Question: What is the purpose of a bilateral

> Every chapter in this edition has an Excel application problem; I’ve included them based on feedback from other AIS faculty and my own approach to teaching AIS. As you complete each problem, ensure that your spreadsheet is logically lai

> a. In your own words, explain the similarities and differences between accounting and bookkeeping. b. What systems do accountants use to create and modify a chart of accounts? c. What internal controls are common in the accounting cycle? d. How is human

> In year 1, Firm A paid $50,000 cash to purchase a tangible business asset. In year 1 and year 2, it deducted $3,140 and $7,200 depreciation with respect to the asset. Firm A’s marginal tax rate in both years was 21 percent. a. Compute Firm A’s net cash f

> Jonson Corporation incurred $150,000 in capitalized acquisition costs to develop an oil well. The corporation’s geologists estimated that there were 200,000 barrels of oil in the well at the beginning of the year. Jonson produced and sold 20,000 barrels

> A&Z incurred $450,000 of capitalized costs to develop a uranium mine. The corporation’s geologists estimated that the mine would produce 900,000 tons of ore. During the year, 215,000 tons were extracted and sold. A&Z’s gross revenues from the sales total

> TGW, a calendar year corporation, reported $3,908,000 net income before tax on its financial statements prepared in accordance with GAAP. The corporation’s records reveal the following information: TGW’s depreciation expense per books was $448,000, and i

> SEP, a calendar year corporation, reported $918,000 net income before tax on its financial statements prepared in accordance with GAAP. The corporation’s records reveal the following information: SEP incurred $75,000 of research costs that resulted in a

> On November 13, Underhill Inc., a calendar year taxpayer, purchased a business for a $750,000 lump-sum price. The business’s balance sheet assets had the following appraised FMV. Accounts receivable ………………………………$ 38,000 Inventory ………………………………………………….77,

> On April 23, Mrs. Y purchased a taxi business from Mr. M for a $60,000 lump-sum price. The business consisted of a two-year-old taxicab worth $19,000, Mr. M’s license to operate a taxi business in Baltimore, his list of regular customers, and his registe

> MNO is a calendar year taxpayer. On March 1, MNO signed a 36month lease on 2,100 square feet of commercial office space. It paid a $3,240 fee to the real estate agent who located the space and negotiated the lease and $8,800 to install new overhead light

> Mr. Z, a calendar year taxpayer, opened a new car wash. Prior to the car wash’s grand opening on October 8, Mr. Z incurred various start-up expenditures (rent, utilities, employee salaries, supplies, and so on). In each of the following cases, compute Mr

> Mr. and Mrs. FB, a retired couple, decided to open a family restaurant. During March and April, they incurred the following expenses. Mr. and Mrs. FB served their first meal to a customer on May 1. Determine the tax treatment of the given expenses on t

> Company N will receive $100,000 of taxable revenue from a client. Compute the NPV of the $100,000 in each of the following cases: a. Company N will receive $50,000 now (year 0) and $50,000 in year 1. The company’s marginal tax rate is 30 percent, and it

> Ajax Inc. was formed on April 25 and elected a calendar year for tax purposes. Ajax paid $11,200 to the attorney who drew up the articles of incorporation and $5,100 to the CPA who advised the corporation concerning the accounting and tax implications of

> In April 2018, Lenape Corporation completed security, fire, and heating system improvements to existing nonresidential real property with a total cost of $1,275,000. Assuming these improvements are 39year recovery property and qualify for the Section 179

> At the beginning of its 2018 tax year, Hiram owned the following business assets. On July 8, Hiram sold its equipment. On August 18, it purchased and placed in service new tools costing $589,000; these tools are threeyear recovery property. These were

> Loni Company paid $527,000 for tangible personality in 2017 and elected to expense $510,000 of the cost (the limited dollar amount for 2017). Loni’s taxable income before a Section 179 deduction was $394,100. Loni paid $23,700 for tangible personality in

> In 2017, Company W elected under Section 179 to expense $19,300 of the cost of qualifying property. However, it could deduct only $15,000 of the expense because of the taxable income limitation. In 2018, Company W’s taxable income before any Section 179

