Question: On March 31, 2015, Big Boats Company

> Emily spent $135,000 to rehabilitate a building (adjusted basis of $90,000) that originally had been placed in service in 1935. a. Compute Emily’s credit for rehabilitation expenditures. b. How would your answer change if the building were a historic str

> Marmot Corporation pays a dividend of $100,000 in the current year. Otter Corporation, which is in the 25% marginal bracket, owns 15% of Marmot’s stock. Gerald, an individual taxpayer in the 25% marginal bracket, also owns 15% of Marmot’s stock. Compare

> Gold Corporation, a calendar year C corporation, was formed in 2011 and has been profitable until the current year. In 2017, Gold incurs a net operating loss. Identify the issues that Gold Corporation should consider regarding its NOL carryback and carry

> The city of Lawrence recently was hit by a tornado, leaving many families in need of food, clothing, shelter, and other necessities. Betty contributed $500 to a family whose home was completely destroyed by the tornado. Jack contributed $700 to the famil

> The board of directors of Orange Corporation, a calendar year taxpayer, is holding its year-end meeting on December 29, 2017. One topic on the board’s agenda is the approval of a $25,000 gift to a qualified charitable organization. Orange has a $20,000 c

> On December 22, 2017, the directors of Partridge Corporation, an accrual basis calendar year taxpayer, authorized a cash contribution of $10,000 to the American Cancer Association. The payment is made on April 13, 2018. Can Partridge deduct the charitabl

> Osprey Corporation, a closely held corporation, has $100,000 of net active income, $25,000 of portfolio income, and a $120,000 loss from a passive activity. a. How much of the passive activity loss can Osprey deduct in the current year if it is a PSC? b

> Paul and Donna Decker are married taxpayers, ages 44 and 42, respectively, who file a joint return for 2017. The Deckers live at 1121 College Avenue, Carmel, IN 46032. Paul is an assistant manager at Carmel Motor Inn, and Donna is a teacher at Carmel Ele

> A taxpayer sells a warehouse for a recognized gain. Depreciation had been properly claimed on the property, based on the straight-line method over a 39-year recovery period. Will the same amount of depreciation recapture result whether the taxpayer is an

> Paul and Karen Kent are married, and both are employed (Paul earned $44,000 and Karen earned $9,000 this year). Paul and Karen have two dependent children, Samuel and Joy, both under the age of 13. Paul and Karen pay $3,800 ($1,900 for each child) to Sun

> Leon sells his interest in a passive activity for $100,000. Determine the tax effect of the sale based on each of the following independent facts: a. Adjusted basis in this investment is $35,000. Losses from prior years that were not deductible due to th

> Harriet, who is single, is the owner of a sole proprietorship. Two years ago, Harriet developed a process for preserving doughnuts that gives the doughnuts a much longer shelf life. The process is not patented or copyrighted, and only Harriet knows how i

> John (a sole proprietor) and Eagle Corporation (a C corporation) each recognize a long-term capital gain of $10,000 and a short-term capital loss of$18,000 on the sale of capital assets. Neither taxpayer had any other property transactions during the yea

> In the current year, Jeanette, an individual in the 25%marginal tax bracket, recognized a $20,000 long-term capital gain. Also in the current year, Parrot Corporation, a C corporation in the 25% marginal tax bracket, recognized a $20,000 long-term capita

> In the current year, Juanita and Joseph form a two-member LLC and do not file Form 8832 (Entity Classification Election). As a result, the LLC will be treated as a partnership for Federal tax purposes. Assess the validity of this statement.

> Buddy Morgan is a real estate agent for Coastal Estates, a residential real estate development. Because of his outstanding sales performance, Buddy is permitted to buy a lot for $300,000 that normally would sell for $500,000. Buddy is the only real estat

> Joel is the sole shareholder of Manatee Corporation, a C corporation. Because Manatee’s sales have increased significantly over the last several years, Joel has determined that the corporation needs a new distribution warehouse. Joel has asked your advic

> Using the facts of Problem 28, determine the 2016 end-of-year balance in Prance’s deferred tax asset and deferred tax liability balance sheet accounts. Facts of Problem 28 Prance, Inc., earns pretax book net income of $800,000 in 2016. Prance acquires a

> Hummingbird Corporation, a closely held C corporation that is not a PSC, has $40,000 of net active income, $15,000 of portfolio income, and a $45,000 loss from a passive activity. Compute Hummingbird’s taxable income for the year.

