3.99 See Answer

Question: Don owns equipment that he purchased several


Don owns equipment that he purchased several years ago for $400,000. Over the years he properly deducted $110,000 of depreciation. The depreciation will have to be recaptured as ordinary income on the sale. There is a $90,000 mortgage on the property. Don has an offer for the equipment from an individual who says he will pay $100,000 down and $100,000 per year for five years. There is no mention of interest. As the mortgage is nonassumable, Don will pay off the mortgage using most of the down payment. Don is age 61, and proceeds from the sale along with a pension from his employer will provide for his retirement. Don plans to retire next year. He currently has a 25% marginal tax rate. Discuss the tax implications of the sale. Is there anything Don can do to improve his situation?


> Assume that a company chooses an accelerated method of calculating depreciation expense for financial statement reporting purposes for an asset with a five-year life. Required: State the effect (higher, lower, no effect) of accelerated depreciation rela

> Answer the following questions using data from the Intel Corporation annual report in the appendix: Required: a. Find the discussion of depreciation methods used by Intel on page 695. Explain why the particular method is used for the purpose described.

> You have been approached by Gary Gerrard, President and CEO of Gerrard Construction Co., who would like your advice on a number of business and accounting related matters. Your conversation with Mr. Gerrard, which took place in February 2011, proceeded a

> a. Show the reconciling items in a horizontal model or write the adjusting journal entry (or entries) that should be prepared to reflect the reconciling items of Exercise 5.1. b. What is the amount of cash to be included in the October 31 balance sheet f

> A portion of the current assets section of the December 31, 2011, balance sheet for Carr Co. is presented here: The company’s accounting records revealed the following information for the year ended December 31, 2011: Sales (all on a

> The following is a portion of the current asset section of the balance sheets of HiROE Co., at December 31, 2011 and 2010: Required: a. Describe how the allowance amount at December 31, 2011, was most likely determined. b. If bad debts expense for 2011

> The following is a portion of the current assets section of the balance sheets of Avanti’s, Inc., at December 31, 2011 and 2010: Required: a. If $11,800 of accounts receivable were written off during 2011, what was the amount of bad d

> Branson Co. received its bank statement for the month ending May 31, 2010, and reconciled the statement balance to the May 31, 2010, balance in the Cash account. The reconciled balance was determined to be $18,600. The reconciliation recognized the follo

> Prepare an answer sheet with the column headings shown after the following list of transactions. Record the effect, if any, of the transaction entry or adjusting entry on the appropriate balance sheet category or on the income statement by entering the a

> Beckett Co. received its bank statement for the month ending June 30, 2010, and reconciled the statement balance to the June 30, 2010, balance in the Cash account. The reconciled balance was determined to be $4,800. The reconciliation recognized the foll

> a. If the beginning balance of the Inventory account and the cost of items purchased or made during the period are correct, but an error resulted in overstating the firm’s ending inventory balance by $5,000, how would the firm’s cost of goods sold be aff

> The inventory records of Kuffel Co. reflected the following information for the year ended December 31, 2010: Required: a. Assume that Kuffel Co. uses a periodic inventory system. Calculate cost of goods sold and ending inventory under FIFO and LIFO. b

> The following data are available for Sellco for the fiscal year ended on January 31, 2011: Sales….. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . ……… . 1,600 units Beginning inventory . . . . . . . . . .. . . . . . . . . . . 500 units @

> Mower- Blower Sales Co. started business on January 20, 2010. Products sold were snow blowers and lawn mowers. Each product sold for $350. Purchases during 2010 were as follows: The December 31, 2010, inventory included 10 blowers and 25 mowers. Assume

> Prepare an answer sheet with the column headings shown here. For each of the following transactions or adjustments, indicate the effect of the transaction or adjustment on the appropriate balance sheet category and on net income by entering for each acco

> Set up a horizontal model in the following format: Required: a. Enter the beginning (December 29, 2007) and ending (December 27, 2008) account balances for Accounts Receivable, Inventories, and Accounts Payable. Find these amounts on the balance sheet

> Calco, Inc., rents its store location. Rent is $1,500 per month, payable quarterly in advance. On July 1, a check for $4,500 was issued to the landlord for the July–September quarter. Required: Use the horizontal model to show the effects on the financi