> In 2018, Firm L purchased machinery costing $21,300 and elected to expense the entire cost under Section 179. How much of the expense can Firm L deduct in each of the following cases? a. Its taxable income before the deduction was $58,000. b. Its taxable

> Find the website for the U.S. Treasury Department and report its URL. Who is the current secretary of the Treasury? Find the equivalent of the U.S. Treasury Department for one of the following countries: Western Australia, Germany, Japan, or Spain. Repor

> Find the IRS website and locate the following items: a. Find the IRS publication dealing with moving expenses. What is its publication number? b. Find the IRS publication providing tax information relevant to divorced or separated individuals. What is it

> Using an electronic library such as Checkpoint, CCH Intelli Connect, or LexisNexis, determine how many federal tax cases decided in 2017 contain the phrase step transaction.

> In researching a tax issue, you locate the case Stern, Sidney B. & Vera L., 77 T.C. 614, which seems relevant to your issue. However, before completing your research check the Citator for subsequent information about the case. What do you find in the Cit

> Using an electronic research database such as Checkpoint, CCH Intelli Connect, or LexisNexis, do a keyword search that includes both the phrase capital gain and the keyword livestock. Include both primary sources and editorial materials in your search. a

> Margo, a calendar year taxpayer, paid $580,000 for new machinery (seven-year recovery property) placed in service on August 1, 2017. a. Assuming that the machinery was the only tangible property placed in service during the year, compute Margo’s maximum

> Using an electronic library such as Checkpoint, CCH Intelli Connect, or LexisNexis, find a federal tax case in which the taxpayer is found guilty of tax evasion. After reading the case, list the behaviors of the taxpayer that convinced the court that the

> Explain why, in the course of tax research, it may be necessary for the researcher to gather more facts.

> If a trial court decision has been appealed and the appellate court reversed the trial court’s decision, which of the two court decisions is considered authoritative? Briefly explain your answer.

> Discuss why and how a researcher might use secondary authorities in performing tax research.

> Why is it important for a tax researcher to understand the client’s motivation in undertaking a transaction? How will this knowledge assist the tax professional in serving her client?

> Term life insurance has no investment element and no cash surrender value. As a result, a term policy represents pure insurance protection. What are the tax consequences when the owner lets a term policy lapse by discontinuing premium payments?

> Mr. and Mrs.Greer earn a combined annual salary of $150,000. What two basic economic choices do they have with respect to this income (i.e., what can they do with their money)? Now assume that Mr. and Mrs. Greer own property worth $2 million. What three

> Discuss the tax policy rationale behind the unlimited federal estate tax deduction for testamentary transfers to religious, charitable, educational, government, or other nonprofit organizations.

> Describe the differences between a defined-benefit plan and a defined-contribution plan.

> Six years ago, Corporation AT granted a stock option to an employee to purchase 1,000 shares of AT stock for $15 per share. At date of grant, AT stock was selling for $14.10 per share. Over the last six years, the market price has steadily declined to $1

> In March 2018, Jones Company purchased a Mercedes for use in its business at a cost of $73,000. Assuming no bonus depreciation or Section 179 deduction, calculate the allowable tax depreciation on this asset for 2018, 2019, and 2020.

> Describe the restrictions on tax benefits available to an individual taxpayer who is claimed as a dependent on another taxpayer’s Form 1040.

> Individuals who plan to bunch itemized deductions into one year can either postpone the payment of expenses from an earlier year or accelerate the payment of expenses from a later year. Which technique is preferable from a cash flow standpoint?

> While checking the computations on his Form 1040, Mr. Gordon realized he had misclassified a $10,800 expense as a business deduction on Schedule C. The expense should have been an itemized deduction on Schedule A. Mr. Gordon didn’t correct the error beca

> Identify the reasons why individual taxpayers benefit more from above-the-line deductions than from itemized deductions.

> Discuss possible tax policy reasons why individuals who are age 65 or older receive an additional standard deduction.

> University K is located in a small town that depends on real property taxes for revenue. Over the past decade, University K has expanded by purchasing a number of commercial buildings and personal residences and converting them to classrooms and dormitor

> Explain why AGI is considered a better measure of individual disposable income than taxable income.