> Aqua Corporation purchases nonresidential real property on May 9, 2014, for $1 million. Straight-line cost recovery is taken in the amount of $89,765 before the property is sold on November 30, 2017, for $1.5 million. a. Compute the amount of Aqua’s reco

> Goose Corporation, a C corporation, incurs a net capital loss of $12,000 for 2017. It also has ordinary income of $10,000 in 2017. Goose had net capital gains of $2,500 in 2013 and $5,000 in 2016. a. Determine the amount, if any, of the net capital loss

> Prance, Inc., earns pretax book net income of $800,000 in 2016. Prance acquires a depreciable asset that year, and first-year tax depreciation exceeds book depreciation by $80,000. Prance reported no other temporary or permanent book-tax differences. The

> Asok’s AGI for 2017 is $133,050. Included in this AGI is a $45,000 25% long-term capital gain and a $13,000 0%/15%/20% long-term capital gain. Asok is single, uses the standard deduction, and has only his personal exemption. Compute his taxable income, t

> Alice J. and Bruce M. Byrd are married taxpayers who file a joint return. Their Social Security numbers are 123-45-6789 and 111-11-1112, respectively. Alice’s birthday is September 21, 1969, and Bruce’s is June 27, 196

> Durell and Earline are married, file a joint return, and claim dependency exemptions for their two children, ages 5 years and 6 months. They also claim Earline’s 18-year-old son from a previous marriage as a dependent. Durell and Earline’s combined AGI i

> Compute the income tax liability for each of the following unrelated C corporations. a. Darter Corporation has taxable income of $68,000. b. Owl Corporation has taxable income of $10,800,000. c. Toucan Corporation, a personal service corporation, has tax

> Cherry Corporation, a calendar year C corporation, is formed and begins business on April 1, 2017. In connection with its formation, Cherry incurs organizational expenditures of $54,000. Determine Cherry Corporation’s deduction for organizational expendi

> Yancy’s personal residence is condemned as part of an urban renewal project. His adjusted basis for the residence is $480,000. He receives condemnation proceeds of $460,000 and invests the proceeds in stocks and bonds. a. Calculate Yancy’s realized and r

> Crane and Loon Corporations, two unrelated C corporations, have the following transactions for the current year: a. Compute the dividends received deduction for Crane Corporation. b. Compute the dividends received deduction for Loon Corporation. Cr

> Compute the charitable contribution deduction (ignoring the percentage limitation) for each of the following C corporations. a. Amber Corporation donated inventory of clothing (basis of $24,000, fair market value of $30,000) to a qualified charitable org

> Your client supplies water to a housing development. The company requires new customers to pay for the extension of the water lines to their homes. The water lines are the company’s property. The company has consistently treated the amounts received from

> Your client is not permitted to deduct a year-end accrual for vacation pay earned but not paid. This result occurs because the tax law considers this to be deferred compensation that is ineligible for the recurring item exception, unless it is paid by Ma

> Why did the AICPA object to former Congressman Dave Camp’s tax reform proposal introduced in February 2014 (later officially introduced as H.R. 1 of the 113rd Congress) regarding the use of the cash method of accounting?

> Hakim’s rental building was not insured when it was destroyed by a hurricane. His adjusted basis for the building was substantial, but was less than he had paid for the building in 2013. The building was Hakim’s only asset that was damaged by the hurrica

> In 2017, your client, Clear Corporation, changed from the cash to the accrual method of accounting for its radio station. The company had a positive § 481 adjustment of $2.4 million as a result of the change and began amortizing the adjustment in 2017. I

> Your client is a manufacturer. For several years, the company buried empty paint cans on its property. The paint was used in the production process. Recently, a state environmental agency informed the company that it was required to dig up the paint cans

> Zorn conducted his professional practice through Zorn, Inc. The corporation uses a fiscal year ending September 30 even though the business purpose test for a fiscal year cannot be satisfied. For the year ending September 30, 2017, the corporation paid Z

> Ann and Bill were on the list of a local adoption agency for several years seeking to adopt a child. Finally, in 2016, good news comes their way and an adoption seems imminent. They pay qualified adoption expenses of $5,000 in 2016 and $11,000 in 2017. T

