2.99 See Answer

Question: The country of Boodang is the leading


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's total income:
$ 0 - $ 50,000…………………………………………………………….…………… 5% of total income
$ 50,000 - $ 200,000………………………………$ 2,500 + 10% of income in excess of $50,000
$200,000 - $ 500,000…………………………….$17,500 + 20% of income in excess of $200,000
$500,000 or more……………………………………………………………………………… 40% of total income
In calculating total income, sausage workers are allowed to deduct 25% of their salaries. Companies that produce sausage are allowed to deduct 50% of their sales. No other deductions are allowed.
• Sausage tax: All sausage purchases are subject to a 100% of purchase price tax. Residents who consume less than 10 pounds of sausage per year are given a 50% rebate of the sausage tax they paid.
• Property tax: Taxes are based on the distance of a taxpayer's residence from state-owned sausage shops per the following schedule:

0 - 2 miles…………………………$ 15,000 per mile
2 miles - 5 miles…………………$ 5,000 per mile
5 miles or more …………………$ 2,000 per mile

Given the definitions in the chapter, are Boodang's taxes progressive, proportional, or regressive? Evaluate and discuss each tax and the aspect(s) of the tax that you considered in making your evaluation.


> The Prevetti Partnership is engaged in the purchase and management of apartment complexes. The partnership entered into an agreement with Parsnip Development Company on July 1 of the current year to purchase the Perry Apartments. The sales agreement st

> WCM Builders enters into a contract to build a shopping mall in 2017 for $6,000,000. Completion of the mall is expected to take 2 years and cost WCM $3,600,000. Upon signing the contract, WCM receives $600,000. During 2017, WCM incurs costs of $1,200,0

> Nathaniel purchases a house by paying $25,000 in cash and securing a home mortgage for $75,000. He also incurs $3,000 in legal fees, title search, and closing costs. He agrees to pay the property taxes for the entire year ($6,000), even though his shar

> Izzy is an employee of Kosmo's Kustom Kars, Inc. The company rebuilds classic automobiles for resale. Last year, Izzy bought a rebuilt 1956 Thunderbird for $15,000 from the company. A car like Izzy's Thunderbird generally sells for $28,000. On Decemb

> Fala is the sole shareholder of Campbell Inc. During the current year, Campbell sells Fala land that had a fair market value of $40,000 for $28,000. Campbell has paid $30,000 for the land. What are the tax effects of the sale for Fala and Campbell? W

> On October 1, 2017, Mitzo Realty Partnership purchases a lot for future development for $60,000 from the Elm Trust. The trust's adjusted basis in the lot is $20,000. Real estate taxes attributable to the property are $1,000. The city in which the lot is

> Alphonse purchases a store and a warehouse. The asking price includes $150,000 for the store, $50,000 for the warehouse, and $90,000 for the land. Alphonse agrees to this price even though he does not want to buy the warehouse because it does not meet

> Florian Corporation purchases a piece of land for investment purposes on April 1. Florian pays the seller $2,000 cash and agrees to pay the seller $3,000 per year for the next 5 years plus interest at 9% per year on the outstanding balance. As part of

> Erin purchases 2 acres of land in 2017 by paying $4,000 in cash at closing and borrowing $40,000 to be repaid at $8,000 per year for the next 5 years with interest on the unpaid balance at 10%. In addition, Erin agrees to let the seller store farm equip

> Troy owns 600 of the 1,000 outstanding shares of Oiler Corporation. His adjusted basis in the Oiler stock at the beginning of the current year is $88,000. Oiler Corporation is organized as an S corporation and reports the following results for the curr

> Paula purchases a 40% interest in Dancer Enterprises for $52,000 on January 2, of the current year. Dancer is organized as a partnership and has an income of $50,000 in the current year. Dancer also distributes a total of $15,000 to the partners in the

> Return to the facts of problem 30. Assume that Show Corporation is organized as an S corporation. In its second year of operations, Show has an operating loss of $40,000 and pays out $20,000 in dividends. On December 31, Amos gives a 10% interest in S

