Refer to the information in problem 21, except that John operates Mason Enterprises as an S corporation. How would John report the income and loss items from S corporation operations? From problem 21: John Mason operates a consulting business, Mason Enterprises, as a sole proprietorship. He had to transfer $100,000 of stocks and securities into Mason Enterprises’s name to show financial viability for the business. During the current year, the business had the following income and expenses from operations: Consulting revenue…………………..$125,000 Travel expenses…………………………..40,000 Transportation……………………………….3,000 Advertising……………………………………7,000 Office expense………………………………..3,000 Telephone………………………………………1,000 Dividend income……………………………5,000 Interest income……………………………..2,000 Charitable contribution…………………..1,000 Political contribution……………………….6,000 Determine the Schedule C net income. How are items not included in the Schedule C net income reported?
> Why do taxpayers have to recapture depreciation on depreciable assets sold at a gain? To which assets do the Section 1245 and 1250 recapture provisions apply?
> Bernadette sold her home. She received cash of $40,000, the buyer assumed her mortgage of $180,000, and she paid closing costs of $2,300 and a broker’s commission of $7,000. a. What is the amount realized on the sale? b. If she has a basis in the home
> Kensington Corporation, Inc. (an October 31 fiscal year-end corporation) plans to purchase $2,700,000 of used office fixtures (7-year property), its only personalty acquired during the year. Kensington’s management is willing to purchase and place the pr
> Azona Corporation (a calendar-year taxpayer) purchased only one business asset during the year, 7-year used property that cost $2,600,000. Compute Azona’s depreciation for current year assuming that a. the asset was purchased and placed in service on Se
> On April 1, Radcliff Corporation, a calendar year taxpayer, purchased land, a warehouse, and used equipment (7-year property) for a total price of $500,000. An appraiser determined that the land has a value of $220,000, the warehouse a value of $264,000,
> Shawn exchanges a factory building for an apartment building in a qualifying like-kind exchange. The factory has a basis of $350,000 and the apartment building has a fair market value of $320,000. a. What is Shawn’s realized gain or loss and the basis o
> Blanco Corporation (a calendar-year taxpayer) purchased $2,200,000 of used manufacturing equipment in July, $400,000 of used computer equipment in August, and an office building for $850,000 (of which $170,000 was for the land) in November. Compute Blanc
> Gisela gave Ellen stock worth $50,000 this year. Gisela purchased the stock for $60,000 four years ago. Calculate Ellen’s basis for the stock if she sells it a. for $65,000. b. for $45,000. c. for $55,000.
> Wilma had a loss of $25,000 on some bearer bonds that were stolen and never recovered. She suffered a $20,000 loss when a piece of land she had held as an investment was condemned to make way for a new city park. She also had a Section 1231 gain of $60,0
> Sondra and Jason, a wealthy married couple, won $96 million in a 2017 Powerball drawing. They decided to share some of this new wealth immediately with some of their friends and family. They paid $1,800,000 on a new home for Sondra’s parents, titling the
> Steven had a taxable estate of $8,850,000 when he died in 2017. If he had no prior taxable gifts, what is his net estate tax liability?
> What are IDCs and how are they treated for tax purposes?
> Cherry’s widowed mother, Nancy, had to quit working for health reasons and now her only income is $1,100 per month from Social Security. Cherry recently became partner of a law firm and has moved into the 33% marginal tax bracket. Cherry’s mother steadfa
> Jessica owns investment land currently worth $5,000,000. She paid $3,000,000 for the land 10 years ago. She expects that the land will probably increase in value to at least $8,000,000 before she dies. She has not previously given any taxable gifts. a.
> Cindy, an 18-year-old full-time student, has $3,400 interest income from a trust established by her grandparents. Cindy also earned $6,000 working at a part-time job. She lives at home with her parents, who claim her as a dependent, and has no itemized d
> Lenny, age 12, has $3,500 interest income from a trust established by his uncle. This is Lenny’s only source of income for the year. Lenny’s parents are in the 33 percent marginal tax bracket. a. What is Lenny’s taxable income and how much income tax do
> On January 15 of the current year, Eileen, age 24, receives stock worth $28,000 as a gift from her parents. Her parents jointly purchased the stock six years ago for $12,000. During the year, Eileen receives $2,100 dividend income on the stock. In Decemb
> In the current year, Marah gives $20,000 cash to Sam, $60,000 of stock to Craig, and $100,000 of bonds to Lynn. In the same year, Marah’s husband, Bryan, gives land valued at $120,000 to Jerry. a. What are Marah and Bryan’s taxable gifts if they do not
> Which of the following are completed gifts? Determine the value of each gift before any exclusions? a. In March, Stephanie deposits $30,000 cash into a joint checking account for herself and her boyfriend, Michael, who deposits nothing into the account.
