Question: RP owned residential real estate with a $

> Calculate the total Social Security and Medicare tax burden on a sole proprietorship earning 2018 profit of $300,000, assuming a single sole proprietor.

> Evan is the sole shareholder of Magic Roofing Company, a calendar year S corporation. Although Evan spends at least 30 hours per week supervising Magic’s employees, he has never drawn a salary from Magic. Magic has been in existence for five years and ha

> Wanda is a 20 percent owner of Video Associates, which is treated as a pass through entity for federal income tax purposes. This year, Wanda was allocated $45,000 of ordinary income from Video Associates, $1,000 of tax-exempt interest income, and $2,000

> For each of the following situations, indicate whether the corporation is eligible to elect S corporation status. a. Carman Corporation has two shareholders, Carla and Manuel. Carla is a United States citizen permanently residing in Mexico. Manuel is a M

> Colin, a self-employed consultant, uses a room of his home as a business office. This room represents 10 percent of the home’s square footage. This year, Colin incurred the following expenses in connection with his home. Home mortgage interest ………………………

> Refer to the facts in the preceding problem. BLS generated $408,000 ordinary business income in 2018. a. How much of Leo’s share of this income is included in his 2018 taxable income? b. Compute Leo’s basis in his BLS stock and his BLS note at the end of

> On January 1, 2017, Leo paid $15,000 for 5 percent of the stock in BLS, an S corporation. In November, he loaned $8,000 to BLS in return for a promissory note. BLS generated a $600,000 operating loss in 2017. a. How much of his share of the loss can Leo

> Company DL must choose between two business opportunities. Opportunity 1 will generate $14,000 before-tax cash in years 0 through 3. The annual tax cost of Opportunity 1 is $2,500 in years 0 and 1 and $1,800 in years 2 and 3. Opportunity 2 will generate

> At the beginning of 2018, Ms. P purchased a 20 percent interest in PPY Partnership for $20,000. Ms. P’s Schedule K-1 reported that her share of PPY’s debt at year-end was $12,000, and her share of ordinary loss was $28,000. On January 1, 2019, Ms. P sold

> Refer to the facts in the preceding problem. In 2018, YZ generated $7,000 ordinary business income and $18,000 dividend and interest income. The partnership made no distributions. At the end of the year, YZ had $21,000 debt. a. How much partnership incom

> Zelda owns a 60 percent general interest in YZ Partnership. At the beginning of 2016, the adjusted basis in her YZ interest was $95,000. For 2017, YZ generated a $210,000 business loss, earned $14,600 dividend and interest income on its investments, and

> Bonnie and George are equal general partners in BG Partnership. Bonnie receives a $4,000 monthly guaranteed payment for services. This year, BG generated $95,000 profit (before consideration of Bonnie’s guaranteed payments). a. Compute each partner’s dis

> AV Inc. is a member of an LLC. This year, AV received a Schedule K-1 reporting a $1,200 share of capital loss and a $4,000 share of Section 1231 gain. During the year, AV recognized a $5,000 capital loss on the sale of marketable securities and a $17,000

> This year, individual X and individual Y formed XY Partnership. X contributed $50,000 cash, and Y contributed business assets with a $50,000 FMV. Y’s adjusted basis in these assets was only $10,000. The partnership agreement provides that income and loss

> Refer to the facts in the preceding problem. a. Complete Schedule K, Form 1065, for the partnership. b. Complete Schedule K-1, Form 1065, for Jayanthi. Data from Problem 19: Jayanthi and Krish each own a 50 percent general partner interest in the JK Pa

> Rhea is a self-employed professional singer. She resides in a rented apartment and uses one room exclusively as a business office. This room includes 225 of the 1,500 square feet of living space in the apartment. Rhea performs in recording studios and co

> Jayanthi and Krish each own a 50 percent general partner interest in the JK Partnership. The following information is available regarding the partnership’s 2017 activities. Sales revenue …………………………………………………$500,000 Selling expenses ………………………………………………..2

> Refer to the facts in the preceding problem. Mr. T is a 10 percent general partner in KLMN. During the year, he received a $1,000 cash distribution from KLMN. a. Compute Mr. T’s share of partnership ordinary income and separately stated items. b. If Mr.

> Firm X has the opportunity to invest $200,000 in a new venture. The projected cash flows from the venture are as follows: Firm X uses an 8 percent discount rate to compute NPV, and its marginal tax rate over the life of the venture will be 35 percent.

