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 contributed $30,000 to the pension plan on a pre-tax (or tax-deferred) basis, and the number of anticipated payments based on Pat’s age of 63 years is 260 months (see IRS table in Chapter I:3) from the date she starts receiving payments. a. What gross income will Pat recognize in 2017 and each year thereafter? b. How would your answer to Part a change if Pat made contributions to the plan on an after-tax basis? c. If, in Part b, Pat dies in December 2018 after receiving pension payments for two full years, what tax consequences occur in the year of death?
> In 2015, the Margate Corporation acquired an automobile with a cost of $30,000 for use in its business. Shortly thereafter, Margate Corporation experienced a decline in sales. Several employees were laid off, and the automobile was not immediately needed
> For several years, you have prepared the tax return for Alpha Corporation, a closely held corporation engaged in manufacturing garden tools. On February 20 of the current year, Bill Johnson, the president of Alpha Corporation, delivered to your office th
> Brian Brown, an executive at a manufacturing enterprise, comes to you on December 1 of the current year for tax advice. He has agreed to donate a small tract of land to the Rosepark Community College. The value of the land has been appraised at $58,000.
> On December 1, 2017, Rebecca Ward, a single taxpayer, comes to you for tax advice. At the end of every year, she donates $5,000 to charity. She has no other itemized deductions. This year, she plans to make her charitable donation with stock. She present
> During the current year, Juan, a single individual, has AGI of $124,000 before taking into account any passive activity losses. He also actively participates and owns 100% of activity A, which is a real estate rental activity. For the year, activity A ge
> Dean makes a pledge of $30,000 to a local college. The college is willing to accept either cash or marketable securities in fulfillment of the pledge. Dean owns stock in Ajax Corporation worth $30,000. The stock was purchased five years ago for $10,000.
> Tim and Monica Nelson are married, file a joint return, and are your newest tax clients. They provide you with the following information relating to their 2017 tax return: 1. Tim works as a pediatrician for the county hospital. The W-2 form he received
> John and Ellen Brite (SSN 000-00-1111 and 000-00-2222, respectively) are married and file a joint return. They have no dependents. John owns an unincorporated specialty electrical lighting retail store, Brite-On. Brite-On had the following assets on Janu
> Woburn Corporation uses the calendar year as its tax year. Woburn purchases and places into service $850,000 of depreciable property during 2017: You are working in Woburn’s tax department and are trying to decide how to make the Sec. 1
> Bonnie’s charitable contributions and AGI for the past four years were as follows: What is the amount of the charitable deduction for each year and the order in which the deduction and carryovers are used? 2014 2015 2016 2017 $60,00
> In the current year, Coastal Corporation acquires all of the net assets of Acorn Corporation for $2,000,000. The purchase agreement allocated the following amounts to the individual assets and liabilities: Land and building …………………………………………. $1,400,000 A
> Paula is planning to either purchase or lease a $50,000 automobile. She anticipates that business use of the auto will be 60% for the first two years but will decline to 40% in years three through five. Currently, Paula’s marginal tax rate is 15% but she
> Georgia Corporation acquires a business automobile for $30,000 on December 31 of the current year but does not actually place the automobile into service until January 1 of the following year. What tax issues should Georgia Corporation consider?
> Simon acquires an interest in an oil property for $50,000. Intangible drilling costs (IDCs) in the initial year are $10,000. Cost depletion is $5,000 if the IDCs are expensed and $6,000 if the costs are capitalized. Percentage depletion is $15,000 if the
> Explain the difference between cost depletion and percentage depletion. Which of these two methods generally provides the largest deduction?
> In 2016, Mark purchased two separate activities. Information regarding these activities for 2016 and 2017 is as follows: The 2016 losses were suspended losses for that year. During 2017, Mark also reports salary income of $120,000 and interest and divide
> In a business combination, why does the buyer generally prefer to allocate as much of the purchase price to short-lived depreciable assets, ordinary assets such as inventory, and Sec. 197 intangible assets?
> Why do most taxpayers prefer to currently expense research and experimental expenditures?
> In January of the current year, Park Corporation incurs $34,000 of legal costs associated with a patent that was developed internally and has a legal life of 17 years. Park also acquired for cash the net assets of Central Corporation for $1,000,000. The
> 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
> 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?
> 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
> 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