> Determine the taxable gift for each of the following. a. In February, Cynthia transferred $200,000 into a revocable trust. In October, the trustee distributes $18,000 of income to the beneficiary, Eileen. b. Carrie prepared the tax returns at no charge
> Which of the following are completed gifts? How much is the value of each gift before any exclusions? a. Hughlene sold stock worth $90,000 to her son for $30,000. b. Ken deposits $15,000 into a savings account in his name and his daughter’s name as joi
> On March 15, 2015, James Smith formed a business to rent and service vending machines providing healthy snack alternatives and juices to the local middle and high schools. He operates the business as a sole proprietorship from his home, turning the den i
> Explain the difference between cost depletion and percentage depletion.
> Alfred has investments in three passive activities: In year 1, PA-1 had a gain of $3,000, PA-2 had a loss of $10,000, and PA-3 had a loss of $5,000. In year 2, PA-1 has a gain of $12,000, PA-2 has a $1,000 loss, and PA-3 has a loss of $2,000. How should
> PA Corporation, an S corporation, has two equal shareholders, P and A. Prior to the end of the current year, PA decides to liquidate and sell its three remaining assets distributing the cash received to P and A. Asset 1 has a basis of $10,000 and is sold
> The Jane Corporation, an S corporation, makes several property distributions to its two equal shareholders, A and B, during the year. A received $5,000 cash plus land with a basis of $8,000 and fair market value of $10,000. B received $5,000 cash plus eq
> At the beginning of year 1, Lisa and Marie were equal shareholders in LM Corporation, an S corporation. On April 30, year 1, Lisa sold half of her interest to Shelley. On August 8, year 1, Marie sold her entire interest to George. On December 31, year 1,
> Is there any tax advantage to a 100 percent shareholder-employee of an S corporation compared to a shareholder-employee of a C corporation under the following circumstances: shareholder-employee salary is $75,000; the corporate income before the $75,000
> Charles owns a 25 percent interest in Cal Corporation, an S corporation. The corporation has run into some difficulties recently and Charles loaned it $10,000. At the beginning of the year, Charles’s basis in his stock was $16,000. a. What is Charles’s
> Refer to the information in problem 25, except that George and Georgenne are equal shareholders in an S corporation. a. What is the net income, excluding separately stated items, that each shareholder is required to report at the end of the year? b. Ho
> Bob is a 50 percent owner of Barco Enterprises. During 2017, Barco earned $80,000 in net income after subtracting Bob’s $50,000 salary. Bob also withdrew $20,000 from Barco during the year. Bob would like to know the amount of the FICA taxes and by whom
> Maria, a 25 percent partner in MARS Partnership, needs a distribution from the partnership for some unexpected bills. The partnership, however, does not have any extra cash to distribute. It will distribute land to Maria that has a value of $27,000 and a
> Partner X, a one-third partner in XYZ Partnership, needs a distribution from the partnership for some unexpected bills. The partnership, however, does not have any extra cash to distribute. It will distribute land to the partner that has a value of $30,0
> An employee uses her employer’s auto 75 percent for business and 25 percent for personal use. The personal use is taxed to her as income. What percentage of the auto can the employer consider business use and depreciate? Will your answer change if the em
> In year 1, Sally invested $45,000 for a 10 percent interest in a limited partnership. This is Sally’s only passive investment. The limited partnership has $100,000 of nonrecourse debt. (The debt is not secured by real property.) At the end of years 1 thr
> Luis and Jennifer formed the JL Partnership as equal partners. Each partner contributed cash and property with a value of $80,000 for partnership operations. As a result of these contributions, Luis had a basis of $80,000 and Jennifer a basis of $60,000
> CCC Partnership borrowed $100,000 on a five-year recourse note from a local bank. It also purchased land for $60,000, putting $10,000 down and signing a qualified nonrecourse loan secured by the land for the balance. The partners’ inter
> Explain the difference in recourse and nonrecourse liabilities when distinguishing between general and limited partners. Assume the partnership has $100,000 of recourse liabilities and $60,000 of nonrecourse liabilities. It has one general partner, Matt,
> Refer to the information in the preceding problem. If the partnership sells the land for $27,000 after holding it for three years, what are the tax consequences to Alpha, Beta, and Gamma? From problem 35: Alpha, Beta, and Gamma form the ABG partnership