> On January 10, 2010, the first day of the spring semester, the cafeteria of The Defiance College purchased for cash enough paper napkins to last the entire 16-week semester. The total cost was $4,800. Required: Use the horizontal model to show the effe

> Selected information taken from the financial statements of Ford star Co. for the year ended December 31, 2010, follows: Net cash provided by operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,000 Cost of g

> The following are the transactions relating to the formation of Cardinal Mowing Services, Inc., and its first month of operations. Prepare an answer sheet with the columns shown. Record each transaction in the appropriate columns of your answer sheet. Sh

> Selected information taken from the financial statements of Verb eke Co. for the year ended December 31, 2010, follows: Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . $412,00

> a. Based on your answers to Problem 4.17, prepare an income statement (ignoring income taxes) for Kissick Co.’s first year of operations and a balance sheet as of the end of the year. (Hint: You may find it helpful to prepare T-accounts for each account

> Use the horizontal model, or write the journal entry, for each of the following transactions that occurred during the first year of operations at Kissick Co. a. Issued 200,000 shares of $5-par-value common stock for $1,000,000 in cash. b. Borrowed $50

> This exercise provides practice in understanding the operation of T-accounts and transaction analysis. For each situation, you must solve for a missing amount. Use a T-account for the balance sheet account, show in a horizontal model, or prepare journal

> Answer these questions that are related to the following Interest Payable T-account: a. What is the amount of the February 28 adjustment? b. What account would most likely have been credited for the amount of the February transactions? c. What account w

> A bookkeeper prepared the year-end financial statements of Giftwrap, Inc. The income statement showed net income of $47,400, and the balance sheet showed ending retained earnings of $182,000. The firm’s accountant reviewed the bookkeeper’s work and deter

> Assume that Cater Co.’s accountant neglected to record the payroll expense accrual adjustment at the end of October. Required: a. Explain the effect of this omission on net income reported for October. b. Explain the effect of this omission on net incom

> Proco had an account payable of $16,800 due to Shirmoo, Inc., one of its suppliers. The amount was due to be paid on January 31. Proco did not have enough cash on hand then to pay the amount due, so Proco’s treasurer called Shirmoo’s treasurer and agreed

> The following summary data for the payroll period ended on November 14, 2009, are available for Brac Construction Ltd.: Gross pay . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ ? FICA tax withholdings . . .

> On April 1, 2010, Tabor Co. received a $6,000 note from a customer in settlement of a $6,000 account receivable from that customer. The note bore interest at the rate of 15% per annum, and the note plus interest was payable March 31, 2011. Required: Use

> Evans Ltd. publishes a monthly newsletter for retail marketing managers and requires its subscribers to pay $50 in advance for a one-year subscription. During the month of September 2010, Evans Ltd. sold 200 one-year subscriptions and received payments i

> On November 1, 2010, Gordon Co. collected $25,200 in cash from its tenant as an advance rent payment on its store location. The six-month lease period ends on April 30, 2011, at which time the contract may be renewed. Required: a. Use the horizontal mod

> On January 1, 2010, Learned, Inc., issued $60 million face amount of 20-year, 14% stated rate bonds when market interest rates were 16%. The bonds pay interest semiannually each June 30 and December 31 and mature on December 31, 2029. Required: a. Using

> On January 1, 2010, Drennen, Inc., issued $3 million face amount of 10-year, 14% stated rate bonds when market interest rates were 12%. The bonds pay semiannual interest each June 30 and December 31 and mature on December 31, 2019. Required: a. Using th

> Riley Co. has outstanding $40 million face amount of 15% bonds that were issued on January 1, 1998, for $39,000,000. The 20-year bonds mature on December 31, 2017, and are callable at 102 (that is, they can be paid off at any time by paying the bondholde

> O’Kelley Co. has outstanding $2 million face amount of 12% bonds that were issued on January 1, 2002, for $2 million. The 20-year bonds were issued in $1,000 denominations and mature on December 31, 2021. Each $1,000 bond is convertible at the bondholder

> The following summary data for the payroll period ended December 27, 2009, are available for Cayman Coating Co.: Gross pay . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . $53,000 FICA tax withholdings . . . . . . .