> Ms. Jobe has been very ill since the beginning of the year and unable to attend to any financial matters. Her CPA advised that she request an automatic extension of time to file her prior year Form 1040. Ms. Jobe likes this idea because she believes the

> Congress enacted the earned income credit to relieve the burden of the payroll tax on low-income workers. Why didn’t Congress accomplish this goal by providing a payroll tax exemption for a base amount of annual compensation paid by an employer to an emp

> The tax law provides for both refundable and nonrefundable credits. What is the difference between the two types of credit?

> On May 12, 2018, Nelson Inc. purchased eight passenger automobiles for its business. Nelson did not make a Section 179 election to expense any portion of the cost of the automobiles, which are five year recovery property subject to the half-year conventi

> Explain why an individual’s combined standard deduction can be considered a bracket of income taxed at a zero rate.

> Discuss the extent to which adjusted gross income (AGI) is actually a net income number.

> Distinguish between a home country and a host country in the international tax context.

> In what situation would a multistate business deliberately create nexus with a state so that the state has jurisdiction to tax a portion of the business income?

> Borden Inc. conducts a business that spans four states. Its total income for the year was $32 million. However, the total of the taxable incomes reported on Borden’s four state income tax returns was $34.8 million. Discuss the possible reasons for such a

> Many local jurisdictions apply a low property tax rate to land owned by privately operated golf courses. What is the economic justification for such a preferential rate?

> Does the federal government require states to use a three-factor formula to apportion the income of an interstate business for state income tax purposes?

> Distinguish between the concepts of physical presence nexus and economic nexus.

> In what situation is the United States a tax haven for an international business operation?

> Assuming a 21 percent tax rate, compute the after-tax cost of the following business expenditures: a. $20,000 cost of equipment subject to Section 179 election. b. $17,500 business expansion costs. c. $125,000 cost of land held for investment. d. $34,500

> Firm H operates its business in State H, which levies a 6 percent sales and use tax. This year, the firm purchased a $600,000 item of tangible property in State K and paid $18,000 sales tax to the state. It also purchased a $750,000 item of tangible prop

> Why does a corporation’s state income tax cost depend on its marginal income tax rate for federal purposes?

> BNC, a closely held corporation, was organized in 1987. To date, it has accumulated more than $10 million after-tax income. This year, BNC’s taxable income is $750,000, and its federal tax is $255,000. Describe two different ways that BNC can avoid expos

> Ms. Johnson is eager to create a family partnership to generate income and cash flow for her three college-aged children. She owns two businesses, either of which could be organized as a partnership. Ms. Johnson established the first business 15 years ag

> Mr. and Mrs. Barnes own a fast-food restaurant that generates $160,000 average annual income. The couple wants to shift some of this income to their two children, ages 19 and 22. Can Mr. and Mrs. Barnes organize their restaurant as a family partnership a

> Why are publicly held corporations such as General Motors generally immune from the accumulated earnings tax?

> Describe the FICA payroll tax implications when the IRS classifies a portion of a salary payment to a shareholder/employee as a constructive dividend.

> Mr. and Mrs. Velotta are self-employed professional musicians. Their average annual income from performance fees and music lessons is $130,000. The couple wants to shift income to their two children, ages 19 and 22. Can Mr. and Mrs. Velotta organize thei

> Why is real property a better tax base than personal property?

> In your own words, explain why a tax credit is more valuable than a tax deduction of the same dollar amount.

> Corporations are required to detail their book/tax differences on either Schedule M-1 or Schedule M-3 attached to the corporate income tax return. Why is the IRS interested in this information?

> AP constructed a new manufacturing plant for a total cost of $9,465,000 and placed it in service on March 2. To finance the construction, AP took out a $6 million, 30-year mortgage on the property. Compute AP’s MACRS depreciation for the manufacturing pl

> Libretto Corporation owns a national chain of retail music stores. The corporation wants to expand into a new, extremely competitive, and highly specialized business—the composition and production of rock music videos. Can you identify any nontax reasons

> RP Inc. owns 59 percent of QV’s voting stock. RP’s board of directors elects the majority of the members of QV’s board of directors and thereby controls QV’s management. Are RP and QV an affiliated group eligible to file a consolidated corporate tax retu

> Mr. and Mrs. Dane and their six children own 100 percent of the stock in three family corporations. Do these corporations qualify as an affiliated group eligible to file a consolidated corporate tax return?