> KLMN Partnership’s financial records show the following. Gross receipts from sales ………………………………$670,000 Cost of goods sold ………………………………………..(460,000) Operating expenses ………………………………………..(96,800) Business meals and entertainment …………………..(6,240) Section

> Rochelle is a partner in Megawatt Partnership. For 2018, her schedule K-1 from the partnership reported the following share of partnership items. Ordinary income ………………………………$25,000 Section 1231 loss ……………………………….(3,000) Nondeductible expense …………………………

> This year, FGH Partnership generated $600,000 ordinary business income. FGH has two equal partners: Triad LLC and Beta, an S corporation. Triad LLC has three members: Mr. T, who owns a 40 percent interest; Mrs. U, who owns a 35 percent interest; and V In

> AB Corporation and YZ Corporation formed a partnership to construct a shopping mall. AB contributed $500,000 cash, and YZ contributed land ($500,000 FMV and $430,000 basis) in exchange for a 50 percent interest in ABYZ Partnership. Immediately after its

> Jane is a self-employed attorney. This year, her net profit exceeded $350,000, which put her in the 37 percent tax bracket. Early in the year, Jane hired Ben as a paralegal and paid him a $33,000 salary. a. Compute the employer payroll tax on Ben’s salar

> JC recently graduated from veterinary school and opened her own professional practice. This year, her net profit was $32,000. Compute JC’s after-tax income from her practice assuming: a. Her self-employment tax is $4,522, and her marginal income tax rate

> James Jones is the owner of a small retail business operated as a sole proprietorship. During 2017, his business recorded the following items of income and expense. Revenue from inventory sales …………………………$147,000 Cost of goods sold ……………………………………………….33

> CC Company exchanged a depreciable asset with a $17,000 initial cost and a $10,000 adjusted basis for a new asset priced at $16,000. a. Assuming that the assets do not qualify as like-kind property, compute the amount and character of CC’s recognized gai

> This year, Neil Inc. exchanged a business asset for an investment asset. Both assets had a $932,000 appraised FMV. Neil’s book basis in the business asset was $604,600, and its tax basis was $573,000. a. Compute Neil’s book gain and tax gain assuming the

> Firm Q exchanged old property with an $80,000 tax basis for new property with a $65,000 FMV. Under each of the following assumptions, apply the generic rules to compute Q’s realized loss, recognized loss, and tax basis in the new property. a. Old propert

> Investor W has the opportunity to invest $500,000 in a new venture. The projected cash flows from the venture are as follows: Investor W uses a 7 percent discount rate to compute NPV. Determine if she should make this investment assuming that: a. Her m

> Firm A exchanged an old asset with a $20,000 tax basis for a new asset with a $32,000 FMV. Under each of the following assumptions, apply the generic rules to compute A’s realized gain, recognized gain, and tax basis in the new asset. a. Old asset and ne

> Alfix, a calendar year corporation, reported $789,300 net income before tax on its financial statements prepared in accordance with GAAP. The corporation’s records reveal the following information: Depreciation expense per books was $15,890, and MACRS de

> KAI, a calendar year corporation, reported $500,000 net income before tax on its financial statements prepared in accordance with GAAP. The corporation’s records reveal the following information: KAI received an $80,000 insurance reimbursement for the th

> Watson, a calendar year corporation, reported $1,250,000 net income before tax on its financial statements prepared in accordance with GAAP. During the year, Watson exchanged one piece of commercial real estate for another. The real estate given in the e

> Ten years ago, Janine purchased 100 shares of Mega stock for $245 per share. On September 10 of the current year, she sold all 100 shares for $200 per share. a. Compute Janine’s realized and recognized loss on sale assuming that she purchased 200 shares

> Refer to the facts in the preceding problem. In each case in which SW purchased 1,200 Delta shares, compute its tax basis in the shares. Data from Problem 29: Eight years ago, SW purchased 1,000 shares of Delta stock. On May 20 of the current year, it

> Rufus Inc. and Hardy Company are negotiating a nontaxable exchange of business properties. Rufus’s property has a $50,000 tax basis and a $77,500 FMV. Hardy’s property has a $60,000 tax basis and a $90,000 FMV. a. Which party to the exchange must pay boo

> Eight years ago, SW purchased 1,000 shares of Delta stock. On May 20 of the current year, it sold these shares for $90 per share. In each of the following cases, compute SW’s recognized gain or loss on this sale: a. SW’s cost basis in the 1,000 shares wa

> Ten years ago, Ms. Dee purchased 1,000 shares of Fox common stock for $124 per share. On June 2 of the current year she sold 500 shares for $92 per share. Compute Ms. Dee’s recognized loss on sale assuming that: a. She purchased 600 shares of Fox common

> Corporation A and Corporation Z go into partnership to develop, produce, and market a new product. The two corporations contribute the following properties in exchange for equal interests in AZ Partnership. Corporation A’s tax basis i