> Reba, who is single, does a lot of business entertaining at home. Lawrence, Reba’s 84-year-old dependent grandfather, lived with Reba until this year, when he moved to Lakeside Nursing Home because he needs medical and nursing care. During the year, Reba

> Which of the following results in a recognized gain or loss? a. Kay sells her vacation cabin (adjusted basis of $100,000) for $150,000. b. Adam sells his personal residence (adjusted basis of $150,000) for $100,000. c. Carl’s personal residence (adjusted

> How do the all events and economic performance requirements apply to the following transactions by an accrual basis taxpayer? a. The company guarantees its products for six months. At the end of 2017, customers had made valid claims for $600,000 that wer

> What accounting method (cash or accrual) would you recommend for the following businesses? a. A gift shop with average annual gross receipts of $900,000. b. An accounting partnership with annual gross receipts of $12 million. c. A drywall subcontractor w

> Compute Mary’s income or deductions for 2017 using (1) the cash basis and (2) the accrual basis for each of the following: a. In May 2017, Mary paid a license fee of $1,200 for the period June 1, 2017, through May 31, 2018. b. In December 2017, Mary coll

> Gold, Inc., is an accrual basis taxpayer. In 2017, an employee accidentally spilled hazardous chemicals on leased property. The chemicals destroyed trees on neighboring property, resulting in $30,000 of damages. In 2017, the owner of the property sued Go

> Ivanna, who has three children under age 13, worked full-time while her husband, Sergio, was attending college for nine months during the year. Ivanna earned $28,000 and incurred $9,100 of child care expenses. Determine the amount of Ivanna and Sergio’s

> Mauve Corporation began operations as a farm supplies business and used a fiscal year ending October 31. The company gradually went out of the farm supplies business and into the mail-order Christmas gifts business. The company has received permission fr

> Red, White, and Blue are unrelated corporations engaged in real estate development. The three corporations formed a joint venture (treated as a partnership) to develop a tract of land. Assuming that the venture does not have a natural business year, what

> Swallow Company is a large real estate construction company that has made a Subchapter S election. The company reports its income using the percentage of completion method. In 2018, the company completed a contract at a total cost of $4.8 million. The co

> Ostrich Company makes gasoline storage tanks. Everything produced is under contract (that is, the company does not produce until it gets a contract for a product). Ostrich makes three basic models. However, the tanks must be adapted to each individual cu

> Same as Problem 32, except that Jimenez paid $2 million in income taxes to other countries. Data from Problem 32 Jimenez Enterprises is incorporated in Arkansas. It generated a $5 million profit on its overseas operations this year. Jimenez paid $1 mill

> Chee purchases Tan, Inc. bonds for $108,000 on January 2, 2017. The face value of the bonds is $100,000; the maturity date is December 31, 2021; and the annual interest rate is 5%. Chee will amortize the premium only if he is required to do so. Chee sell

> Joe was in an accident and required cosmetic surgery for injuries to his nose. He also had the doctor do additional surgery to reshape his chin, which had not been injured. Will the cosmetic surgery to Joe’s nose qualify as a medical expense? Will the co

> Rust Company is a real estate construction company with average annual gross receipts of $4 million. Rust uses the completed contract method, and the contracts require 18 months to complete. a. Which of the following costs would be allocated to construct

> For calendar year 2017, Stuart and Pamela Gibson file a joint return reflecting AGI of $350,000. Their itemized deductions Casualty loss after $100 floor (not covered by insurance)…………..$48,600 Home mortgage interest…………………………………………………………….19,000 Credit

> Charlie sells his antique farm tractor collection at a loss. He had acquired all of the tractors for his personal pleasure and sold all of them for less than he paid for them. What is the tax status of the tractors? Is his gain a 28% loss? Explain.