> Kohl Co. provides warranties for many of its products. The January 1, 2010, balance of the Estimated Warranty Liability account was $70,400. Based on an analysis of warranty claims during the past several years, this year’s warranty provision was establi

> A firm issues long-term debt with an effective interest rate of 10% and the proceeds of this debt issue can be invested to earn an ROI of 12%. What effect will this financial leverage have on the firm’s ROE relative to having the same amount of funds inv

> Prist Co. had not provided a warranty on its products, but competitive pressures forced management to add this feature at the beginning of 2010. Based on an analysis of customer complaints made over the past two years, the cost of a warranty program was

> During the month of April, Simpson Co. had cash receipts from customers of $170,000. Expenses totaled $156,000, and accrual basis net income was $42,000. There were no gains or losses during the month. Required: a. Calculate the revenues for Simpson Co.

> The transactions relating to the formation of Blue Co. Stores, Inc., and its first month of operations follow. Prepare an answer sheet with the columns shown. Record each transaction in the appropriate columns of your answer sheet. Show the amounts invol

> When is a final tax return due for an individual who uses a calendar year and who dies during the year?

> a. In what situations will a tax year cover a period of less than 12 months? b. Under what conditions is a taxpayer required to annualize income? c. Does annualizing income increase or decrease the taxpayer’s tax liability? Explain.

> Is there any instance in which a change in tax years is required? Explain.

> Does a similar restriction apply to S corporations? Explain.

> Most individuals use the calendar year as their tax year. What requirement, if any, in the tax law causes this?

> Dan turned age 65 and retired this year. He owned and operated a tugboat in the local harbor before his retirement. The boat cost $100,000 when he purchased it two years ago. A tugboat is 10-year property. Dan deducted $10,000 of depreciation on the boat

> Troy Tools manufactures over one hundred different hand tools used by mechanics, carpenters, and plumbers. Troy’s cost accounting system has always been very simple. The costs allocated to inventory have included only materials, direct labor, and factory

> Lavonne just completed medical school and residency. She plans to open her medical practice soon. She is not familiar with the intricacies of accounting methods and periods. On advice of her attorney, she plans to form a professional corporation (a form

> Tina acquires an oil and gas property interest for $200,000 in the current year. The following information about current year operations is supplied for purposes of computing the amount of Tina’s depletion and intangible drilling and development cost (ID

> Why should tax researchers note the date on which a Treasury Regulation was adopted?

> Phillips Corporation, a construction company that specializes in home construction, uses special computer software to schedule jobs and keep track of job costs. It uses generic software for bookkeeping and spreadsheet analysis. During 2017, Phillips Corp

> In 2017, Phoenix Corporation acquires a new research facility and hires several scientists to develop new products. No new products are developed until 2018, although the following expenditures were incurred: Laboratory materials

> Park Corporation incurs the following costs in the initial year of doing business: Materials and supplies for research laboratory $ 80,000 Utilities and depreciation on research laboratory and equipment

> On January 1 of the current year, Palm Corporation purchases the net assets of Vicki’s unincorporated business for $600,000. The tangible net assets have a $300,000 book value and a $400,000 FMV. The purchase agreement states that Vicki will not compete

> Troy entered into a three-year lease of a luxury automobile on January 1, 2017, for use 80% in business and 20% for personal use. The FMV of the automobile at the inception of the lease was $40,500, and Troy made 12 monthly lease payments of $600 in 2017

> Tracy acquires an automobile (MACRS 5-year recovery) on March 1, 2017. He uses the automobile 70% of the time in his business and 30% of the time for personal use. The automobile cost $36,000. No amount is expensed under Sec. 179, and Tracy elects out of

> Luby Corporation acquires a 100% business-use automobile (MACRS 5-year recovery) on July 1, 2017 for $36,000. Luby does not elect Sec. 179 and elects out of bonus depreciation. What are depreciation deductions for 2017–2019?

> Lutz Corporation acquired a 100% business-use automobile (MACRS 5-year recovery) on July 1, 2017 for $32,000. The company did not elect Sec. 179 expensing and elects out of bonus depreciation. What is depreciation for 2017–2019, and any subsequent years?