> Firm W has the opportunity to invest $150,000 in a new venture. The projected cash flows from the venture are as follows: Determine if Firm W should make the investment, assuming that: a. It uses a 6 percent discount rate to compute NPV. b. It uses a 3

> Lydia and Oliver want to form a partnership to conduct a new business. They each contribute the following assets in exchange for equal interests in LO Partnership. Lydia’s tax basis in the contributed equipment is $22,000, and Oliver&ac

> Refer to the facts in the preceding problem. Assume that Mrs. L, who is Mr. ZJ’s business colleague, transfers $200,000 cash to ZJL Corporation in exchange for 500 shares of ZJL stock. Mr. ZJ and Mrs. L’s transfers occur on the same day, and after the ex

> Mr. ZJ owns a sole proprietorship. The business assets have a $246,000 aggregate adjusted basis. According to an independent appraisal, the business is worth $400,000. Mr. ZJ transfers his business to ZJL Corporation in exchange for 1,000 shares of ZJL s

> PV Inc. transferred the operating assets of one of its business divisions into newly incorporated SV Inc. in exchange for 100 percent of SV’s stock. PV’s adjusted basis in the operating assets was $4 million, and their FMV was $10 million. a. Discuss the

> Mr. Boyd and Ms. Tuck decide to form a new corporation named BT Inc. Mr. Boyd transfers $10,000 cash and business inventory ($20,000 FMV; adjusted tax basis $3,200), and Ms. Tuck transfers business equipment (FMV $60,000; adjusted tax basis $41,500) to B

> Calvin Corporation’s office was burglarized. The thieves stole 10 laptop computers and other electronic equipment. The lost assets had an original cost of $35,000 and accumulated tax depreciation of $19,400. Calvin received an insurance reimbursement of

> On October 18 of last year, a flood washed away heavy construction equipment owned by Company K. The adjusted tax basis in the equipment was $416,000. On December 8 of last year, Company K received a $480,000 reimbursement from its insurance company. On

> Business K exchanged an old asset (FMV $95,000) for a new asset (FMV $95,000). Business K’s tax basis in the old asset was $107,000. a. Compute Business K’s realized loss, recognized loss, and tax basis in the new asset assuming the exchange was a taxabl

> On January 10, 2016, a fire destroyed a warehouse owned by NP Company. NP’s adjusted basis in the warehouse was $530,000. On March 12, 2016, NP received a $650,000 reimbursement from its insurance company. In each of the following cases, determine NP’s r

> Company W produces circuit boards in a foreign country that imposes a 15 percent VAT. This year, Company W manufactured 8.3 million boards at a $5 material cost per unit. Company W’s labor and overhead added $1 to the cost per unit. Company W sold the bo

> On June 2, 2018, a tornado destroyed the building in which FF operated a fast-food franchise. FF’s adjusted basis in the building was $214,700. In each of the following cases, determine FF’s recognized gain or loss on this property disposition and FF’s b

> Company B and Firm W exchanged the following business real estate. a. If B’s adjusted basis in Black acre was $240,000, compute B’s realized gain, recognized gain, and basis in White acre. b. If W’s

> Firm PO and Corporation QR exchanged the following business real estate. a. If PO’s adjusted basis in Marvin Gardens was $403,000, compute PO’s realized gain, recognized gain, and basis in Boardwalk. b. If QRâ&

> Alice and Brendan exchanged the following business real estate. a. If Alice’s adjusted basis in the undeveloped land was $360,000, compute Alice’s realized gain, recognized gain, and basis in the commercial building

> Company Z exchanged an asset (FMV $16,000) for a new asset (FMV $16,000). Company Z’s tax basis in the old asset was $9,300. a. Compute Company Z’s realized gain, recognized gain, and tax basis in the new asset assuming the exchange was a taxable transac

> Refer to the facts in problem 7. In the first year after the year of sale, TPW received payments totaling $106,900 from the purchaser. The total consisted of $67,500 principal payments and $39,400 interest payments. a. Compute TPW’s gain recognized under

> Refer to the facts in the preceding problem and assume that TPW uses the installment sale method of accounting. a. Compute the difference between TPW’s book and tax income resulting from the installment sale method. b. Is this difference favorable or unf

> TPW, a calendar year taxpayer, sold land with a $535,000 tax basis for $750,000 in February. The purchaser paid $75,000 cash at closing and gave TPW an interest-bearing note for the $675,000 remaining price. In August, TPW received a $55,950 payment from

