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Questions and Answers of
Business Law
Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New York to discuss acquiring a bakery. Stanford does
In 2016, Gray Corporation, a calendar year C corporation, holds a $75,000 charitable contribution carryover from a gift made in 2011. Gray is contemplating a gift of land to a qualified charity in
On December 23, 2016, 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
On November 4, 2014, Blue Company acquired an asset (27.5-year residential real property) for $200,000 for use in its business. In 2014 and 2015, respectively, Blue took $642 and $5,128 of cost
Debra acquired the following new assets during 2016:Determine Debra's cost recovery deductions for the current year. Debra does not elect immediate expensing under § 179. She does not claim any
Janice acquired an apartment building on June 4, 2016, for $1.6 million. The value of the land is $300,000. Janice sold the apartment building on November 29, 2022. a. Determine Janice's cost
Sandstorm Corporation decides to develop a new line of paints. The project begins in 2016. Sandstorm incurs the following expenses in 2016 in connection with the
Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $400,000 on May 20, 2016. Lori expects the taxable income derived from her business (without regard to
Olga is the proprietor of a small business. In 2016, 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
On June 5, 2015, Dan purchased and placed in service a 7-year class asset costing $550,000. Determine the maximum deductions that Dan can claim with respect to this asset in 2015 and 2016.
Jabari Johnson is considering acquiring an automobile at the beginning of 2016 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
On October 15, 2016, 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 2016. He used the car 80% of the time for
On June 5, 2015, 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.
On May 28, 2016, 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 2016. In 2017, the usage changed
In 2016, Muhammad purchased a new computer for $16,000. The computer is used 100% for business. Muhammad did not make a § 179 election with respect to the computer. He does not claim any available
Tabitha sells real estate on March 2 for $260,000. The buyer, Ramona, pays the real estate taxes of $5,200 for the calendar year, which is the real estate property tax year. Assume that this is not a
Hamlet acquires a 7-year class asset on November 23, 2016, for $100,000. Hamlet does not elect immediate expensing under § 179. He does not claim any available additional first-year depreciation.
Lopez acquired a building on June 1, 2011, for $1 million. Calculate Lopez's cost recovery deduction for 2016 if the building is: a. Classified as residential rental real estate. b. Classified as
In 2016, McKenzie purchased qualifying equipment for his business that cost $212,000. The taxable income of the business for the year is $5,600 before consideration of any § 179 deduction. Calculate
On April 5, 2016, Kinsey places in service a new automobile that cost $36,000. He does not elect § 179 expensing, and he elects not to take any available additional first-year depreciation. The car
Gray Chemical Company manufactured pesticides that were toxic. Over the course of several years, the toxic waste contaminated the air and water around the company's plant. Several employees suffered
In 2012, Jed James began planting a vineyard. The costs of the land preparation, labor, rootstock, and planting were capitalized. The land preparation costs do not include any nondepreciable land
Juan owns a business that acquires exotic automobiles that are high-tech, state-of-the-art vehicles with unique design features or equipment. The exotic automobiles are not licensed, nor are they set
1. Regarding the tax treatment of a business's research and experimental (R&E) expenditures, which of the following statements is true? a. A common reason for electing tax deferral for such expenses
Last year Jane identified $50,000 as a nonbusiness bad debt. In that tax year, before considering the tax implications of the nonbusiness bad debt, Jane had $100,000 of taxable income, of which
Rose dies with passive activity property having an adjusted basis of $65,000, suspended losses of $13,000, and a fair market value at the date of her death of $90,000. Of the $13,000 suspended loss
In 2013, John opened an investment account with Randy Hansen, who held himself out to the public as an investment adviser and securities broker. John contributed $200,000 to the account in 2013. John
In 2015, Fred invested $50,000 in a general partnership. Fred's interest is not considered to be a passive activity. If his share of the partnership losses is $35,000 in 2015 and $25,000 in 2016, how
On May 9, 2014, Calvin acquired 250 shares of stock in Aero Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Aero, and it is classified as § 1244 stock (at
Mary's diamond ring was stolen in 2015. She originally paid $8,000 for the ring, but it was worth considerably more at the time of the theft. Mary filed an insurance claim for the stolen ring, but
In the current year, Ed invests $30,000 in an oil partnership. He has taxable income for the current year of $2,000 from the oil partnership and withdraws $10,000. What is Ed's at-risk amount at the
Lucy sells her partnership interest, a passive activity, with an adjusted basis of $305,000 for $330,000. In addition, she has current and suspended losses of $28,000 associated with the partnership
Rhonda has an adjusted basis and an at-risk amount of $7,500 in a passive activity at the beginning of the year. She also has a suspended passive activity loss of $1,500 carried over from the prior