> Tammy acquired an automobile for $20,000 on July 1, 2014. She used the automobile partially for business purposes during the 2014–2017 period. The percentage of business use is as follows: 2014, 70%, 2015, 70%; 2016, 40%; 2017, 35%. The automobile is 5-y

> Assume the same facts as in Problem I:10-35, except Trish is an employee who uses the automobile and personal computer for employment-related activities. While both assets are helpful to Trish in performing her job duties, her employer does not require e

> Refer to IRC Sec. 301. a. Which subsection discusses the general rule for the tax treatment of a property distribution? b. Where should one look for exceptions to the general rule? c. What type of Treasury Regulations would relate to subsection (e)?

> In 2017, Trish, a self-employed CPA and calendar year taxpayer, acquires and places in service an automobile and a personal computer. Pertinent data include the following: For each asset, calculate the MACRS current year depreciation deduction assuming

> Long Corporation has been unprofitable for several years and has substantial NOL carryovers. Therefore, the company has elected to use straightline MACRS for property acquisitions. Long acquires, holds, or sells the following assets in 2017: Long did no

> In 2017, Wabash Corporation purchases two assets and places them into service (both are used property and have a 7-year MACRS recovery period): • Asset #1: $1,300,000 cost; placed in service in February. • Asset #2: $600,000 cost; placed in service in

> In 2017, Richmond Corporation purchases and places into service a used machine. Richmond elects Sec. 179 expensing for $510,000 of its $610,000 cost. The machine has a 7-year MACRS recovery period. Assume the half-year convention applies. a. What is Ric

> Tampa Corporation sold the following assets in 2017: a. What is the depreciation deduction for each asset in 2017? b. Compute the gain or loss on each asset sold. Original Depreciation! Recovery Cost-Recovery Method Date Cost Period Sales Acquired

> In 2017, Tish acquires and places into service in her business 7-year MACRS property costing $40,000 and 5-year MACRS property costing $165,000. Tish elects Sec. 179 expensing for all of the properties’ cost. Tish’s taxable income (before the Sec. 179 an

> Turner Corporation uses the calendar year as its tax year. It purchases and places into service $1.97 million of property during 2017 to use in its business: What is Turner’s total depreciation deduction for 2017 in each of the followi

> Large Corporation acquired and placed in service the following 100% business-use assets. Large did not claim Sec. 179 or bonus depreciation expensing on any of these properties. • Truck (light-duty, modified non-personal use) costing $36,000: Placed i

> Small Corporation purchased and placed in service the following 100% business-use assets (all of the assets were purchased new). Assume that Small purchased these assets in Year 1, when 50% bonus depreciation was available on eligible property (as “eligi

> Sandy acquired business machinery (which qualified as 7-year MACRS property) on July 15, 2014, for $10,000. In 2014, Sandy claimed a $1,429 regular MACRS depreciation deduction and she elected not to claim Sec. 179 depreciation or bonus depreciation. Bec

> Does Title 26 contain statutory provisions dealing only with income taxation? Explain.

> Tony has owned an oil and gas property for a number of years. The following information is provided about the property’s operations in the current year: Gross income $500,000 M

> Sid purchased an automobile for personal use on January 18, 2013 for $10,000. On January 1, 2017, Sid starts a small business and begins to use the automobile exclusively in the business. The automobile’s FMV on this date is $6,000. MACRS depreciation de

> Your supervisor would like to set up a single Sec. 401(k) plan exclusively for the managers of your organization. Concerned that this arrangement might not meet the requirements for a qualified plan, he has asked you to request a determination letter fro

> Look up Summit Publishing Company, 1990 PH T.C. Memo ¶90,288 (T.C. Memo 1990-288), 59 TCM 833, and J.B.S. Enterprises, 1991 PH T.C. Memo ¶91,254 (T.C. Memo 1991-254), 61 TCM 2829, and answer the following questions: a. What was the principal issue in th

> Amy owns a vacation cottage in Maine. She predicts that the time during which the cottage will be used in the current year is as follows: By Amy, solely for vacation…………………………………………………..12 days By Amy, making repairs ten hours per day and vacationing th

> Josh contributes $5,000 toward the support of his widowed mother, aged 69, a U.S. citizen and resident. She earns gross income of $2,000 and spends it all for her own support. In addition, Medicare pays $3,200 of her medical expenses. She does not receiv