> Firm UT sold realty to an unrelated buyer for $40,000 cash plus the buyer’s assumption of a $166,700 mortgage on the property. UT’s initial cost basis in the realty was $235,000, and accumulated tax depreciation through date of sale was $184,200. a. Comp

> KNB sold real property to Firm P for $15,000 cash and Firm P’s assumption of the $85,000 mortgage on the property. a. What is KNB’s amount realized on sale? b. Compute KNB’s after-tax cash flow from the sale if its adjusted basis in the real property is

> Firm Q is about to engage in a transaction with the following cash flows over a three-year period: If the firm’s marginal tax rate over the three-year period is 30 percent and its discount rate is 6 percent, compute the NPV of the tra

> Twelve years ago, Mr. and Mrs. Chang purchased a business. This year, they sold the business for $750,000. On date of sale, the business balance sheet showed the following assets. The sales contract allocated $40,000 of the purchase price to accounts r

> Ms. D sold a business that she had operated as a sole proprietorship for 18 years. On date of sale, the business balance sheet showed the following assets. The purchaser paid a lump-sum price of $300,000 cash for the business. The sales contract stipul

> St. George Inc. reported $711,800 net income before tax on this year’s financial statement prepared in accordance with GAAP. The corporation’s records reveal the following information: Four years ago, St. George realized a $283,400 gain on sale of invest

> Bali Inc. reported $605,800 net income before tax on this year’s financial statements prepared in accordance with GAAP. The corporation’s records reveal the following information: Depreciation expense per books was $53,000, and MACRS 495 depreciation was

> Calvin Corporation’s office was burglarized. The thieves stole 10 laptop computers and other electronic equipment. The lost assets had an original cost of $35,000 and accumulated tax depreciation of $19,400. Calvin received an insurance reimbursement of

> Firm R owned depreciable real property subject to a $300,000 nonrecourse mortgage. The property’s FMV is only $250,000. Consequently, the firm surrendered the property to the creditor rather than continuing to service the mortgage. At date of surrender,

> Five years ago, Firm SJ purchased land for $100,000 with $10,000 of its own funds and $90,000 borrowed from a commercial bank. The bank holds a recourse mortgage on the land. For each of the following independent transactions, compute SJ’s positive or ne

> Company L sold an inventory item to Firm M for $40,000. Company L’s marginal tax rate is 21 percent. In each of the following cases, compute Company L’s after-tax cash flow from the sale: a. Firm M’s payment consisted of $10,000 cash and its note for $30

> A taxpayer owned 1,000 shares of common stock in Barlo Corporation, which manufactures automobile parts. The taxpayer’s cost basis in the stock was $82,700. Last week, Barlo declared bankruptcy, and its board of directors issued a news release that Barlo

> Six years ago, Corporation CN purchased a business and capitalized $200,000 of the purchase price as goodwill. Through this year, CN has deducted $74,000 amortization with respect to this goodwill. At the end of the year, CN sold the business for $2 mill

> Company J must choose between two alternate business expenditures. Expenditure 1 would require a $80,000 cash outlay, and Expenditure 2 requires a $60,000 cash outlay. Determine the marginal tax rate at which the after-tax cash flows from the two expendi

> Firm P, a non corporate taxpayer, purchased residential realty in 1985 for $1 million. This year it sold the realty for $450,000. Through date of sale, Firm P deducted $814,000 accelerated depreciation on the realty. Straight-line depreciation would have

> Eleven years ago, Lynn Inc. purchased a warehouse for $315,000. This year, the corporation sold the warehouse to Firm D for $80,000 cash and D’s assumption of a $225,000 mortgage. Through date of sale, Lynn deducted $92,300 straight-line depreciation on

> Corporation Q, a calendar year taxpayer, has incurred the following Section 1231 net gains and losses since its formation in 2015. a. In 2018, Corporation Q sold only one asset and recognized a $4,000 Section 1231 gain. How much of this gain is treated

> Since its formation, Roof Corporation has incurred the following net Section 1231 gains and losses. a. In year 4, Roof sold only one asset and recognized a $7,500 net Section 1231 gain. How much of this gain is treated as capital gain, and how much is

> EzTech, a calendar year accrual basis corporation, generated $994,300 ordinary income from its business this year. It also sold the following assets, all of which were held for more than 12 months. EzTech used the straight-line method to calculate depr

> This year, Sigma Inc. generated $612,000 income from its routine business operations. In addition, the corporation sold the following assets, all of which were held for more than 12 months. a. Compute Sigma’s taxable income assuming t

> Firm CS performed consulting services for Company P. The two parties agreed that Company P would pay for the services by transferring investment securities to Firm CS. At date of transfer, the securities had a $38,500 FMV. Company P’s tax basis in the se

