Question: Duck, an accrual basis corporation, sponsored a

> Norma, who uses the cash method of accounting, lives in a state that imposes an income tax. In April 2015, she files her state income tax return for 2014 and pays an additional $1,000 in state income taxes. During 2015, her withholdings for state income

> Paul, age 62, suffers from emphysema and severe allergies and, upon the recommendation of his physician, has a dust elimination system installed in his personal residence. In connection with the system, Paul incurs and pays the following amounts during 2

> Chaz transfers cash of $60,000 to a newly formed corporation for 100% of the stock. In its initial year, the corporation has net income of $15,000. The income is credited to the earnings and profits account of the corporation. The corporation distributes

> Michael has always been overweight, and now he has decided to do some- thing about it. He recently read in a news story that the IRS allows a medical expense deduction for the cost of certain weight reduction programs. He scheduled an appointment with hi

> Emma Doyle, age 55, is employed as a corporate attorney. For calendar year 2015, she had AGI of $100,000 and paid the following medical expenses: Medical insurance premiums ……………………………………………………………….…. $3,700 Doctor and dentist bills for Bob and April (E

> Leigh sued an overzealous bill collector and received the following settlement: Damage to her automobile that the collector attempted to repossess ………………$ 3,300 Physical damage to her arm caused by the collector ………………………………………. 15,000 Loss of income wh

> Adrian was awarded an academic scholarship to State University for the 2015–2016 academic year. He received $6,500 in August and $7,200 in December 2015. Adrian had enough personal savings to pay all expenses as they came due. Adrian’s expenditures for t

> Linda and Don are married and file a joint return. In 2015, they received $12,000 in Social Security benefits and $35,000 in taxable pension benefits and interest. a. Compute the couple’s adjusted gross income on a joint return. b. Don would li

> For each of the following, determine the amount that should be included in gross income: a. Peyton was selected the most valuable player in the Super Bowl. In recognition of this, he was awarded an automobile with a value of $60,000. Peyton did not need

> Alicia and Rafel are in the process of negotiating a divorce agreement. They both worked during the marriage and contributed an equal amount to the marital assets. They own a home with a fair market value of $400,000 (cost of $300,000) that is subject to

> Vella owns and operates an illegal gambling establishment. In connection with this activity, he has the following expenses during the year: Rent ………………………………………… $ 24,000 Bribes ………………………………………. 40,000 Travel expenses ……………………….…… 4,000 Utilities ……………

> In late 2014, Randy and Rachel Erwin paid $7,000 in legal fees, adoption fees, and other expenses directly related to the adoption of an infant son, Jameson. In 2015, the year in which the adoption becomes final, they pay an additional $8,000. Their AGI

> Pedro, who is a single taxpayer, had AGI of $328,000 for 2015. He incurred the following expenses during the year: Medical expenses before 10%-of-AGI limitation………………………………………… $12,000 State and local income taxes ………………………………………………………………………. 8,900 Real

> Yvonne and Simon form Ion Corporation. Yvonne transfers equipment (basis of $110,000 and fair market value of $165,000). Simon invests $130,000 of cash. They each receive 100 shares in Ion Corporation, worth $130,000, but Yvonne also receives $35,000 of

> Issac has AGI of $73,400 and incurred the following expenses. How much of the business and personal expenditures are deductible (after any limitation) either as miscellaneous itemized deductions or as other itemized deductions? Cost of uniforms………………………

> Donna donates stock in Chipper Corporation to the American Red Cross on September 10, 2015. She purchased the stock for $18,100 on December 28, 2014, and it had a fair market value of $27,000 when she made the donation. a. What is Donna’s charitable con

> Miller owns a personal residence with a fair market value of $195,000 and an outstanding first mortgage of $157,500. Miller gets a second mortgage on the residence and in return borrows $10,000 to purchase new jet skis. How much of the first and second m

> Troy’s financial records for the year reflect the following: Interest income from bank savings account………………………………. $ 900 Taxable annuity receipts……………………………………………………………. 1,800 Safe deposit box rental (to hold annuity documents) ………………………125 Investment

> Pierre, a cash basis, unmarried taxpayer, had $1,400 of state income tax with- held during 2015. Also in 2015, Pierre paid $455 that was due when he filed his 2014 state income tax return and made estimated payments of $975 toward his 2015 state income t

> Jarrod receives a scholarship of $18,500 from Riggers University to be used to pursue a bachelor’s degree. He spends $12,000 on tuition, $1,500 on books and supplies, $4,000 for room and board, and $1,000 for personal expenses. How much may Jarrod exclud

> 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.