Noah, who has $62,000 of AGI before considering rental activities, has $70,000 of losses from a real estate rental activity in which he actively participates. He also actively participates in another
Esther owns a large home on the East Coast. Her home is surrounded by large, mature oak trees that significantly increase the value of her home. In August 2015, a hurricane damaged many of the trees
Five years ago, Bridget decided to purchase a limited partnership interest in a fast-food restaurant conveniently located near the campus of Southeast State University. The general partner of the
During 2016, John was the chief executive officer and a shareholder of Maze, Inc. He owned 60% of the outstanding stock of Maze. In 2013, John and Maze, as co-borrowers, obtained a $100,000 loan from
Multiple Choice Questions1. Glenn and Mary's house was damaged by a hurricane in 2016. The fair value of their home before the hurricane was $150,000. After the hurricane, the fair value of their
Luciana, a nonshareholder, purchases a condominium from her employer for $85,000. The fair market value of the condominium is $120,000. What is Luciana's basis in the condominium and the amount of
On September 18, 2016, Gerald received land and a building from Frank as a gift. Frank's adjusted basis and the fair market value at the date of the gift are as follows:No gift tax was paid on the
Dan bought a hotel for $2,600,000 in January 2012. In May 2016, he died and left the hotel to Ed. While Dan owned the hotel, he deducted $289,000 of cost recovery. The fair market value in May 2016
Sebastian purchases two pieces of equipment for $100,000. Appraisals of the equipment indicate that the fair market value of the first piece of equipment is $72,000 and that of the second piece of
Sam owns 1,500 shares of Eagle, Inc., stock that he purchased over 10 years ago for $80,000. Although the stock has a current market value of $52,000, Sam still views the stock as a solid long-term
Lisa sells business property with an adjusted basis of $130,000 to her son, Alfred, for its fair market value of $100,000. a. What is Lisa's realized and recognized gain or loss? b. What is Alfred's
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
Arianna's personal residence has an adjusted basis of $230,000 and a fair market value of $210,000. Arianna converts the personal residence to rental property. What is Arianna's gain basis? What is
Peyton sells an office building and the associated land on May 1, 2016. Under the terms of the sales contract, Peyton is to receive $1,600,000 in cash. The purchaser is to assume Peyton's mortgage of
Logan and Johnathan exchange land, and the exchange qualifies as like kind under § 1031. Because Logan's land (adjusted basis of $85,000) is worth $100,000 and Johnathan's land has a fair market
Camilo's property, with an adjusted basis of $155,000, is condemned by the state. Camilo receives property with a fair market value of $180,000 as compensation for the property taken. a. What is
Constanza, who is single, sells her current personal residence (adjusted basis of $165,000) for $450,000. She has owned and lived in the house for 30 years. Her selling expenses are $22,500. What is
Ruth Ames died on January 10, 2016. In filing the estate tax return, her executor, Melvin Sims, elects the primary valuation date and amount (fair market value on the date of death). On March 12,
Terry owns real estate with an adjusted basis of $600,000 and a fair market value of $1.1 million. The amount of the nonrecourse mortgage on the property is $2.5 million. Because of substantial past
Ted and Marvin Brown purchased an apartment building in 2005 as equal tenants in common. After a hectic decade of co-ownership, the brothers decided that their business association should be
Many see the "step-up in basis at death" rule of § 1014 as an expensive tax loophole enjoyed by the wealthy. Find the latest estimates of the revenue loss to the Treasury that is attributable to
In general, the 45-day identification period and the 180-day exchange period for like-kind exchanges cannot be extended. Does this rule change if the like-kind property or the taxpayer involved in
Multiple Choice Questions1. Kellye purchased her home in 2011 for $140,000. After living in it for five years, she sold it in 2016 for $170,000, its market value. What is the tax treatment of the
Dexter owns a large tract of land and subdivides it for sale. Assume that Dexter meets all of the requirements of § 1237 and during the tax year sells the first eight lots to eight different buyers
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
Shelia purchases $50,000 of newly issued Gingo Corporation bonds for $45,000. The bonds have original issue discount (OID) of $5,000. After Sheila amortized $2,300 of OID and held the bonds for four
Olivia wants to buy some vacant land for investment purposes. She currently cannot afford the full purchase price. Instead, Olivia pays the landowner $8,000 to obtain an option to buy the land for
In 2016, Bertha Jarow had a $28,000 loss from the sale of a personal residence. She also purchased from an individual inventor for $7,000 (and resold in two months for $18,000) a patent on a rubber
On December 1, 2014, Lavender Manufacturing Company (a corporation) purchased another company's assets, including a patent. The patent was used in Lavender's manufacturing operations; $49,500 was
Coline has the following capital gain and loss transactions for 2016. Short-term capital gain .................................. $ 5,000 Short-term capital loss ...................................
