Determine the number of personal and dependency exemptions in each of the following independent situations. a. Leo and Amanda (ages 48 and 46, respectively) are married and furnish more than 50% of the support of their two children, Elton (age 18) and Trista (age 24). During the year, Elton earns $4,500 providing transportation for elderly persons with disabilities, and Trista receives a $5,000 scholarship for tuition at the law school she attends. b. Audrey (age 45) is divorced this year. She maintains a household in which she, her ex-husband, Clint, and his mother, Olive, live. Audrey furnishes more than 50% of the household’s support. Olive is age 91 and blind. c. Crystal, age 45, furnishes more than 50% of the support of her married son, Andy (age 18), and his wife, Paige (age 19), who live with her. During the year, Andy earned $8,200 from a part-time job. All parties live in Iowa (a common law state). d. Assume the same facts as in part (c), except that all parties live in Washington (a community property state).
> Compare and contrast the economist’s concept used to recognize income with the concept employed in measuring taxable income.
> Connor purchased an annuity that was to pay him a fixed amount each month for the remainder of his life. He began receiving payments in 2001, when he was 65 years old. In 2017, Connor was killed in an automobile accident. What are the effects of the annu
> In the current year, the Rose Corporation made a $400,000 interest-free loan to John Rose, the corporation’s controlling shareholder. Mr. Rose is also the corporation’s chief executive officer and receives a salary of $300,000 a year. What are the tax co
> Patrick and Eva are planning to divorce. Patrick has offered to pay Eva $12,000 each year until their 11-year-old daughter reaches age 21. Alternatively, Patrick will transfer to Eva common stock that he owns with a fair market value of $100,000. What fa
> William and Abigail, who live in San Francisco, have been experiencing problems with their marriage. They have a 3-year-old daughter, April, who stays with William’s parents during the day because both William and Abigail are employed. Abigail worked to
> Rex became a partner with a 30% interest in the partnership profits when he invested $200,000. In 2017, the partnership generated $400,000 of taxable income, and Rex withdrew $100,000. In 2018, the partnership had $600,000 of taxable income, and Rex with
> Anita, a cash basis taxpayer, sued her former employer for wage discrimination. Her attorney agreed to pursue the case on a contingent fee basis—the attorney would receive one-third of any settlement or court award. The parties reached a settlement, and
> Wade paid $7,000 for an automobile that needed substantial repairs. He worked nights and weekends to restore the car and spent $2,400 on parts for it. He knows that he can sell the car for $13,000, but he is very wealthy and does not need the money. On t
> A Series EE U.S. government savings bond accrues 3.5% interest each year. The bond matures in three years, at which time the principal and interest will be paid. The bank will pay the taxpayer at a 3.5% interest rate each year if he agrees to leave money
> Several years ago Ethan purchased the former parsonage of St. James Church to use as a personal residence. To date, Ethan has not received any ad valorem property tax bills from either the city or the county tax authorities. a. What is a reasonable expla
> What is the purpose of the constructive receipt doctrine?
> Howard buys wrecked cars and stores them on his property. Recently, he purchased a 1990 Ford Taurus for $400. If he can sell all of the usable parts, his total proceeds from the Taurus will be over $2,500. As of the end of the year, he has sold only the
> Allen visits Reno, Nevada, once a year to gamble. This year his gambling loss was $25,000. He commented to you, “At least I didn’t have to pay for my airfare and hotel room. The casino paid that because I am such a good customer. That was worth at least
> According to the Supreme Court, would it be good tax policy to use income as computed by financial accounting principles as the correct measure of income for Federal income tax purposes? Explain.