> 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

> Santiago and Amy are married and file a joint tax return claiming their three children, ages 12, 14, and 18, as dependents. Their AGI is $140,000. Deter- mine the amount of the couple’s child tax credit.

> Mike Saxon is negotiating the purchase of a business. The final purchase price has been agreed upon, but the allocation of the purchase price to the assets is still being discussed. Appraisals on a warehouse range from $1,200,000 to $1,500,000. If a val

> Martin transfers real estate with an adjusted basis of $260,000 and fair market value of $350,000 to a newly formed corporation in exchange for 100% of the stock. The corporation assumes the liability on the transferred real estate in the amount of $300,

> Jamie purchased $100,000 of new office furniture for her business in June of the current year. Jamie understands that if she elects to use ADS to compute her regular income tax, there will be no difference between the cost recovery for computing the regu

> On May 28, 2015, Mary purchased and placed in service a new $20,000 car. The car was used 60% for business, 20% for production of income, and 20% for personal use in 2015. In 2016, the usage changed to 40% for business, 30% for production of income, and

> On June 5, 2014, Leo purchased and placed in service a new car that cost $20,000. The business-use percentage for the car is always 100%. Leo claims any available additional first-year depreciation. Compute Leo’s cost recovery deduction for 2014 and 2015

> On October 15, 2015, Jon purchased and placed in service a used car. The purchase price was $25,000. This was the only business-use asset Jon acquired in 2015. He used the car 80% of the time for business and 20% for personal use. Jon used the MACRS stat

> Jabari Johnson is considering acquiring an automobile at the beginning of 2015 that he will use 100% of the time as a taxi. The purchase price of the automobile is $35,000. Johnson has heard of cost recovery limits on automobiles and wants to know the ma

> Olga is the proprietor of a small business. In 2015, the business’s income, before consideration of any cost recovery or § 179 deduction, is $250,000. Olga spends $600,000 on new 7-year class assets and elects to take the § 179 deduction on them. She doe

> Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $400,000 on May 20, 2015. Lori expects the taxable income derived from her business (without regard to the amount expensed under § 179) to be about $800,000.

> Debra acquired the following new assets during 2015. Determine Debra’s cost recovery deductions for the current year. Debra does not elect immediate expensing under § 179. She does not claim any available additional first-ye

> On November 4, 2013, Blue Company acquired an asset (27.5-year residential real property) for $200,000 for use in its business. In 2013 and 2014, respectively, Blue took $642 and $5,128 of cost recovery. These amounts were incorrect; Blue applied the wro

> In 2015, Rose, Inc., has QPAI of $4 million and taxable income of $3 million. Rose pays independent contractors $500,000. Rose’s W–2 wages are $600,000, but only $400,000 of the wages are paid to employees engaged in qualified domestic production activit

> Jocelyn contributes land with a basis of $60 ,000 and fair market value of $90,000 and inventory with a basis of $5,000 and fair market value of $8,000 in exchange for 100% of Zion Corporation stock. The land i s subject to a $15,000 mortgage. Determine

> Blue Corporation, a manufacturing company, decided to develop a new line of merchandise. The project began in 2015. Blue had the following expenses in connection with the project. The new product will be introduced for sale beginning in July 2017. Deter

> Dan Simms is the president and sole shareholder of Simms Corporation, 1121 Madison Street, Seattle, WA 98121. Dan plans for the corporation to make a charitable contribution to the University of Washington, a qualified public charity. He will have the co

> In 2015, Gray Corporation, a calendar year C corporation, holds a $75,000 charitable contribution carryover from a gift made in 2010. Gray is contemplating a gift of land to a qualified charity in either 2015 or 2016. Gray purchased the land as an invest

> For each of the following independent transactions, calculate the recognized gain or loss to the seller and the adjusted basis to the buyer. a. Bonnie sells Parchment, Inc. stock (adjusted basis $17,000) to Phillip, her brother, for its fair market val

> Brittany Callihan sold stock (basis of $184,000) to her son, Ridge, for $160,000, the fair market value. a. What are the tax consequences to Brittany? b. What are the tax consequences to Ridge if he later sells the stock for $190,000? For $152,000?

