Tom has a successful business with $100,000 of taxable income before the election to expense in 2018. He purchases one new asset in 2018, a new machine which is 7year MACRS property and costs $25,000. If you are Tom’s tax advisor, how would you advise Tom to treat the purchase for tax purposes in 2018? Why?
> Assume that Olive Corporation, in Comprehensive Problem 1, is an S corporation owned 50 percent by Linda Holiday and 50 percent by Ralph Winston. The corporation is not subject to any special taxes. Using the relevant information given in Comprehensive P
> Olive Corporation was formed and began operations on January 1, 2018. The corporation’s income statement for the year and the balance sheet at year-end are presented below. The corporation made estimated tax payments of $5,000 and th
> Beech Corporation, an accrual basis calendar year taxpayer, was organized and began business on August of the current calendar tax year. During the current year, the corporation incurred the following expenses: Assuming that Beech Corporation does not
> Fisafolia Corporation has gross income from operations of $210,000 and operating expenses of $160,000 for 2018. The corporation also has $30,000 in dividends from publicly traded domestic corporations in which the ownership percentage was 45%. a. Calcula
> In the 2018 tax year, Michelle paid the following amounts relating to her 2016 tax return: Which of the above items may be deducted on Michelle’s 2018 individual income tax return? Explain Tax deficiency Negligence penalty Interes
> For its current tax year, Ilex Corporation has ordinary income of $260,000, a short-term capital loss of $60,000, and a long-term capital gain of $20,000. Calculate Ilex Corporation’s tax liability for 2018.
> Describe ways in which LLCs might differ from partnerships.
> Your supervisor has asked you to research a potential tax deduction for a client, Nancy Fradette. Nancy is a seat-filler at a number of the award shows that are filmed in the greater Los Angeles area. Although typically seat-fillers are not compensated,
> Vanessa Lazo was an amazing high school student and so it was no great surprise when she was accepted into Prestige Private University (PPU). To entice Vanessa to attend PPU, the school offered her a reduced tuition of $13,000 per year (full-time tuition
> Ulmus Corporation is an engineering consulting firm and has $1,120,000 in taxable income for 2018. Calculate the corporation’s income tax liability for 2018.
> Quince Corporation has taxable income of $485,000 for its calendar tax year. Calculate the corporation’s income tax liability for 2018 before tax credits.
> The Loquat Corporation has book net income of $50,000 for the current year. Included in this figure are the following items, which are reported on the corporation’s Schedule M-1, Reconciliation of Income (Loss) per Books with Income per
> DeMaria Corporation, a calendar year corporation, generates the following taxable income (net operating losses) since its inception in 2016: Assuming Demaria makes no special elections with regard to NOLs, what is DeMaria’s net operat
> Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation. Guilda’s basis in her stock is $21,000. On May 26, 2018, Bill sells his stock, with a basis of $40,000, to Loraine for $50,000. For the 2018 tax year, Radiata Corp
> Cedar Corporation has an S corporation election in effect. During the 2018 calendar tax year, the corporation had ordinary taxable income of $200,000, and on January 15, 2018, the corporation paid dividends to shareholders in the amount of $120,000. How
> Mallory Corporation has a calendar year-end. The corporation has paid estimated taxes of $10,000 during 2018 but still owes an additional $5,000 for its 2018 tax year. a. When is the 2018 tax return due? b. If an automatic extension of time to file is r
> Thuy worked as the assistant manager at Burger Crown through August 2018 and received wages of $87,000. Thuy then worked at Up and Down Burger starting in September of 2018 and received wages of $60,000. Calculate the amount of Thuy’s overpayment of Soci
> Cypress Corporation, a calendar year end corporation, has an AMT credit carryforward from 2017 in the amount of $43,000. In 2018, Cypress has $170,000 of taxable income. Assuming Cypress is not a personal service corporation, what is the amount of refund
> Fidicuary Investments paid its employee, Yolanda, wages of $137,000 in 2018. Calculate the FICA tax: Withheld from Yolanda's wages: Social Security Medicare Paid by Fiduciary: Social Security Medicare Total FICA Tax
> Wilson has a 40 percent interest in the assets and income of the CC&W Partnership, and the basis in his partnership interest is $45,000 at the beginning of 2018. During 2018, the partnership’s net loss is $60,000 and Wilson’s share of the loss is $24,000
> Kana is a single wage earner with no dependents and taxable income of $205,000 in 2018. Her 2017 taxable income was $155,000 and tax liability was $36,382. Calculate the following (note: this question requires the use of the tax tables in Appendix A): Ka
> What is the maximum amount a 45-year-old taxpayer and 45-year-old spouse can put into a Traditional or Roth IRA for 2018 (assuming they have sufficient earned income, but do not have an income limitation and are not covered by another pension plan)?