> An employer provides all of his employees with life insurance protection equal to twice the employee’s annual salary. Melba, age 42, has an annual salary of $70,000. Is Melba required to recognize income even though she is still alive at the end of the y
> Daniel B. Butler and Freida C. Butler, husband and wife, file a joint return. The Butlers live at 625 Oak Street in Corbin, KY 40701. Dan’s Social Security number is 111-11-1112, and Freida’s is 123-45-6789. Dan was bo
> Cecil C. Seymour is a 64-year-old widower. He had income for 2017 as follows: Pension from former employer………………………………………………………………………..$39,850 Interest income from Alto National Bank……………………………………………………………5,500 Interest income on City of Alto bonds……………
> Compute the taxable Social Security benefits in each of the following situations: a. Erwin and Eleanor are married and file a joint tax return. They have adjusted gross income of $46,000, no tax-exempt interest, and $12,400 of Social Security benefits. b
> A taxpayer, age 64, purchases an annuity from an insurance company for $50,000. She is to receive $300 per month for life. Her life expectancy is 20.8 years from the annuity starting date. Assuming that she receives $3,600 this year, what is the exclusio
> Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is not a principal purpose of any of the loans. Assume that the relevant Federal rate is 5% and that the loans were outstanding for the last six months of the yea
> Interpret each of the following citations: a. Temp.Reg. § 1.956–2T. b. Rev.Rul. 2012–15, 2012–23 I.R.B. 975. c. Ltr.Rul. 200204051.
> Casper and Cecile are divorced this year. As part of the divorce settlement, Casper transferred stock to Cecile. Casper purchased the stock for $25,000, and it had a market value of $43,000 on the date of the transfer. Cecile sold the stock for $40,000 a
> Simba and Zola are married but file separate returns. Simba received $80,000 of salary and $1,200 of taxable dividends on stock he purchased in his name and paid from the salary that he earned since the marriage. Zola collected $900 in taxable interest o
> Bigham Corporation, an accrual basis calendar year taxpayer, sells its services under 12-month and 24-month contracts. The corporation provides services to each customer every month. On July 1, 2017, Bigham sold the following customer contracts: Length
> On January 1, 2017, Kunto, a cash basis taxpayer, pays $46,228 for a 24- month certificate. The certificate is priced to yield 4% (the effective interest rate) with interest compounded annually. No interest is paid until maturity, when Kunto receives $50
> Kathy and Brett Ouray married in 1999. They began to experience marital difficulties in 2013 and, in the current year, although they are not legally separated, the couple considers themselves completely estranged. They have contemplated getting a divorce
> John and Janet Baker are married and maintain a household in which the following persons live: Calvin and Florence Carter and Darin, Andrea, and Morgan Baker. • Calvin and Florence are Janet’s parents, who are retired. During the year, they receive $19,0
> Each year, Tom and Cindy Bates report itemized deductions of $10,000, including a $4,000 pledge payment to their church. Upon the advice of a friend, they do the following: in early January 2017, they pay their 2016 pledge; during 2017, they pay the 2017
> During the year, Chester incurred the following transactions involving capital assets. Gain on the sale of an arrowhead collection (acquired as an investment at different times but all pieces have been held for more than one year)…………………… $ 6,000 Loss o
> During the year, Inez recorded the following transactions involving capital assets. Gain on the sale of unimproved land (held as an investment for 3 years)……………$ 3,000 Loss on the sale of a camper (purchased 2 years ago and used for family vacations)………
> Terri, age 16, is claimed as a dependent on her parents’ 2017 Federal income tax return. During the year, Terri earned $5,000 in interest income and $3,000 from part-time jobs. a. What is Terri’s taxable income? b. How much of Terri’s income is taxed at
> Distinguish between taxes that are proportional and those that are progressive.
> Paige, age 17, is claimed as a dependent on her parents’ 2017 Federal income tax return, on which they report taxable income of $120,000 (no qualified dividends or capital gains). Paige earned $3,900 pet sitting and $4,100 in interest on a savings accoun
> Taylor, age 18, is claimed as a dependent by her parents. For 2017, she records the following income: $4,000 wages from a summer job, $1,800 interest from a money market account, and $2,000 interest from City of Boston bonds. a. What is Taylor’s taxable
> Roy and Brandi are engaged and plan to get married. Roy is a full-time student and earns $9,000 from a part-time job. With this income, student loans, savings, and nontaxable scholarships, he is self-supporting. For the year, Brandi is employed and repor
> Which of the following individuals are required to file a 2017 Federal income tax return? Should any of these individuals file a return even if filing is not required? Why or why not? a. Patricia, age 19, is a self-employed single individual with gross i
> Use the Tax Rate Schedules to compute Morgan’s 2017 Federal income tax liability. Morgan (age 45) is single and provides more than 50% of the support of Rosalyn (a family friend, age 36), Flo (a niece, age 18), and Jerold (a nephew, age 18). Both Rosalyn
> Using the Tax Rate Schedules, compute the 2017 tax liability for Charlotte. Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children, who live with her. Charlotte also maintains the household in which her parent
> Walter and Nancy provide 60% of the support of their daughter Irene (age 18) and son-in-law John (age 22). John is a full-time student at a local university, while Irene holds various part-time jobs from which she earns $11,000. Walter and Nancy engage y
> Nadia died in 2016 and is survived by her husband, Jerold (age 44); her married son, Travis (age 22); and her daughter-in-law, Macy (age 18). Jerold is the executor of his wife’s estate. He maintains the household where he, Travis, and Macy live, and Jer
> Christopher died in 2015 and is survived by his wife, Chloe, and their 18- year-old son, Dylan. Chloe is the executor of Christopher’s estate and maintains the household in which she and Dylan live. All of their support is furnished by
> In each of the following independent situations, determine Winston’s filing status. Winston is not married. a. Winston lives alone, but he maintains a household in which his parents live. The mother qualifies as Winston’s dependent, but the father does n
> Rank the following items from the lowest to highest authority in the Federal tax law system: a. Interpretive Regulation. b. Legislative Regulation. c. Letter ruling. d. Revenue Ruling. e. Internal Revenue Code. f. Proposed Regulation.