> Alpha, Beta, and Gamma form the ABG partnership by transferring the following to the partnership: Alpha………..$10,000 cash and machinery valued at $20,000 with a basis of $15,000. Beta……………………………………………..Land valued at $30,000 with a basis of $35,000. Gamm
> The Rents-Are-Us Partnership owns a large apartment building with a fair market value of $2,100,000, a basis of $1,600,000, and a mortgage encumbering it of $500,000. Kenneth sells his 20 percent interest in the partnership with an outside basis of $350,
> Walter sells his 40 percent interest in Kennel Kids Playground with a partnership basis interest of $40,000 to George for $60,000. The partnership has the following assets: Cash = $50,000, inventory ($20,000 basis, $60,000 fair market value), and land ($
> Alexandra received a $40,000 cash liquidating distribution for her 25 percent interest in ABC Partnership that had a $62,500 outside basis. Immediately prior to the distribution, the partnership had the following assets: $30,000 cash, unrealized receivab
> Quenton received a proportionate nonliquidating distribution of $8,000 cash, inventory with a $5,000 basis and a fair market value of $7,000, and a Section 1231 asset with a $7,000 basis and a fair market value of $15,000. a. What are the tax effects of
> Mark wants to purchase a new luxury sedan for $50,000 for use exclusively in his business. The car salesman told Mark that he could expense $25,000 of the cost immediately using Section 179 and depreciate an additional $5,000 using the regular depreciati
> John received a proportionate nonliquidating distribution of $10,000 cash and inventory with a zero basis and a fair market value of $12,000 from a partnership in which he has a basis of $8,000. a. What are the tax effects of these distributions? b. Ho
> The BDC Partnership has three partners with the following partnership interest percentages and tax-year ends: B has 35 percent ownership and a Dec. 31 year end; D owns 45 percent and has a June 30 year end, and C owns 35 percent and has an Oct. 30 year e
> George and Georgenne formed the GG Partnership as equal partners. Each partner contributed cash and property with a value of $100,000 for partnership operations. As a result of these contributions, George had a basis of $80,000 and Georgenne a basis of $
> Jim and Angie form the JAZ Partnership with Zoe by contributing $75,000 each to partnership equity. Zoe, the third partner, contributes property with a basis of $50,000 and fair market value of $75,000. The three are equal partners in the partnership. a.
> Refer to the information in the preceding problem, except that John and his wife Mary are equal partners in Mason Enterprises, which operates as a partnership. How would they report the income and loss items from partnership operations? In problem 21: J
> John Mason operates a consulting business, Mason Enterprises, as a sole proprietorship. He had to transfer $100,000 of stocks and securities into Mason Enterprises’s name to show financial viability for the business. During the current year, the business
> The Green Corporation has only six shareholders. In the current year, it has AOGI of $540,000 and personal holding company income of $390,000. Its adjusted taxable income is $460,000. What is its personal holding company income tax?
> A corporation has 10 shareholders. Nine of the shareholders own 9 percent each of the stock. The tenth shareholder owns the remaining stock. Does the corporation meet the shareholder test as a personal holding company? Explain.
> Identify the brother–sister corporations given the following ownership percentages by four individuals: Individual/Corporation A в D James 20% 40% 15% 15% Carol Joan 20% 40% 25% 10% 20% 40% 10% 20% 20% Wallace 10% 20% 25%
> Carl purchased a Jaguar automobile for $60,000 to use exclusively in his business. He boasts that he can recover his cost through MACRS depreciation deductions over five years. What restrictions reduce the tax benefits of purchasing a luxury automobile f
> How is gain or loss deferral usually accomplished? How is holding period affected by gain or loss deferral?
> What are the elements of plain English?
> Identify the characteristics that an accounting practitioner should possess.
> Differentiate between theoretical and applied research.
> Discuss what grasping the meaning of a statement or comprehension implies
> Discuss the three levels of thought as defined by the Illinois Renewal Institute.
> Discuss the highest level of thinking according to Bloom’s taxonomy.
> What is the objective of accounting, auditing, and tax research?
> Why is accounting, auditing, and tax research necessary?
> Explain what accounting, auditing, and tax research are.
> Define critical thinking
> Discuss the environmental factors that influence the standard setting process.