> Nancy, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $35,000 of expenses associated with this investigation. Based on the regulatory environment f

> Jarret owns City of Charleston bonds with an adjusted basis of $190,000. During the year, he receives interest payments of $3,800. Jarret partially financed the purchase of the bonds by borrowing $100,000 at 5% interest. Jarret’s interest payments on the

> Ella owns 60% of the stock of Peach, Inc. The stock has declined in value since she purchased it five years ago. She is going to sell 5% of the stock to a relative. Ella is also going to make a gift of 10% of the stock to another relative. Identify the r

> Melissa, the owner of a sole proprietorship, does not provide health insurance for her 20 employees. She plans to spend $1,500 lobbying in opposition to legislation that would require her to provide such insurance. Discuss the tax advantages and disadva

> Cardinal Corporation is a trucking firm that operates in the Mid-Atlantic states. One of Cardinal’s major customers frequently ships goods between Charlotte and Baltimore. Occasionally, the customer sends last-minute shipments that are out- bound for Eur

> Grady exchanges qualified property, basis of $12,000 and fair market value of $18,000, for 60% of the stock of Eadie Corporation. The other 40% of the stock is owned by Pedro, who acquired it five years ago. Calculate Grady ‘s current income, gain, or lo

> Linda operates an illegal gambling operation and incurs the following expenses. Which of these expenses can reduce her taxable income? a. Bribes paid to city employees. b. Salaries to employees. c. Security cameras. d. Kickbacks to police. e. Rent on an

> Ted, an agent for Waxwing Corporation, which is an airline manufacturer, is negotiating a sale with a representative of the U.S. government and with a representative of a developing country. Waxwing has sufficient capacity to handle only one of the order

> Sam Jones owns a granite stone quarry. When he acquired the land, Sam allocated $800,000 of the purchase price to the quarry’s recoverable mineral reserves, which were estimated at 10 million tons of granite stone. Based on these estimates, the cost depl

> Wesley and Myrtle (ages 90 and 88, respectively) live in an assisted care facility and for 2014 and 2015 received their support from the following sources: a. Which persons are eligible to claim the dependency exemptions under a multiple support agreemen

> Caden and Lily are divorced on March 3, 2014. For financial reasons, how- ever, Lily continues to live in Caden’s apartment and receives her support from him. Caden does not claim Lily as a dependent on his 2014 Federal income tax return but does so on h

> Which of the following items are exclusions from gross income? a. Alimony payments received. b. Damages award received by the taxpayer for personal physical injury—none were for punitive damages. c. A new golf cart won in a church raffle. d. Amount c

> Paige, age 17, is claimed as a dependent on her parents’ 2015 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 account. What are Paige’s

> Jayden calculates his 2015 income tax by using both the Tax Tables and the Tax Rate Schedules. Because the Tax Rate Schedules yield a slightly lower tax liability, he plans to pay this amount. a. Why is there a difference? b. Is Jayden’s approach permi

> Roy and Brandi are engaged and plan to get married. During 2015, 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 emplo

> In the current year, Pelican, Inc., incurs $50,000 of nondeductible fines and penalties. Its depreciation expense is $245,000 for financial statement purposes and $310,000 for tax purposes. How is this information reported on Schedule M–3?