> Wesley and Myrtle (ages 90 and 88, respectively) live in an assisted care facility and for the last two years received their support from the following sources. Percentage of Support Social Security benefits……………….…………………………………………..16% Son……………………
> Sam and Elizabeth Jefferson file a joint return. They have three children, all of whom qualify as dependents. If the Jeffersons report 2017 AGI of $335,900, what is their allowable deduction for personal and dependency exemptions?
> Jenny, age 14, lives in a household with her father, uncle, and grandmother. The household is maintained by the uncle. The parties, all of whom file their own Federal income tax returns, report AGI as follows: father ($30,000), uncle ($50,000), and grand
> Determine how many personal and dependency exemptions are available in each of the following independent situations. Specify whether any such exemptions would come under the qualifying child or the qualifying relative category. a. Andy maintains a househ
> Determine the number of personal and dependency exemptions in each of the following independent situations. No tax treaty provisions apply. a. Reginald, a U.S. citizen and resident, contributes 100% of the support of his parents, who are citizens of Cana
> Donna does not think she has an income tax problem but would like to discuss her situation with you just to make sure there is no unexpected tax liability. Base your suggestions on the following relevant financial information: a. Donna’s share of the SAT
> Go to the U.S. Tax Court website (www.ustaxcourt.gov). a. What different types of cases can be found on the site? b. What is a Summary Opinion? Find one. c. What is a Memorandum Opinion? Find one
> Analyze each of the characteristics in considering the indicated test for dependency as a qualifying child or qualifying relative. For each of the last two columns, state whether the test is Met, Not Met, or Not Applicable (NA). Qualifying Child Tes
> (1) Go to www.taxalmanac.org, and use the website to find § 61(a). What is defined in this Code Section? Is the definition broad or narrow? (2) Go to www.legalbitstream.com, and find the case in which Mark Spitz, the former Olympic gold medalist, is the
> Jane, a tax practitioner, has reviewed the law on how State X’s income tax applies to a client’s web-based consulting business, but is unable to reach a conclusion for which she has a high level of confidence. Assuming Jane is a knowledgeable and experie
> Determine the amount of the 2017 standard deduction allowed in the following independent situations. In each case, assume that the taxpayer is claimed as another person’s dependent. a. Curtis, age 18, reports income as follows: $700 interest from a certi
> You are interviewing a client before preparing his tax return. He indicates that he did not list as income $96,000 received as a recovery for false imprisonment. What should you do with respect to this significant recovery? Partial list of research aids:
> Compute Aiden’s 2017 taxable income on the basis of the following information. Aiden is married but has not seen or heard from his wife for over three years. Salary ……………………………………………………………………………………………………………$ 80,000 Interest on bonds issued by City of Bo
> When Oprah gave away Pontiac G6 sedans to her TV audience, was the value of the cars taxable? On Labor Day weekend in 2006, World Furniture Mall in Plano, Illinois, gave away $275,000 of furniture because the Chicago Bears shut out the Green Bay Packers
> Compute Emily’s 2017 taxable income on the basis of the following information. Her filing status is single. Salary………………………………………………………………………………………………………………. $85,000 Interest income from bonds issued by Xerox………………………………………………………. 1,100 Alimony pa