> Cassie works at Capital Bank and is in charge of issuing Form 1099s to bank customers. Please describe for Cassie the 4 possible situations that require the bank to implement backup withholding on a customer.
> Sophie is a single taxpayer. For the first payroll period in July 2018, she is paid wages of $3,900 monthly. Sophie claims one allowance on her Form W-4. a. Use the percentage method to calculate the amount of Sophie’s withholding for a monthly pay perio
> Ralph and Kathy Gump are married with one 20-year-old dependent child. Ralph earns a total of $98,000 and estimates their itemized deductions to be $28,500 for the year. Kathy is not employed. Use Form W-4 on Pages 9-39 and 9-40 to determine the number o
> Van makes an investment in an LLC in 2018. Van’s capital contributions to the LLC consisted of $30,000 cash and a building with an adjusted basis of $70,000, subject to a nonrecourse liability (seller financing) of $20,000. Calculate the amount that Van
> Go to the IRS website (www.irs.gov) and assuming bonus depreciation is used, redo Problem 11, using the most recent interactive Form 4562, Depreciation and Amortization. Print out the completed Form 4562.
> Quince Interests is a partnership with a tax year that ends on September 30, 2018. During that year, Potter, a partner, received $3,000 per month as a guaranteed payment, and his share of partnership income after guaranteed payments was $23,000. For Octo
> Van makes an investment in a partnership in 2018. Van’s capital contributions to the partnership consisted of $30,000 cash and a building with an adjusted basis of $70,000, subject to a nonrecourse liability (seller financing) of $20,000. a. Calculate th
> Drew Freeman operates a small business and his payroll records for the first quarter of 2018 reflect the following: Drew’s employee identification number is 34-4321321 and his business is located at 732 Nob Hill Blvd. in Yakima, WA 98
> Phan Mai is single with two dependent children under age 17. Phan estimates her wages for the year will be $42,000, her dependent care expenses will be $6,300, and her itemized deductions will be $14,000. Assuming Phan files as head of household, use For
> Lamden Company paid its employee, Trudy, wages of $47,000 in 2018. Calculate the FICA tax: Withheld from Trudy's wages: Social Security $. $. $. $- Medicare Paid by Lamden: Social Security Medicare Total FICA Tax
> Donald, a wealthy banker, has a 24-year-old son, Junior, that has struggled to keep a job. In 2018, Junior generated wage income of $17,000. Junior is not a dependent of Donald and Junior’s 2018 tax liability is $500. Donald is considering gifting Junior
> Adam Grisly, a single taxpayer, retired from a long career in coal mining in 2017 when he was only 58 years of age. In 2018, his only source of income is wages of $17,500 from a part-time job. Adam knows he needs to save additional funds for retirement a
> Thomas is an employer with two employees, Patty and Selma. Patty’s wages are $12,450 and Selma’s wages are $1,275. The state unemployment tax rate is 5.4 percent. Calculate the following amounts for Thomas: a. FUTA tax before the state tax credit b. Stat
> Fly-By-Night (P.O. Box 1234, Dallas, TX 75221, EIN 12-9876543) paid George Smith, an employee who lives at 432 Second Street, Garland, TX 75040, wages of $25,400. Based on George’s final 2018 pay stub, the income tax withholding amounted to $5,380 and th
> During 2018, Palo Fiero purchases the following property for use in his calendar year­end manufacturing business: Palo uses the accelerated depreciation method under MACRS, if available, and does not make the election to expense or take bonu
> On February 2, 2018, Alexandra purchases a personal computer for her home. The computer cost $2,800. Alexandra uses the computer 80 percent of the time in her accounting business, and the remaining 20 percent of the time for various personal uses. Calcul
> During 2018, William purchases the following capital assets for use in his catering business: Assume that William decides to use the election to expense on the baking equipment (and has adequate taxable income to cover the deduction) but not on the aut
> Janie owns a 40% interest in Chang Partnership. Chang has W-2 wages of $50,000 and qualified property of $450,000 in 2018. a. When computing the W-2 wages limitation, what is the amount of wages that will be allocated to Janie? b. What is the amount of q
> Calculate the following: a. The first year of depreciation on a residential rental building costing $200,000 purchased July 2, 2018. b. The second year (2019) of depreciation on a computer costing $5,000 purchased in May 2018, using the half year conve