> This year, QIO Company generated $192,400 income from its routine business operations. In addition, it sold the following assets, all of which were held for more than 12 months. Compute QIO’s taxable income. Initial Acc. Sale Basi

> This year, Zeron Company generated $87,200 income from the performance of services for its clients. It also sold several assets during the year. Compute Zeron’s taxable income under each of the following alternative assumptions about the tax consequences

> Lemon Corporation generated $324,600 of income from ordinary business operations. It also sold several assets during the year. Compute Lemon’s taxable income under each of the following alternative assumptions about the tax consequences of the asset sale

> Firm E must choose between two alternative transactions. Transaction 1 requires a $9,000 cash outlay that would be nondeductible in the computation of taxable income. Transaction 2 requires a $13,500 cash outlay that would be a deductible expense. Determ

> In its first year, Firm KZ recognized $427,300 ordinary business income and a $13,590 loss on the sale of an investment asset. In its second year, Firm KZ recognized $500,800 ordinary business income, a $19,300 Section 1231 gain, and a $7,400 Section 123

> In its first taxable year, Band Corporation recognized $957,500 ordinary business income and a $5,500 capital loss. In its second taxable year, Band recognized $1,220,000 ordinary business income, a $12,500 Section 1231 loss, and a $2,000 capital gain. a

> Zeno Inc. sold two capital assets in 2018. The first sale resulted in a $53,000 capital loss, and the second sale resulted in a $25,600 capital gain. Zeno was incorporated in 2014, and its tax records provide the following information. 2014 2015 201

> Alto Corporation sold two capital assets this year. The first sale resulted in a $13,000 capital gain, and the second sale resulted in a $41,000 capital loss. Alto was incorporated five years ago. Four years ago, Alto recognized $5,000 of net capital gai

> This year, PRS Corporation generated $300,000 income from the performance of consulting services for its clients. It sold two assets during the year, recognizing a $36,000 gain on the first sale and a $49,000 loss on the second sale. Compute PRS’s taxabl

> Koil Corporation generated $718,400 ordinary income from the sale of inventory to its customers. It also sold three non inventory assets during the year. Compute Koil’s taxable income assuming that: a. The first sale resulted in a $45,000 capital gain, t

> Several years ago, PTR purchased business equipment for $50,000. PTR’s accumulated book depreciation with respect to the equipment is $37,200, and its accumulated tax depreciation is $41,000. a. Compute PTR’s book and tax basis in the equipment. b. Using

> Shenandoah Skies is the name of an oil painting by artist Kara Lee. In each of the following cases, determine the amount and character of the taxpayer’s gain or loss on sale of the painting. a. The taxpayer is Kara Lee, who sold her painting to the Relle

> Four years ago, Firm RD paid $468,000 for 12 acres of undeveloped land. This year, the firm sold the land for $1 million. What is the character of RD’s $532,000 recognized gain under each of the following assumptions? a. RD improved the land by adding ro

> Firm J, an accrual basis taxpayer, recorded a $40,000 account receivable on the sale of an asset on credit. Its basis in the asset was $33,000. Two months after the asset sale, Firm J sold the receivable to a local bank for $38,000. a. Assuming that the

> Investor B has $100,000 in an investment paying 9 percent taxable interest per annum. Each year B incurs $825 of expenses relating to this investment. Compute B’s annual net cash flow assuming the following: a. B’s marginal tax rate is 10 percent, and th

> Silo Inc. sold investment land to PPR Inc. for $110,000 cash. Silo’s basis in the land was $145,000. Mr. and Mrs. J own 100 percent of the stock of both corporations. a. What is PPR’s tax basis in the land purchased from Silo? b. PPR holds the land as an

> Firm J sold marketable securities to Company B. Firm J’s tax basis in the securities was $45,250. Compute Firm J’s recognized gain or loss if: a. The selling price was $60,000, and Firm J and Company B are unrelated parties. b. The selling price was $60,

> Refer to the facts in the preceding problem but assume that Aldo’s basis in the investment land was $100,000 rather than $61,000. a. Compute Aldo’s recognized loss in year 1. b. In year 4, Aldo pledged the note received from the purchaser as partial coll

> In year 1, Aldo sold investment land with a $61,000 tax basis for $95,000. Payment consisted of $15,000 cash down and the purchaser’s note for $80,000. The note is being paid in 10 annual installments of $8,000, beginning in year 2. a. Compute Aldo’s rec

> In year 1, Maxim sold investment land with a tax basis of $77,000. Payment consisted of $10,000 cash down and the purchaser’s note for $90,000. The note is payable in equal installments of $45,000 in years 2 and 3. a. Compute Maxim’s realized gain on the