> In your own words, explain the conclusion that corporations do not pay tax—people do.

> To what extent does the corporate characteristic of limited liability protect shareholders employees who perform professional services for corporate clients?

> Why is only half of a sole proprietor’s self-employment tax deductible in the computation of taxable income?

> Define the tax base for the self-employment tax. When do sole proprietors pay the self-employment tax to the federal government?

> This year, Firm Q, a cash basis taxpayer, remitted $26,800 FICA payroll tax to the federal government. However, the firm deducted only $13,400 FICA tax on its income tax return. Can you explain this apparent inconsistency?

> A local government imposed a new 2 percent tax on the gross receipts of businesses operating within its jurisdiction. XYZ Company, which manufactures soap and other toiletries, responded to the tax by reducing the size of its bars of soap and purchasing

> This year, Mr. Pitt’s sole proprietorship generated a $17,000 net loss. Can Mr. Pitt use this loss as a net operating loss carry forward deduction?

> Ryland Company, a calendar year taxpayer, purchased commercial realty for $2 million and allocated $200,000 cost to the land and $1.8 million cost to the building. Ryland placed the real estate in service on May 21. a. Compute Ryland’s MACRS depreciation

> Mrs. Liu owns a business as a sole proprietor. Near the end of her taxable year, she is evaluating a new opportunity that would generate $25,000 additional income for her business. What marginal tax rate should Mrs. Liu use to compute the tax cost of thi

> Under what conditions can the destruction of property by casualty or theft result in an economic loss but a realized gain?

> Company W exchanged the following assets for Blackacre, investment land worth $2 million. Does Company W recognize any gain on this exchange? Company W's Basis EMV Real property used in Company W's business $800,000 $1,750,000 Marketable securities

> Firm Q, a real estate broker, exchanged 16 acres of land for a commercial warehouse owned by Company M. Company M, a light industrial business, plans to hold the land as a long-term investment. Is this exchange nontaxable to Firm Q and Company M?

> Is the substituted basis of the qualifying property received in a nontaxable exchange more or less than the cost of that property?

> In a nontaxable exchange, do the tax consequences to one party in any way depend on the tax consequences to the other party?

> In a nontaxable exchange between unrelated parties, are the amounts realized by the parties always equal?

> Why is the label “nontaxable exchange” a misnomer?

> This year, Firm B recognized a $100,000 capital gain on the sale of investment land. Toward the end of the year, the firm plans to sell stock from its investment portfolio to generate a $100,000 capital loss. It has two blocks of stock that are candidate

> In what circumstance is the before-tax cost of an expenditure equal to its after-tax cost?

> Suber Inc., a calendar year taxpayer, purchased equipment for $800,000 and placed it in service on March 1. Suber’s chief engineer determined that the equipment had an estimated useful life of 120 months and a $50,000 residual value. For financial statem

> Why doesn’t Congress extend the wash sale rule to apply to realized gains?

> Does the characterization of gain or loss as either ordinary or capital have any effect on the computation of net income per books?

> For tax purposes, what is the difference between a sale of property and an exchange of property?

> Firm F’s adjusted basis in operating asset A is $75,000. If the firm carries $75,000 of property insurance on this asset, is it adequately protected against risk of loss?

> Does a taxpayer always realize a loss on the involuntary disposition of property because of a casualty or a theft?

> Mr. K realized a loss on the sale of an asset to Mr. P, his best friend for 20 years. Does this sale represent an arm’s-length transaction? Are Mr. K and Mr. P related parties for tax purposes?

> BBB Company, which manufactures industrial plastics, owns the following assets. Characterize each asset as either a capital, ordinary, or Section 1231 asset. a. A computer system used in BBB’s main office. b. A 50 percent interest in a business partnersh

> If the tax law did not allow farming businesses to deduct soil and water conservation expenditures but required capitalization of these costs, in what year or years would farmers recover these costs?

> Can a firm have a negative tax basis in an asset?