> Explain the use of the mid quarter convention for MACRS depreciation:
> On April 8, 2018, Holly purchased a residential apartment building. The cost basis assigned to the building is $800,000. Holly also owns another residential apartment building that she purchased on November 15, 2018, with a cost basis of $500,000. a. Cal
> Mike purchases a new heavy duty truck (5-year class recovery property) for his delivery service on April 30, 2018. No other assets were purchased during the year. The truck is not considered a passenger automobile for purposes of the listed property and
> Serena is a 40-year-old single taxpayer. She operates a small business on the side as a sole proprietorship. Her 2018 Schedule C reports net profits of $5,624. Her employer does not offer health insurance. Serena pays health insurance premiums of $7,545
> Steve Drake sells a rental house on January 1, 2018, and receives $120,000 cash and a note for $45,000 at 10 percent interest. The purchaser also assumes the mortgage on the property of $35,000. Steve’s original cost for the house was $180,000 on January
> Nadia Shalom has the following transactions during the year: Sale of office equipment on March 15 that cost $19,000 when purchased on July 1, 2016. Nadia has claimed $3,000 in depreciation and sells the asset for $13,000 with no selling costs. Sale of l
> Susan is a single taxpayer, 26 years of age, with AGI of $28,000 and no tax-exempt income. She did not have minimum essential coverage for 8 months in 2018. Compute Susan’s individual shared responsibility payment for 2018.
> Derek purchases a small business from Art on July 1, 2018. He paid the following amounts for the business: a. How much of the $325,000 purchase price is for Section 197 intangible assets? b. What amount can Derek deduct on his 2018 tax return as Secti
> Indicate whether the following statements are true or false: Decreasing one’s tax liability through legal methods is called tax planning, while illegally reducing taxes is called tax evasion. In a “closed” transaction, all tax-significant events have bee
> On September 14, 2018, Jay purchased a passenger automobile that is used 75 percent in his accounting business. The automobile has a basis for depreciation purposes of $43,000, and Jay uses the accelerated method under MACRS. Jay does not elect to expens
> The Au Natural Clothing Corporation has changed its year-end from a calendar yearend to March 31, with permission from the IRS. The income for its short period from January 1 to March 31 is $24,000. Calculate the tax for this short period.
> alculate the amount of the child and dependent care credit allowed for 2018 in each of the following cases, assuming the taxpayers had no income other than the stated amounts. a. William and Carla file a joint tax return. Carla earned $26,000 during the
> Brian and Kim have a 12-year-old child, Stan. For 2018, Brian and Kim have taxable income of $52,000, and Stan has interest income of $4,500. No election is made to include Stan’s income on Brian and Kim’s return. a. For purposes of the tax on a child’s
> Margaret and David Simmons are married and file a joint income tax return. They have two dependent children, Margo, 5 years old (Social Security number 316-31-4890), and Daniel, who was born during the year (Social Security number 316-31-7894). Margaret
> Diane is a single taxpayer who qualifies for the earned income credit. Diane has two qualifying children who are 3 and 5 years old. During 2018, Diane’s wages are $18,300 and she receives dividend income of $700. Calculate Diane’s earned income credit
> Amy is a calendar-year taxpayer reporting on the cash basis. Please indicate how she should treat the following items for 2018: a. She makes a deductible contribution to an IRA on April 15, 2019. b. She has made an election to accrue the increase in valu
> Karen, 28 years old and a single taxpayer, has a salary of $31,000 and rental income of $33,000 for the 2018 calendar tax year. Karen is covered by a pension through her employer. a. What is the maximum amount that Karen may deduct for contributions to h
> Ann hires a nanny to watch her two children while she works at a local hospital. She pays the 19-year-old nanny $170 per week for 42 weeks during the current year. a. What is the employer’s portion of Social Security and Medicare tax for the nanny that
> Using the information in the previous question, assume that the Collins’ Form 1095-A also indicated that the total advance payment of the premium tax credit was $9,200. Calculate the excess advance premium tax credit and the repayment a
> The Taxpayer Bill of Rights lists 10 different rights. Name four of those rights.