Elliott has the following capital gain and loss transactions for 2016. Short-term capital gain .................................. $ 1,500 Short-term capital loss
Renata Corporation purchased equipment in 2014 for $180,000 and has taken $83,000 of regular MACRS depreciation. Renata Corporation sells the equipment in 2016 for $110,000. What is the amount and
Jacob purchased business equipment for $56,000 in 2013 and has taken $35,000 of regular MACRS depreciation. Jacob sells the equipment in 2016 for $26,000. What is the amount and character of Jacob's
An apartment building was acquired in 2007. The depreciation taken on the building was $123,000, and the building was sold for a $34,000 gain. What is the maximum amount of 25% gain?
Ali owns 100 shares of Brown Corporation stock. He purchased the stock at five different times and at five different prices per share as indicated.On April 28, 2016, Ali will sell 40 shares of Brown
Siva Nathaniel owns various plots of land in Fulton County, Georgia. He acquired the land at various times during the last 20 years. About every fourth year, Siva subdivides into lots one of the
Perform a Google search to find information about capital gains tax rates worldwide (and across U.S. states). Try searching for: "capital gains rate by country (state)." What jurisdiction has the
Multiple Choice Questions 1. Identify which of the following is a capital asset: I. A canvas painting of a portrait client, in the painter's hands II. Depreciable fixtures in a business parking
In late 2016, 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
Compute the taxable income for 2016 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
Compute the taxable income for 2016 for Emily on the basis of the following information. Her filing status is single.Salary
Compute the taxable income for 2016 for Aiden on the basis of the following information. Aiden is married but has not seen or heard from his wife since 2014.Salary
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
Determine the amount of the standard deduction allowed for 2016 in the following independent situations. In each case, assume that the taxpayer is claimed as another person's dependent. a. Curtis,
Analyze each of the characteristics in considering the indicated test for dependency as a qualifying child or qualifying relative. In the last two columns, after each listed test (e.g. gross income),
Caden and Lily are divorced on March 3, 2015. For financial reasons, however, Lily continues to live in Caden's apartment and receives her support from him. Caden does not claim Lily as a dependent
Compute the 2016 standard deduction for the following taxpayers. a. Margie is 15 and claimed as a dependent by her parents. She has $800 in dividend income and $1,400 in wages from a part-time
For tax year 2016, 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
In 2016, Dominique and Felix are married and file a joint tax return. Their AGI is $314,050 and they claim three exemptions. Determine their total exemption amount for 2016.
Jayden calculates his 2016 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
Paul and Sonja, who are married, had itemized deductions of $8,200 and $400, respectively, during 2016. Paul suggests that they file separately-he will itemize his deductions from AGI, and she will
Compute the 2016 tax liability and the marginal and average tax rates for the following taxpayers (use the 2016 tax rate schedules in Appendix A for this purpose). a. Chandler, who files as a single
George and Aimee are married. George has wage income of $190,000, and Aimee has a sole proprietorship that generated net income of $85,000. They also have interest and dividend income of $21,000.
In 2016, Simon, age 12, has interest income of $800 and dividend income of $4,000. He has no investment expenses. His parents have taxable income of $80,200 and file a joint tax return. Assume that
During the year, Addison is involved in the following transactions: a. Lost money gambling on a recent trip to a casino. b. Helped pay for her neighbor's dental bills. The neighbor is a good friend
Kathy and Brett Ouray married in 1998. They began to experience marital difficulties in 2012 and, in the current year, although they are not legally separated, consider themselves completely
John and Janet Baker are husband and wife and maintain a household in which the following persons live: Calvin and Florence Carter and Darin, Andrea, and Morgan Baker. • Calvin and Florence are
Locate IRS Form 2120 (at www.irs.gov), and answer the following questions. a. Who must sign the form? b. Who must file the form? c. Can it be used for someone who is not related to the taxpayer?
What purpose is served by Form 8857? Read the directions to the form, and see IRS Publication 971 for additional information.
Multiple Choice Questions1. Keller is a single individual who in 2016 qualified for a foreign earned income exclusion of $80,000. Keller's 2016 net investment income was $25,000, and Keller's 2016
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
In late 2015, 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 2016, the year in which the adoption
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. Determine the amount of the couple's child tax
Ivanna, who has three children under age 13, worked full-time while her spouse, Sergio, was attending college for nine months during the year. Ivanna earned $28,000 and incurred $9,100 of child care
Patrick and Eva are planning to divorce. Patrick has offered to pay Eva $12,000 each year until their 11-year-old daughter reaches age 21. Alternatively, Patrick will transfer to Eva common stock
Determine the effect on gross income in each of the following cases: a. Eloise received $150,000 in settlement of a sex discrimination case against her former employer. b. Nell received $10,000 for
Sarah, who is single, is retired. She would like to take on a part-time job to supplement her Social Security benefits. Any income Sarah earns will not reduce her Social Security benefits because she
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