> Research Problem 1. Determine the missing data in these court decisions and rulings. a. Higgens v. Comm., 312 U.S._____ (1941). b. Talen v. U.S., 355 F.Supp.2d 22 (D.Ct. D.C., ______). c. Rev.Rul. 2008–18, 2008–13 I.R.B.______. d. Pahl v. Comm., 150 F.3d
> Compute 2017 taxable income in each of the following independent situations. a. Drew and Meg, ages 40 and 41, respectively, are married and file a joint return. In addition to four dependent children, they have AGI of $65,000 and itemized deductions of $
> Using the legend provided, classify each of the following statements: a. Sue writes a $707 check for a charitable contribution on December 28, 2017, but does not mail the check to the charitable organization until January 10, 2018. She takes a deductio
> Several years ago, after a particularly fierce argument, Fran’s husband moved out and has not been heard from or seen since. Because Fran cannot locate her husband, she uses a “married, filing separate” income tax return. Comment on Fran’s Federal filing
> Using the legend provided, classify each of the following citations as to publisher: a. 83–2 USTC {9600. b. 52 AFTR 2d 83–5954. c. 67 T.C. 293 (1976). d. 39 TCM 32 (1979). e. 416 U.S. 938. f. RIA T.C. Memo. {80,582.
> In the citation Notice 90–20, 1990–1 C.B. 328, to what do the 20 and the 328 refer?
> Peter maintains a household in which live his 18-year-old son Kip and Kip’s wife Kerry. Although Peter provides most of their support, he does not claim them as dependents because Kip and Kerry file a joint return. Is Peter correct? Explain.
> Using the legend provided, classify each of the following tax sources: a. Sixteenth Amendment to the U.S. Constitution. b. Tax treaty between the United States and India. c. Revenue Procedure. d. An IRS publication. e. U.S. District Court decision. f.
> Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2014. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. For 2016, he reported the following receipts. In 2016, Logan inherited securit
> Rank the items below from most reliable to least reliable: a. Letter Ruling. b. Legislative Regulation. c. Code Section. d. Revenue Ruling. e. Proposed Regulation. f. Interpretive Regulation. g. Recent Temporary Regulation.
> Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, while Wanda is employed part-time as a paralegal for a law firm. During 2016, the Deans record
> In which Subchapter of the Internal Revenue Code would one find information about corporate distributions? a. Subchapter S. b. Subchapter C. c. Subchapter P. d. Subchapter K. e. Subchapter M.
> Mark and Lisa were divorced last year. This year, Lisa has custody of their children, but Mark provides nearly all of their support. Who is entitled to claim the children as dependents?
> A large part of tax research consists of determining what?
> Isabella, Emma, and Jacob share equally in the support of their parents. Jacob tells his sisters that they should split the dependency exemptions among themselves. Explain what Jacob means.
> A mother sells a valuable collection of antiques to her daughter for $1,000. What judicial concept might the IRS invoke to question this transaction?
> How does the pay-as-you-go procedure apply to wage earners? To persons who have income from sources other than wages?
> Using information from this chapter as well as information from the tax agency in your state (likely called the Department of Revenue) and your local government, find all of the taxes to which a sole proprietor is subject. Create a table that lists all o
> The financial statements of P&G are presented in Appendix 5B or can be accessed at the book’s companion website, www.wiley.com/college/kieso. Instructions Refer to these financial statements and the accompanying notes to answer the following questions.