> Susan and Stan Collins live in Iowa, are married and have two children ages 6 and 10. In 2018, Susan’s income is $38,290 and Stan’s is $12,000 and both are self-employed. They also have $500 in interest income from tax
> Julie, a single taxpayer, has completed her 2018 Schedule C and her net loss is $40,000. Her only other income is wages of $30,000. Julie takes the standard deduction of $12,000 in 2018. a. Calculate Julie’s taxable income or loss. b. Calculate the busin
> During 2018, Jill, age 39, participated in a Section 401(k) plan which provides for maximum employee contributions of 12 percent. Jill’s salary was $90,000 for the year. Jill elects to make the maximum contribution. What is Jill’s maximum tax-deferred co
> Clifford Johnson has a limited partnership investment and a rental condominium. Clifford actively manages the rental condominium. During 2018, his share of the loss from the limited partnership was $11,000, and his loss from the rental condo was $17,000
> Tony is a 45-year-old psychiatrist who has net earned income of $300,000 in 2018. What is the maximum amount he can contribute to his SEP for the year?
> Clarita is a single taxpayer with two dependent children, ages 10 and 12. Clarita pays $3,000 in qualified child care expenses during the year. If her adjusted gross income (all from wages) for the year is $18,500, calculate Clarita’s child and dependent
> Refer to the previous problem 8. If Stan’s parents elected to report Stan’s income on his parents’ return, what would the tax on Stan’s income be? Data from problem 8: Brian and Kim have a 12-year-old child, Stan. For 2018, Brian and Kim have taxable i
> Barry is a single, 40-year-old software engineer earning $190,000 a year and is not covered by a pension plan at work. How much can he put into a Roth IRA in 2018?
> You have a problem and need a full-text copy of the Related Party Code Section 267. Go to the Office of the Law Revision Counsel of the United States House of Representatives website (uscode.house.gov) and enter Title 26 (the Internal Revenue Code) and
> Frank, age 35, and Joyce, age 34, are married and file a joint income tax return for 2018. Their salaries for the year total $84,600 and they have taxable interest income of $3,900. They have no deductions for adjusted gross income. Their itemized deduct
> Classify each of the following as an enrolled or unenrolled preparer: a. Certified public accountant b. Enrolled agent c. A preparer that has completed the annual filing season program d. An attorney
> Eric, your friend, received his Form W-2 from his employer (below) and has asked for your help. Eric’s 2018 salary was $145,000 and he does not understand why the amounts in Boxes 1, 3 and 5 are not $145,000? His final paycheck for the
> Cautionary Tales Inc. is considering the acquisition of Danger Corp. at its asking price of $150,000. Cautionary would immediately sell some of Danger’s assets for $15,000 if it makes the acquisition. Danger has a cash balance of $1,500 at the time of th
> Toni’s Typesetters is analyzing a possible merger with Pete’s Print Shop. Toni’s has a tax loss carryforward of $200,000, which it could apply to Pete’s expected earnings before taxes of $100,000 per year for the next 5 years. Using a 34% tax rate, compa
> A 6-month call option on 100 shares of SRS Corp. stock is selling for $320. The strike price for the option is $80. The stock is currently selling at $79 per share. Ignoring brokerage fees, what price must the stock achieve to just cover the expense of t
> Crystal Cafes recently sold a $1,000-par-value, 10-year convertible bond with a 7% coupon rate. The interest payments will be paid annually at the end of each year and the principal will be repaid at maturity. A similar bond without a conversion feature
> Newcomb Company has a bond outstanding with a $1,000 par value and convertible at $30 per share. What is the bond’s conversion ratio? If the underlying stock currently trades at $25 per share, what is the bond’s conversion value? Would it be advisable fo
> During the past 2 years Meacham Industries issued three separate convertible bonds. For each of them, calculate the conversion price: a. A $1,000-par-value bond that is convertible into 10 shares of common stock. b. A $1,000-par-value bond that is conver
> N and M Corp. is considering leasing a new machine for $25,000 per year. The lease arrangement calls for a 5-year lease with an option to purchase the machine at the end of the lease for $3,500. The firm is in the 34% tax bracket. What is the present val
> Horizon Telecom sold $300,000 worth of 120-day commercial paper for $298,000. What is the dollar amount of interest paid on the commercial paper? What is the effective 120-day rate on the paper?