> The Wren Construction Company reports its income by the completed contract method. At the end of 2017, the company completed a contract to construct a building at a total cost of $800,000. The contract price was $1.2 million, and the customer paid Wren $

> George sold land to an unrelated party in 2016. His basis in the land was $45,000, and the selling price was $120,000—$30,000 payable at closing and $30,000 (plus 10% interest) due January 1, 2017, 2018, and 2019. What would be the tax consequences of th

> On December 30, 2016, Maud sold land to her son, Charles, for $50,000 cash and a 7% installment note for $350,000, payable over 10 years. Maud’s cost of the land was $150,000. In October 2018, after Charles had paid $60,000 on the principal of the note,

> On June 30, 2017, Kelly sold property for $240,000 cash and a $960,000 note due on September 30, 2018. The note will also pay 6% interest, which is slightly higher than the Federal rate. Kelly’s cost of the property was $400,000. She is concerned that Co

> Kay, who is not a dealer, sold an apartment house to Polly during the current year (2017). The closing statement for the sale is as follows: During 2017, Kay collected $9,000 in principal on the installment note and $2,000 of interest. Kayâ€

> Floyd, a cash basis taxpayer, has received an offer to purchase his land. The cash basis buyer will pay him either $100,000 at closing or $50,000 at closing and $56,000 two years after the date of closing. If Floyd recognizes the entire gain in the curre

> Ross Company is a corporation providing medical diagnostic services. Ross has used the cash method since inception because its gross receipts did not exceed $5,000,000. This year its average annual gross receipts for the prior three years crossed the $5,

> Would a tax year ending December 31 be appropriate for a ski lodge? Why or why not?

> Pam owns a personal use boat that has a fair market value of $35,000 and an adjusted basis of $45,000. Pam’s AGI is $100,000. Calculate the realized and recognized gain or loss if: a. Pam sells the boat for $35,000. b. Pam exchanges the boat for another

> Jimenez Enterprises is incorporated in Arkansas. It generated a $5 million profit on its overseas operations this year. Jimenez paid $1 million in income taxes to various countries on these profits. Jimenez’s marginal Federal income tax rate is 35%. Comp

> Is a note receivable that arose in the ordinary course of the taxpayer’s retail business a capital asset? Why or why not?

> The Hawk Corporation builds yachts. The vessels it currently produces are practically identical and are completed in approximately 8 months. A customer has approached Hawk about constructing a larger yacht that would take approximately 15 months to compl

> In December 2017, Carl Corporation sold land it held as an investment. The corporation received $50,000 in 2017 and a note payable (with adequate interest) for $150,000 to be paid in 2019. Carl Corporation’s cost of the land was $80,000. The corporation

> Linda, who files as a single taxpayer, had AGI of $280,000 for 2017. She incurred the following expenses and losses during the year: Medical expenses (before the 10%-of-AGI limitation)……………………………..$33,000 State and local income taxes……………………………………………………

> Samantha, an accrual basis taxpayer, subscribes to a service that updates a database used in her business. In December 2017, Samantha paid the $120,000 subscription for the period January 2017 through December 2018. What is Samantha’s deduction for 2017?

> Edgar uses the cash method to report the income from his software consulting business. A large publicly held corporation has offered to invest in Edgar’s business as a limited partner. What tax accounting complications would be created if Edgar and the c

> In 2016, the taxpayer became ineligible to use the cash method of accounting. At the beginning of the year, accounts receivable totaled $240,000, accounts payable for merchandise totaled $80,000, and the inventory on hand totaled $320,000. What is the am

> In December 2017, Nell, Inc., an accrual basis taxpayer, paid $12,000 for insurance premiums for her business for the 2018 calendar year. How much of the premiums can Nell, Inc., deduct in 2017?

> Fred, a cash basis taxpayer, received a $15,000 bonus from his employer in 2017. The bonus was based on the company’s profits for 2016. In 2018, the company discovered that its 2016 profits were computed incorrectly. As a result, Fred received an additio

> A law practice was incorporated on January 1, 2017, and expects to earn $25,000 per month before deducting the lawyer’s salary. The lawyer owns 100% of the stock. The corporation and the lawyer both use the cash method of accounting. The corporation does

> Pedro, who is a single taxpayer, had AGI of $328,000 for 2017. 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 estate taxes…………

> Dino contributes to charity some tangible personal property that he had used in his business and depreciated. At the date of the donation, the property has a fair market value greater than its adjusted basis, but less than the original cost. What is the

> Rafael and Lucy Gonzalez, married taxpayers, each contribute $2,900 to their respective § 401(k) plans in 2017. The AGI reported on their joint return is $38,000. Determine the amount of the couple’s “Saver’s Credit.”

> Assume that a partnership is profitable and that its tax year ends on December 31 but one of the partners’ tax year ends on September 30. Does the partner enjoy a tax benefit or detriment from the partnership’s use of a December 31 tax year-end? Explain.