> Lois Kenseth, president of Sycamore Corporation, is concerned about several large stockholders who have been very vocal lately in their criticisms of her leadership. She thinks they might mount a campaign to have her removed as the corporation’s CEO. She
> Mask Company has 30,000 shares of $10 par value common stock authorized and 20,000 shares issued and outstanding. On August 15, 2012, Mask purchased 1,000 shares of treasury stock for $18 per share. Mask uses the cost method to account for treasury stock
> Kulikowski Inc., a client, is considering the authorization of a 10% common stock dividend to common stockholders. The financial vice president of Kulikowski wishes to discuss the accounting implications of such an authorization with you before the next
> The directors of Merchant Corporation are considering the issuance of a stock dividend. They have asked you to discuss the proposed action by answering the following questions. Instructions (a) What is a stock dividend? How is a stock dividend distingui
> Statements of Financial Accounting Concepts set forth financial accounting and reporting objectives and fundamentals that will be used by the Financial Accounting Standards Board in developing standards. Concepts Statement No. 6 defines various elements
> Penn Company was formed on July 1, 2010. It was authorized to issue 300,000 shares of $10 par value common stock and 100,000 shares of 8% $25 par value, cumulative and nonparticipating preferred stock. Penn Company has a July 1–June 30
> Earnhart Corporation has outstanding 3,000,000 shares of common stock of a par value of $10 each. The balance in its Retained Earnings account at January 1, 2012, was $24,000,000, and it then had Paid-in Capital in Excess of Par—Common Stock of $5,000,00
> Oregon Inc. $10 par common stock is selling for $110 per share. Four million shares are currently issued and outstanding. The board of directors wishes to stimulate interest in Oregon common stock before a forthcoming stock issue but does not wish to dis
> Distinguish among: cash dividends, property dividends, liquidating dividends, and stock dividends.
> Angela Corporation issues 2,000 convertible bonds at January 1, 2011. The bonds have a three-year life, and are issued at par with a face value of $1,000 per bond, giving total proceeds of $2,000,000. Interest is payable annually at 6 percent. Each bond
> The following is a summary of all relevant transactions of Vicario Corporation since it was organized in 2012. In 2012, 15,000 shares were authorized and 7,000 shares of common stock ($50 par value) were issued at a price of $57. In 2013, 1,000 shares we
> Myers Company provides you with the following condensed balance sheet information. Instructions For each transaction below, indicate the dollar impact (if any) on the following five items: (1) Total assets, (2) Common stock, (3) Paid-in capital in exce
> The books of Conchita Corporation carried the following account balances as of December 31, 2012. Cash …………………………………………………………………………………………………… $ 195,000 Preferred Stock (6% cumulative, nonparticipating, $50 par) ……………………… 300,000 Common Stock (no-par valu
> Washington Company has the following stockholders’ equity accounts at December 31, 2012. Common Stock ($100 par value, authorized 8,000 shares) ………… $480,000 Retained Earnings ……………………………………………………………………… 294,000 Instructions (a) Prepare entries in journ
> Before Gordon Corporation engages in the treasury stock transactions listed below, its general ledger reflects, among others, the following account balances (par value of its stock is $30 per share). Instructions Record the treasury stock transactions
> Seles Corporation’s charter authorized issuance of 100,000 shares of $10 par value common stock and 50,000 shares of $50 preferred stock. The following transactions involving the issuance of shares of stock were completed. Each transaction is independent
> Hatch Company has two classes of capital stock outstanding: 8%, $20 par preferred and $5 par common. At December 31, 2012, the following accounts were included in stockholders’ equity. Preferred Stock, 150,000 shares …………………………………….. $ 3,000,000 Common S
> Clemson Company had the following stockholders’ equity as of January 1, 2012. Common stock, $5 par value, 20,000 shares issued …………………….. $100,000 Paid-in capital in excess of par—common stock …………………………….. 300,000 Retained earnings ………………………………………………………
> On January 5, 2012, Phelps Corporation received a charter granting the right to issue 5,000 shares of $100 par value, 8% cumulative and nonparticipating preferred stock, and 50,000 shares of $10 par value common stock. It then completed these transaction
> Hagar Company has outstanding 2,500 shares of $100 par, 6% preferred stock and 15,000 shares of $10 par value common. The schedule below shows the amount of dividends paid out over the last 4 years. Instructions Allocate the dividends to each type of st
> Petrenko Corporation has outstanding 2,000 $1,000 bonds, each convertible into 50 shares of $10 par value ordinary shares. The bonds are converted on December 31, 2012. The bonds payable has a carrying value of $1,950,000 and conversion equity of $20,000
> Explain how convertible securities are determined to be potentially dilutive common shares and how those convertible securities that are not considered to be potentially dilutive common shares enter into the determination of earnings per share data.
> Martinez Company’s ledger shows the following balances on December 31, 2012. Preferred Stock (5%; $10 par value, outstanding 20,000 shares) ………….. $ 200,000 Common Stock ($100 par value, outstanding 30,000 shares) ………………. 3,000,000 Retained Earnings …………