> Which of the following individuals are required to file a tax return for 2015? 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 income of $5

> Bob and Carol have been in and out of marital counseling for the past few years. Early in 2015, they decide to separate. However, because they are barely able to get by on their current incomes, they cannot afford separate housing or the legal costs of a

> Morgan (age 45) is single and provides more than 50% of the sup- port of Rosalyn (a family friend), Flo (a niece, age 18), and Jerold (a nephew, age 18). Both Rosalyn and Flo live with Morgan, but Jerold (a French citizen) lives in Canada. Morgan earns a

> Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children who live with her. She also maintains the house- hold in which her parents live and furnished 60% of their support. Besides interest on City of Miami bond

> Walter and Nancy provide 60% of the support of their daughter (age 18) and son-in-law (age 22). The son-in-law (John) is a full-time student at a local university, while the daughter (Irene) holds various part-time jobs from which she earns $11,000. Walt

> Taylor, age 18, is claimed as a dependent by her parents. For 2015, she has the following income: $4,000 of wages from a summer job, $1,800 of interest from a money market account, and $2,000 of interest from City of Boston bonds. a. What is Taylor’s ta

> Sam and Elizabeth Jefferson file a joint return and have three children—all of whom qualify as dependents. If the Jeffersons have AGI of $332,000, what is their allowable deduction for personal and dependency exemptions for 2015?

> For tax year 2015, 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 husband and wife and furnish more than 50% of the support of their two c

> Using the legend provided below, classify each statement as to the taxpayer for dependency exemption purposes a. Taxpayer’s son has gross income of $7,000. b. Taxpayer’s niece has gross income of $3,000. c. Taxpayer&ac

> Determine the amount of the standard deduction allowed for 2015 in the following independent situations. In each case, assume that the taxpayer is claimed as another person’s dependent. a. Curtis, age 18, has income as follows: $700 interest from a certi

> In the current year, Woodpecker, Inc., a C corporation with $8.5 million in assets, deducted amortization of $40,000 on its financial statements and $55,000 on its Federal tax return. Is Woodpecker required to file Schedule M–3? If a Schedule M–3 is file

> David is age 78, is a widower, and is being claimed as a dependent by his son. How does this situation affect the following? a. David’s own individual filing requirement. b. David’s personal exemption. c. The standard deduction allowed to David. d. The a

> In choosing between the standard deduction and itemizing deductions from AGI, what effect, if any, does each of the following have? a. The age of the taxpayer(s). b. The health (i.e., physical condition) of the taxpayer. c. Whether taxpayers rent or own

> Compute the taxable income for 2015 for Aiden on the basis of the following information. Aiden is married but has not seen or heard from his wife since 2013. Salary $ ……………………………………………………………………………………………………….80,000 Interest on bonds issued by the City of

> Compute the taxable income for 2015 for Emily on the basis of the following information. Her filing status is single. Salary ………………………………………………………………….………………………….……………$85,000 Interest income from bonds issued by ………………………………………………………. Xerox 1,100 Alimon

> Compute the taxable income for 2015 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 deduct

> In late 2015, the Polks come to you for tax advice. They are considering selling some stock investments for a loss and making a contribution to a traditional IRA. In reviewing their situation, you note that they have large medical expenses and a casualty

> Which of the following items are inclusions in gross income? a. During the year, stock the taxpayer purchased as an investment doubled in value. b. Amount an off-duty motorcycle police officer received for escorting a funeral procession. c. While his

> During the year, Addison is involved in the following transactions: • Lost money gambling on a recent trip to a casino. • Helped pay for her neighbor’s dental bills. The neighbor is a good friend who is unemployed. • Received from the IRS a tax refund

> Terri, age 16, is claimed as a dependent on her parents’ 2015 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 her rate? At her

> Sissie owns two items of business equipment. Both were purchased in 2011 for $100,000, both have a 7-year MACRS recovery period, and both have an adjusted basis of $37,490. Sissie is considering selling these assets in 2015. One of them is worth $60,000,

> The following information for 2015 relates to Sparrow Corporation, a calendar year, accrual method taxpayer. Net income per books (after-tax) ………………………………………………………………….$174,100 Federal income tax per books …………………………………………………………………………86,600 Tax-exempt i

> Renata Corporation purchased equipment in 2013 for $180,000 and has taken $83,000 of regular MACRS depreciation. Renata Corporation sells the equipment in 2015 for $110,000. What is the amount and character of Renata’s gain or loss?