> The purpose of this problem is to enhance your skills in interpreting the authorities that you locate in your research. In answering the questions that follow, refer only to Thomas A. Curtis, M.D., Inc., 1994 RIA TC Memo ¶94,015 (T.C. Memo 1994-15), 67 T

> A client, Mal Manley, fills out his client questionnaire for the previous year and on it provides information for the preparation of his individual income tax return. The IRS has never audited Mal’s returns. Mal reports that he made over 100 relatively s

> Your client, Home Products Universal (HPU), distributes home improvement products to independent retailers throughout the country. Its management wants to explore the possibility of opening its own home improvement centers. Accordingly, it commissions a

> Your client, a physician, recently purchased a yacht on which he flies a pennant with a medical emblem on it. He recently informed you that he purchased the yacht and flies the pennant to advertise his occupation and thus attract new patients. He has ask

> A friend notices that you are reading the Internal Revenue Code of 1986. Your friend inquires why you are consulting a 1986 publication, especially when tax laws change so frequently. What is your response?

> Access the Urban Institute and Brookings Institution Tax Policy Center at taxpolicycenter.org. On the home page, search for state individual income tax rates and locate the Tax Policy Center’s latest summary of each state’s rates. Researchers also can lo

> Access the Federation of Tax Administrators Internet site at www. taxadmin.org/state-tax-forms and indicate the titles of the following state tax forms and publications: a. Minnesota Form M-100 b. Illinois Individual Schedule CR c. North Carolina Form

> Access the IRS Internet site at www.irs.gov and indicate the titles of the following IRS forms: a. Form 4506 b. Form 973 c. Form 8725

> Access the IRS Internet site at www.irs.gov and answer the following questions: a. How does one file a tax return electronically? b. How can the taxpayer transmit funds electronically? c. What are the advantages of electronic filing?

> Using any tax service, refer to the Holden Fuel Oil Company, RIA T.C. Memo ¶72,045 (T.C. Memo 1972-45), 31 TCM 184. a. In which year was the case decided? b. What controversy was litigated? c. Who won the case? d. Was the decision reviewed at the low

> Trace Stephen Bolaris, 776 F.2d 1428, in the citator. a. According to the citator, how many times has the Ninth Circuit’s decision been cited? b. Did the decision address more than one issue? Explain. c. Was the decision ever cited unfavorably? Explai

> Trace Biltmore Homes, Inc., a 1960 Tax Court memo decision, in the citator. a. According to the citator, how many times has the Tax Court decision been cited by other courts? b. How many issues did the lower court address in its opinion? (Hint: Refer t

> Using a keyword search of editorial materials in any tax service, locate authorities dealing with the deductibility of the cost of work clothing by a firefighter. List a revenue ruling addressing this question.

> Using the BNA tax service, identify the number of the BNA portfolio for the following subjects. a. Innocent spouse relief. b. Accounting methods. c. Involuntary conversions. d. IRAs. e. Deductibility of legal and accounting fees, bribes, and illegal

> a. Using any tax service, locate Sec. 303. This section states that Sec. 303(a) applies only if the stock in question meets a certain percentage test. What is the applicable percentage? b. Locate Reg. Sec. 1.303-2(a) in the same service. Does this Treas

> Explain how committee reports can be used in tax research. What do they indicate?

> Using the index of any tax service, search the editorial materials to locate authorities addressing whether termite damage constitutes a casualty loss. a. Cite the authority you found. b. Cite at least two primary authorities.

> Using any tax service, locate Reg. Sec. 1.302-1. Does this Treasury Regulation reflect recent amendments to the IRC? Explain.

> Use the index of any tax service to locate authorities dealing with the deductibility of the cost of a facelift. a. Cite the authority you find. b. List the primary IRC section cited as authority. c. May a taxpayer deduct the cost of a facelift paid i

> Indicate which courts decided the cases cited below. Also indicate on which pages and in which publications the authority is reported. a. Lloyd M. Shumaker v. CIR, 648 F.2d 1198, 48 AFTR 2d 81-5353 (9th Cir., 1981) b. Xerox Corp. v. U.S., 14 Cl. Ct. 45

3.99

See Answer