> William, a high school teacher, earns about $50,000 each year. In December 2017, he won $1 million in the state lottery. William plans to donate $100,000 to his church. He has asked you, his tax adviser, whether he should donate the $100,000 in 2017 or 2

> What are the similarities between the crop method used for farming and the completed contract method used for long-term construction?

> On June 1, 2015, Father sold land to Son for $300,000. Father reported the gain by the installment method, with the gain to be spread over five years. In May 2017, Son received an offer of $400,000 for the land, to be paid over three years. What would be

> Arnold gave land to his son, Bruce. Arnold’s basis in the land was $100,000, and its fair market value at the date of the gift was $150,000. Bruce borrowed $130,000 from a bank that he used to improve the property. He sold the property to Della for $360,

> Evan is single and has AGI of $277,300 in 2017. His potential itemized deductions before any limitations for the year total $52,300 and consist of the following: Medical expenses (before the 10%-of-AGI limitation)……………$28,000 Interest on home mortgage……

> Irene has made Sara an offer on the purchase of a capital asset. Irene will pay (1) $200,000 cash or (2) $50,000 cash and a 6% installment note for $150,000 guaranteed by City Bank of New York. If Sara sells for $200,000 cash, she will invest the after-t

> Emerald Motors is an automobile dealer. The controller consults with you about the type of accounting used for a special offer to its new car customers. Emerald has offered to provide at no charge to the customer the first four recommended service visits

> Compare the cash and accrual methods of accounting for the following events: a. Purchased new equipment, paying $50,000 cash and giving a note payable for $30,000 due next year. b. Paid $3,600 for a three-year service contract on the new equipment. c. Co

> Under what conditions would the cash method of accounting be advantageous as compared with the accrual basis?

> Thomas receives tangible personal property as an inheritance from a decedent who died in 2017. The property was depreciated by the deceased, and Thomas will also depreciate it. At the date of the deceased’s death, the property was worth more than the dec

> Anne sold her home for $290,000 in 2017. Selling expenses were $17,400. She purchased it in 2011 for $200,000. During the period of ownership, Anne had done the following: . Deducted $50,500 office-in-home expenses, which included $4,500 in depreciation.

> In 2017, Chaya Corporation, an accrual basis, calendar year taxpayer, provided services to clients and earned $25,000. The clients signed notes receivable to Chaya that have a fair market value of $22,000 at year-end. In addition, Chaya sold a 36-month s

> In 2017, Aurora received a $25,000 bonus computed as a percentage of profits. In 2018, Aurora’s employer determined that the 2017 profits had been incorrectly computed, and Aurora had to refund the $8,000 in 2018. Assume that Aurora was in the 35% tax br

> Can the earned income credit be characterized as a form of negative income tax? Why or why not?

> Gaffey Corporation obtained permission to change from a calendar year to a fiscal year ending May 31, beginning in 2017. For the short period January 1 through May 31, 2017, the corporation’s taxable income was $140,000. For computing the tax, assume a t

> Delaine is a 90% shareholder in a personal service corporation (PSC). The corporation paid Delaine a salary of $265,000 during its fiscal year ending September 30, 2017. a. Assume that the corporation cannot satisfy the business purpose test for a fiscal

> Shumpert, Inc., entered into a contract that was to take two years to complete, with an estimated cost of $900,000. The contract price was $1,300,000. Costs of the contract for 2016, the first year, totaled $675,000. a. What was the gross profit reported

> Jebali Corporation, a calendar year taxpayer utilizing the completed contract method of accounting, constructed a building for Samson, Inc., under a longterm contract. The gross contract price was $2,300,000. Jebali finished construction in 2017 at a cos

> Bart and Elizabeth Forrest are married and have no dependents. They have asked you to advise them whether they should file jointly or separately in 2017. They present you with the following information: If they file separately, Bart and Elizabeth will

> Mason canceled a note issued by Emma (Mason’s niece) that arose in connection with the sale of property. At the time of the cancellation, the note had a basis to Mason of $30,000, a face amount of $55,000, and a fair market value of $42,000. Presuming th

> Mary receives tangible personal property as a gift. The property was depreciated by the donor, and Mary will also depreciate it. At the date of the gift, the property was worth more than the donor’s adjusted basis. What is the impact of these facts on Ma