> In 2014, Patricia purchases a rental property as an investment at a cost of $60,000. From 2014 through 2017, she takes $7,000 in depreciation on the property. In 2017, Patricia sells the rental property for $80,000, payable $20,000 per year for 4 years

> Barbara is going to purchase a car for $20,000. She has two financing options: She can finance the purchase through the dealer at 1 percent for 48 months, with monthly loan payments of $425, or she can take a $2,000 rebate on the purchase price and fin

> Amos and Thomas form the Show Corporation during the current year. Amos owns 40% of Show's stock, Thomas owns 20%, and Arthur owns the remaining 40%. Amos paid $50,000 for his interest, and Thomas paid $25,000. Amos and Thomas are responsible for Show'

> During the current year, Horace's personal residence is damaged by a tornado. The residence had an adjusted basis of $80,000 before the tornado. The cost of repairing the damage is $30,000. Horace's insurance company reimburses him $22,000 for the rep

> Determine whether each of the following transactions would result in an increase in basis, a decrease in basis, or no effect on basis: a. Dolly pays $3,000 for a survey to disprove her neighbor's claim that the boundaries dividing their properties are in

> Hannibal owns a farm. He purchases a tractor in 2013 at a cost of $25,000. Because 2013 is a bad year, he does not deduct any depreciation on the tractor in 2013. He sells the tractor in 2017 for $16,000. He takes straight-line depreciation on the tr

> Carl Corporation acquires a business use warehouse for $200,000 on January 2, 2010. From 2010 through 2015, Carl Corporation properly deducts a total of $30,000 in depreciation. Carl incurs a net operating loss and deducts no depreciation in 2016, even

> Luana pays $40 per share for 100 shares of Manano Corporation common stock. At the end of the year, the market price of the stock is $60 per share. During the year, she receives a cash dividend of $4 per share. Manano reports that $3 per share is tax

> Alberta owns 5 acres of land she purchased several years ago for $6,500. A new housing development is being built on the north side of her property. The owner of the development needs part of Alberta's land to run utility and sewer lines to the new dev

> Determine the adjusted basis of each of the following assets: a. André purchased a parcel of land three years ago for $17,000. In the current year, the adjoining property owner sues him, claiming that part of André's property belongs to him under the ri

> Determine the adjusted basis of each of the following assets: a. Leineia purchased an automobile 2 years ago for $30,000. She uses it 75% in her business and 25% for personal use. To date, she has deducted $4,209 in allowable depreciation on the busine

> How is a transaction loss different from an annual loss?

> For each of the following assets, determine whether it is personal property, real property, intangible property, or personal use property: a. Woodrow spent $5,380 on trees and shrubs for use in his landscaping business. b. Woodrow spent $12,100 on a new

> Bonnie is married and has 1 child. She owns Bonnie's Rib Joint, which produces a taxable income of approximately $120,000 per year. a. Assume that Bonnie's taxable income is $40,000 without considering the income from the rib joint. How much tax will s

> For each of the following assets, determine whether it is personal property, real property, intangible property, or personal use property: a. Reagan gave her mother a new set of golf clubs for Christmas. b. Roberta bought a whistle and uniform for use in

> Lynn bought 100 shares of Filidelphia Corporation stock for $10,000 three years ago. On December 24, she sells 50 shares for $4,000. She plans to buy 100 more shares of Filidelphia stock for $7,000 on January 17. Explain the tax treatment of these trans

> On November 14, 2017, Noel sells 2,000 shares of Marker, Inc., stock for $6,000. He had purchased the stock 2 years earlier for $10,000. Because the price of the stock continued to drop, Noel purchases additional shares of Marker stock on December 10,

> Eric owns 600 shares of Razor, Inc., stock for which he paid $3,500 in 2013. On December 14, 2017, he sells the 600 shares for $4 per share and pays a commission of $200 on the sale. On January 3, 2018, Eric purchases 500 shares of Razor, Inc., for $3 pe

> 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

> 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.

> 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 o

> 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

2.99

See Answer