ballou and has

> Charlene owns a 70% interest in Maupin Mopeds, which is organized as a partnership. She wants to open another business and needs office space for it. She has Maupin distribute a building worth $150,000 to her in lieu of her normal cash distribution. M

> Milena owns a 25% interest in Davis Company, an S corporation. Her basis in the Davis stock is $40,000. Davis reports an operating loss of $200,000 in the current year. Davis owes Milena $25,000 on a loan she made to the company several years ago. Ide

> In problem 89 in Chapter 9 and problem 74 in Chapter 10, the initial basis and the adjusted basis of Emelio and Charita’s assets were determined as of December 31, 2017. During 2018, they have the following transactions related to the assets: a. In June

> Kummell Corporation reports a $200,000 taxable income in the current year. Included in the taxable income calculation are $20,000 in dividends received from less-than-20%-owned corporations, and $30,000 in charitable contributions. Identify the tax issu

> Waldo Corporation has recently retained your accounting firm to prepare its income tax return. Art, the partner in charge of the engagement, has assigned you the job of reviewing last year's return and making recommendations on the preparation of this ye

> Explain how a partner’s basis in a partnership can differ from the partner’s at-risk amount.

> Partners can generally deduct losses from the partnership. What are the three limitations on the deduction of partnership losses?

> Why must a partnership separately state certain items in reporting its income to the partners?

> Why do sole proprietors not include all the items of income and deductions related to their business in the calculation of the business’s operating income?

> Explain the advantages to taxpayers of hiring their children to work in their businesses.

> Compare the tax treatment of a nonliquidating distribution of cash or property and a liquidating distribution of cash or property for each of the following entities a. Sole proprietorship b. Partnership c. Corporation d. S corporation

> What are the similarities and differences in the income tax treatment of a partnership and an S corporation?

> What is the purpose of the dividends-received deduction?

> You are a CPA who works for a local accounting firm. While having lunch at Willie's Diner last Thursday, you overheard Beth Murray describe how Bart (her spouse) was able to get a $2,000 business loss, free car maintenance for 2 years, and $4,000 cash t

> How does the recapture of depreciation on a Section 1250 property for a corporation differ from that of other entities?

> Are passive losses treated the same for all types of entities?

> Explain the general difference in the treatment of each of the following items for a corporation: a. Capital gains and losses b. Passive losses c. Charitable contributions d. Dividends received

> Explain the general rationale for adjusting the basis of partners and S corporation shareholders.

> Under what circumstances can a partner transact with a partnership at arm’s length?

> Astrid, who is single, is a sales representative for several sporting goods manufacturers. She operates her enterprise as a sole proprietorship. Astrid has 1 employee, Melvin, who serves as office manager for the business. Gross revenues are $250,000

> Bert, founded Sambert Corporation a little over a year ago. He believes that his company, which sells specialized computer toys, will be very profitable over the next several years, as evidenced by its $400,000 of earnings in the current year. Although

> Tory, Becky, Hal, and Jere form TBHJ Partnership as equal owners. TBHJ Partnership rents heavy tools and equipment. Becky and Hal are married to each other while Tory and Jere are brothers but are not related to Becky or Hal. Because Becky and Hal have

> Tony and Susan are starting a retail business selling formal wear for men and women. They estimate profits and losses for the next five years to be: ($20,000), ($10,000), ($5,000), $10,000, and $50,000 respectively. Susan will work full time in the st

> Estel and Raymond own the GoalLine Partnership. Estel owns 70% of the business. She provided the capital for it and consults with Raymond on overall business strategy. Raymond is responsible for the daily operation of the business and owns the remaini

> What effect does the assumption of a seller's debt have on the amount realized from the disposition of a property?

> Antonio and Michaela are equal partners in A&M Booking Services. Antonio manages the business and receives $40,000 per year for his management services. He and Michaela each withdraw $30,000 in cash during the current year. A&M's ordinary income is $8

> In January of the current year, Josh purchases all the stock of Ballpark Corporation for $100,000. Ballpark's taxable income for the current year is $200,000, and it pays $61,250 in income tax. None of the earnings is distributed as dividends. Josh be

> Return to the facts of problem 40. Assume that late in the year, Drew needs extra cash to pay off gambling debts and has the corporation declare a $25,000 dividend to provide the cash. What is the effect of the dividend payment on the total income tax

> Drew is the sole owner of Morris, Inc., a corporation. Morris’s net income for the current year is $150,000 before considering Drew’s $85,000 salary. Assume Drew is single and has income from other sources that is $30,000 more than his allowable deduct

> Kelly, Gwen, and Tuoi incorporated their accounting business and own all its outstanding stock. During the current year, the corporation's taxable income is $300,000 after deducting salaries of $60,000 for each shareholder employee. Assume that all thr

> Return to the facts of problem 37. Upon giving your tax calculation results to Polly, you learn that CopyEdit's primary business is the provision of copyediting services to corporate clients. Polly and Kevin perform all the work. Write a letter to Pol

> Polly owns CopyEdit, a sole proprietorship. The net income from CopyEdit is consistently around $200,000. Polly is considering making Kevin, one of her employees, an owner of the business. He would continue to be paid his $40,000 salary and own a 25%

> Return to the facts of problem 33. Compare the total income tax liability of Herman’s incorporating his business versus operating it as a sole proprietorship. Assume that he is paid a $60,000 salary and has income from other sources that is $14,000 more

> Rollo and Andrea are equal owners of Gosney Company. During the current year, Gosney's taxable income before considering salaries paid to Andrea and Rollo is $140,000. Rollo is single, his salary is $30,000, and he has net taxable income of $20,000 fro

> Lydia and Paulo agree to become equal owners in a pizza delivery business. Lydia will manage the delivery side of the business, and Paulo will be in charge of kitchen operations. They will borrow most of the money they need to get the business started.

> In a transaction in which the seller of property agrees to take other property from the buyer as part of the sales price, why is the buyer's adjusted basis unimportant in determining the amount realized by the seller?

> Herman, who is unmarried and has two dependent children, owns and operates a used car lot as a sole proprietorship. The net income from the business is consistently $120,000 annually. Herman’s friends have told him that he should incorporate his business

> Kim and Brendan, who are longtime friends, have decided to buy a golf equipment store and go into business together as equal partners. Kim reports his income by calendar year, and Brendan uses a fiscal year that ends September 30. One attraction of ownin

> Which accounting method must each of the following taxpayers use? a. Fax, Inc., is an S corporation wholly owned by Helena. She uses a calendar year to report her income. b. Assume the same facts as in part a, expect that Fax, Inc., is a corporation. I

> Determine the tax year(s) each of the following S corporations must use. Explain. a. Will, Dan, and Tom are equal owners of Rheen Corporation, and each has a different fiscal year. Will has a fiscal year that ends April 30, Dan's ends May 31, and Tom's e

> What tax year must each of the following taxpayers use? Explain. a. Brayanth works for Gippsland Corporation. His income for the year includes salary, interest, dividend income, and a long-term capital gain. Although he itemizes his deductions, he keep

> Shree is considering opening a travel agency. She spends $47,000 investigating the profitability of the business and potential locations and $5,000 for legal and other fees incident to the organization of the business. Although the costs are high, Shre

> Big C Corporation, a calendar year corporation, is formed during the current year and begins business operations on September 1. Big C pays $8,000 to attorneys, accountants, and state regulatory agencies to organize the corporation. Big C pays 6,000 in c

> Myron, Al, and Jandra make the following transfers from their sole proprietorships, to a newly formed business, each receiving a 1/3 ownership interest. In addition, the business borrows $60,000 from a local bank for working capital. The loan is a nonr