> Jackson Industries has borrowed $125,000 under a line-of-credit agreement. Although the company normally maintains a checking account balance of $15,000 in the lending bank, this credit line requires a 20% compensating balance. The stated interest rate o
> Jasmine Scents has been given two competing offers for short-term financing. Both offers are for borrowing $15,000 for 1 year. The first offer is a discount loan at 8%, and the second offer is for interest to be paid at maturity at a stated interest rate
> The end-of-year parties at Yearling, Inc., are known for their extravagance. To thank the employees for their hard work, management provides the best food and entertainment. During the planning for this year’s bash, a disagreement broke out between the t
> Cleaner’s Inc. is switching to paying employees every 2 weeks rather than weekly and will therefore “skip” 1 week’s pay. The firm has 25 employees who work a 60-hour week and earn an average wage of $12.50 per hour. Using a 10% rate of interest, how much
> Lyman Nurseries purchased seeds costing $25,000 with terms of 3/15 net 30 EOM on January 12. How much will the firm pay if it takes the discount? What is the approximate cost of giving up the discount, using the simplified formula?
> Klein’s Tools is considering offering a discount to speed up the collection of accounts receivable. Currently, the firm has an average collection period of 65 days, annual sales are 35,000 units, the per-unit price is $40, and the per-unit variable cost
> Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days. The company has a per-unit variable cost of $20 and a per unit sale price of $30. Bad debts currently are 5% of sales. The firm estimates that a pro
> Mama Leone’s Frozen Pizzas uses 50,000 pounds of cheese per year. Each pound costs $5.50. The ordering cost for the cheese is $250 per order, and its carrying cost is $1.50 per pound per year. Calculate the firm’s economic order quantity (EOQ) for the ch
> Seven years ago, after 15 years in public accounting, Stanley Booker, CPA, resigned his position as manager of cost systems for Davis, Cohen, and O’Brien Public Accountants and started Track Software Inc. In the 2 years preceding his de
> In corporate settings, it is not unusual for firms to assess the financial viability of a business unit and decide whether to retain it within the corporation or divest it. The selling of units that do not seem to “fit” should bring about greater synergy
> Benson Oil is being considered for acquisition by Dodd Oil. The combination, Dodd believes, would increase its cash inflows by $25,000 for each of the next 5 years and by $50,000 for each of the following 5 years. Benson has high financial leverage, and
> Zarin Printing Company is considering the acquisition of Freiman Press at a cash price of $60,000. Freiman Press has liabilities of $90,000. Freiman has a large press that Zarin needs; the remaining assets would be sold to net $65,000. As a result of acq
> Hahn Textiles has a tax loss carryforward of $800,000. Two firms are interested in acquiring Hahn for the tax loss advantage. Reilly Investment Group has expected earnings before taxes of $200,000 per year for each of the next 7 years and a cost of capit
> Trapani Tool Company is evaluating the acquisition of Sussman Casting. Sussman has a tax loss carryforward of $1.8 million. Trapani can purchase Sussman for $2.1 million. It can sell the assets for $1.6 million, their book value. Trapani expects its earn
> Icy Treats Inc. is a seasonal business that sells frozen desserts. At the peak of its summer selling season, the firm has $35,000 in cash, $125,000 in inventory, $70,000 in accounts receivable, and $65,000 in accounts payable. During the slow winter peri
> Connors Shoe Company is contemplating the acquisition of Salinas Boots, a firm that has shown large operating tax losses over the past few years. As a result of the acquisition, Connors believes that the total pretax profits of the merger will not change
> What is the conversion ratio for each of the following bonds? a. A $1,000-par-value bond that is convertible into common stock at $43.75 per share. b. A $1,000-par-value bond that is convertible into common stock at $25 per share. c. A $600-par-value bon
> Calculate the conversion price for each of the following convertible bonds: a. A $1,000-par-value bond that is convertible into 40 shares of common stock. b. A $1,000-par-value bond that is convertible into 25 shares of common stock. c. A $1,000-par-valu
> Given the lease payments, terms remaining until the leases expire, and discount rates shown in the following table, calculate the capitalized value of each lease, assuming that lease payments are made annually at the end of each year. Lease payment