> Elliott has the following capital gain and loss transactions for 2015. Short-term capital gain $ 1,500 Short-term capital loss (3,600) Long-term capital gain (28%) 12,000 Long-term capital gain (25%) 4,800 Long-term capital gain (15%) 6,000 Long-te

> Coline has the following capital gain and loss transactions for 2015. Short-term capital gain $ 5,000 Short-term capital loss (2,100) Long-term capital gain (28%) 6,000 Long-term capital gain (15%) 2,000 Long-term capital loss (28%) (10,500) After th

> In a § 1031 like-kind exchange, Rafael exchanges equipment that originally cost $200,000. On the date of the exchange, the equipment given up has an adjusted basis of $85,000 and a fair market value of $110,000. Rafael pays $15,000 and receives equipment

> Myers, who is single, has compensation income of $68,000 in 2015. He is an active participant in his employer’s qualified retirement plan. Myers contributes $5,500 to a traditional IRA. Of the $5,500 contribution, how much can Myers deduct? See Exhibit 1

> In 2015, Miranda records net earnings from self-employment of $146,000. She has no other income. Determine the amount of Miranda’s self-employment tax and her for AGI income tax deduction.

> Robert entertains four key clients and their spouses at a nightclub. Expenses were $200 (limo charge), $120 (cover charge), $700 (drinks and dinner), and $140 (tips to servers). If Robert is self-employed, how much can he deduct for this event?

> Samantha was recently employed by an accounting firm. During the year, she spends $2,500 for a CPA exam review course and begins working on a law degree in night school. Her law school expenses were $4,200 for tuition and $450 for books. Assuming no reim

> Mio was transferred from New York to Germany. He lived and worked in Germany for 340 days in 2015. Mio’s salary for 2015 is $190,000. What is Mio’s foreign earned income exclusion?

> Valentino is a patient in a nursing home for 45 days in 2015. While in the nursing home, he incurs total costs of $13,500. Medicare pays $8,000 of the costs. Valentino receives $15,000 from his long-term care insurance policy, which pays while he is in t

> Emerald Corporation, a calendar year and accrual method taxpayer, provides the following information and asks you to prepare Schedule M–1 for 2015: Net income per books (after-tax) …………………………………………………………………………$257,950 Federal income tax per books ………………

> Meredith, who is single, would like to contribute $5,500 to her Roth IRA. What is the maximum amount that Meredith can contribute if her AGI is $117,000?

> If a taxpayer sells property for cash, the amount realized consists of the net proceeds from the sale. For each of the following, indicate the effect on the amount realized: a. The property is sold on credit. b. A mortgage on the property is assumed by

> Roby and James have been married for nine years. Roby sells Plum, Inc. stock that she has owned for four years to James for its fair market value of $180,000. Her adjusted basis is $200,000. a. Calculate Roby’s recognized gain or recognized loss. b. Cal

> Wesley, who is single, listed his personal residence with a real estate agent on March 3, 2015, at a price of $390,000. He rejected several offers in the $350,000 range during the summer. Finally, on August 16, 2015, he and the purchaser signed a contrac

> Edith’s warehouse (adjusted basis of $450,000) is destroyed by a hurricane in October 2015. Edith, a calendar year taxpayer, receives insurance proceeds of $525,000 in January 2016. Calculate Edith’s realized gain or loss, recognized gain or loss, and ba

> For each of the following involuntary conversions, indicate whether the property acquired qualifies as replacement property, the recognized gain, and the basis for the property acquired. a. A warehouse is destroyed by a tornado. The space in the warehou

> Howard’s roadside vegetable stand (adjusted basis of $275,000) is destroyed by a tractor-trailer accident. He receives insurance proceeds of $240,000 ($300,000 fair market value – $60,000 coinsurance). Howard immediately uses the proceeds plus additional

> Randall owns an office building (adjusted basis of $250,000) that he has been renting to a group of physicians. During negotiations over a new seven-year lease, the physicians offer to purchase the building for $900,000. Randall accepts the offer with t

> Turquoise Realty Company owns an apartment house that has an adjusted ba- sis of $760,000 but is subject to a mortgage of $192,000. Turquoise transfers the apartment house to Dove, Inc., and receives from Dove $120,000 in cash and an office building with

> Determine the realized, recognized, and postponed gain or loss and the new basis for each of the following like-kind exchanges: Fair Market Value of Adjusted Basis of Old Asset Вoot Boot Given New Asset Received $ 7,000 $ -0- $12,000 $4,000 a. b. 14,