> Clever Manufacturing Co., a public company that files various forms with the SEC, has recently been considered to be a very attractive growth stock and has been touted as a “buy” recommendation by various stock analysts. However, there have been recent d
> Currently, Sampson Industries a large conglomerate with a normal calendar year operating cycle has one centralized warehouse for inventory. Inventory Item No. 2704 is near the end of its product life cycle. Sampson wants todivestthebusinessunitthatexclus
> Hopper company is preparing its Cash Flow Statement. The accountant preparing the statement is presented with the following information: Bank Account A $35,000 Bank Account B $16,500 Bank Account C $(1,200) Requirement: What amount should
> James Co. manufactures and sells t-shirts. It has been in business for three years and is contemplating raising capital. Being everyone you know owns at least five t-shirts, you are considering investing in James Co. To help you make a decision, you want
> A&R Construction Company has been very successful over the past five years and now has decided that it needs to construct a building to house all of its equipment. The company’s controller has notified management that any interest costs on funds obtained
> Tires R Us is a wholesaling and retailing company that deals in automotive tires for foreign cars. During the year-end audit, heated discussion occurs between management and the independent auditors. Management’s accounting policy for valuing the invento
> Nelson Industries, a U.S.-based company, has over the years issued 1 million shares of common stock to shareholders. Currently, in evaluating ownership, Nelson has entered in to a stock repurchase agreement to buy a significant block of its stock from a
> Michelle: How did you do on that accounting exam? Nicole: I just missed a “B” by two points. Michelle: At least you passed the exam! Nicole: I know. But I was hoping for a higher grade since I studied so hard for this exam. Michelle: Maybe there were
> National Drilling is a manufacturer of drill bits for large oil rigs that operate around the world. A major component in the manufacturing of the drill bits is diamonds. As a result of an increase in oil drilling due to the increase in oil prices, Nation
> Better Community, a new local not-for-profit entity, has been recently formed. The organizers of the entity have formalized operations in such a way that they will charge membership dues, but will not provide any specific services in exchange for the due
> Discuss the AICPA list of effective writing characteristics. Which are editing skills, and which are composing skills?
> Jim: This year has been great for business with fantastic customers. This should definitely help our net income and bonuses for the year! Nancy: Exactly what do you mean, Jim? Jim: Well, with great customers who should pay their bills, we will not need
> Jettison Manufacturing has been planning an expansion of its manufacturing facilities. As a result, in year 1, it obtained a $2 million long-term loan from National Bank. According to the debt agreement between the two parties, Jettison Manufacturing is
> Medical Devices Inc. is a public company that trades its securities on the American Stock Exchange. The company needs to increase sales in the month of December by $3 million. Management has determined that the company has products available to ship to c
> Use the Internet to access the SEC EDGAR System. List the methods to search for a company.
> Use the Internet to acquire further understanding for explaining SEC actions to officers in a public company who ask you the following questions. What does the chief accountant for the SEC do? How should you prepare a client to handle an SEC investigatio
> Propose a research strategy to investigate Natalie Churyk’s suggestions for mastering the computerized CPA exam. Then, implement the strategy and communicate the results (citing the relevant source).
> Use either the SEC website or a data base described in the next chapter and locate the following SEC sources. What does Rule 10(b) (5) discuss? (Hint: ItinterpretsSec.10(b)(5) of the Securities Act of 1934.) What does SAB 99 discuss?
> The SEC requires companies to file various forms for specific financial reporting purposes. Below are listed various forms required to be filed with the SEC. Utilize the SEC’s website and describe what each form is used for. Form
> In some cases, preferred stock has some characteristics of a debt instrument. a. How should the accountant class if y such debt in the financial statement? b. Reference relevant authorities from the Codification to support your answer.
> The Codification combines all relevant literature on a topic in one location. Identify the number of different issues/subsections related to postretirement benefits other than pensions. Provide citations for each.
> Identify and explain some basic questions the researcher must address in performing accounting, auditing, or tax research.
> Use the Codification to answer the following: a. What is a contingency? b. Precisely where in the Codification did you find that definition? c. Under what circumstances are contingent losses recorded? d. Precisely where in the Codification did you fi
> Use the Codification to find which expenditures qualify as a research and development cost (be sure to cite where you found the answer within the Codification): a. The salaries of the research staff designing new products b. The commissions paid to sale
> Use the Codification to locate archived FASB Interpretation 36. a. What does it discuss? b. How did you find that authority? c. What industry does that authority affect? d. What are the major organizational parts of that authority (placed in bold)?
> Use the Codification to identify accounting authority (location within the Codification) governing each of the following: (Hint: This exercise tends to result in very general Codification references, for example, xxx —first 3 digits.)
> Prepare a search strategy for understanding a due diligence review of a company. Implement the strategy to find five important items in a due diligence review.
> Go to the Deloitte Foundation website (www.deloitte.com). Download a True blood Case involving a joint venture or partnership. Write a sentence summarizing the issue in the case. Use the Codification data base to find the authorities providing the answer
> Go to the Electronic Code of Federal Regulations (www.ecfr .gov). a. What Part of Title 17 (Code of Federal Regulations— CFR) applies to the form and content and requirements for financial statements? b. If a firm is filing consolidated balance sheets w
> Access the FEI website (www.fei.org). Locate and list the three most recently issued comment letters to the FASB.
> Access the SEC website (www.sec.gov) and answer the following: a. List the two most recently issued proposed rules. b. Locate and briefly describe the SEC’s Internet Enforcement Program located under the Enforcement Division.
> According to the FASB website (www.fasb.org) what is the primary function of the FASAC?
> What are the qualities that lie behind rethinking?
