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Business Law
Wes was a major league baseball pitcher who earned $10 million for his 20 wins this year. Sam was also a major league baseball pitcher before a career-ending injury caused by a negligent driver. Sam
Holly was injured while working in a factory and received $12,000 as workers' compensation while she was unable to work because of the injury. Jill, who was self employed, was also injured and unable
Eagle Life Insurance Company pays its employees $.30 per mile for driving their personal automobiles to and from work. The company reimburses each employee who rides the bus $100 a month for the cost
Leonard's home was damaged by a fire. He also had to be absent from work for several days to make his home habitable. Leonard's employer paid Leonard his regular salary, $2,500, while he was absent
The Sage Company has the opportunity to purchase a building located next to its office. Sage would use the building as a day care center for the children of its employees and an exercise facility for
Brad is a single individual with $25,000 in taxable interest income and a salary of $86,000 from working in a foreign country for the past 12 months. What tax rate is applied to Brad's salary in 2014?
Zack is a farmer who buys his feed and fertilizer from a farmer's cooperative. In 2013, Zack purchased $300,000 in feed and fertilizer for the farm and $10,000 of household goods. Because the
Andrea entered into a § 529 qualified tuition program for the benefit of her daughter, Joanna. Andrea contributed $15,000 to the fund. The fund balance had accumulated to $25,000 by the time Joanna
Dolly is a cash basis taxpayer. In 2014, she filed her 2013 South Carolina income tax return and received a $2,200 refund. Dolly took the standard deduction on her 2013 Federal income tax return, but
Ralph has experienced financial difficulties as a result of his struggling business. He has been behind on his mortgage payments for the last six months. The mortgage holder, who is a friend of
Ed, an employee of the Natural Color Company, suffered from a rare disease that was very expensive to treat. The local media ran several stories about Ed's problems, and the family received more than
Determine the gross income of the beneficiaries in the following cases: a. Justin's employer was downsizing and offered employees an amount equal to one year's salary if the employee would
Twenty college fraternity brothers each placed $2,500 in a mutual fund account. They agreed that upon the death of a fraternity brother, his beneficiary would receive $20,000 that was to be paid from
What is the taxpayer's gross income in each of the following situations? a. Darrin received a salary of $50,000 in 2014 from his employer, Green Construction. b. In July 2014, Green gave Darrin an
Donald was killed in an accident while he was on the job in 2014. Darlene, Donald's wife, received several payments as a result of Donald's death. What is Darlene's gross income from the items listed
Ray and Carin are partners in an accounting firm. The partners have entered into an arm's length agreement requiring Ray to purchase Carin's partnership interest from Carin's estate if she dies
The UVW Union and HON Corporation are negotiating contract terms. Assume that the union members are in the 25% marginal tax bracket and that all benefits are provided on a nondiscriminatory basis.
Janice was a cash basis taxpayer. At the time of her death, she was owed $100,000 in accrued salary. Upon Janice's death, the employer was required to pay Wayne, Janice's brother, her accrued salary.
Mauve Corporation has a group hospitalization insurance plan that has a $200 deductible amount for hospital visits and a $15 deductible for doctor visits and prescriptions. The deductible portion
Bertha is considering taking an early retirement offered by her employer. She would receive $3,000 per month, indexed for inflation. However, she would no longer be able to use the company's health
Finch Construction Company provides the carpenters it employs with all of the required tools. However, the company believes that this practice has led to some employees not taking care of the tools
In January 2014, Ezra purchased 2,000 shares of Gold Utility Mutual Fund for $20,000. In June, Ezra received an additional 100 shares as a dividend, in lieu of receiving $1,000 in cash dividends. In
Tonya, who lives in California, inherited a $100,000 State of California bond in 2014. Her marginal Federal tax rate is 35%, and her marginal state tax rate is 5%. The California bond pays 3.3%
Lynn Swartz's husband died three years ago. Her parents have an income of over $200,000 a year and want to ensure that funds will be available for the education of Lynn's 8-year-old son Eric. Lynn is
Starting in 2003, Chuck and Luane have been purchasing Series EE bonds in their name to use for the higher education of their daughter Susie, who currently is age 18. During the year, they cash in
Albert established a qualified tuition program for each of his twins, Kim and Jim. He started each fund with $20,000 when the children were 5 years old. Albert made no further contributions to his
Carey is a waiter at a restaurant that pays a small hourly amount plus tips. Customers are not required to tip the waiter. Carey is especially attentive and friendly, and her tips average 25% of the
Martin S. Albert (Social Security number 111-11-1111) is 39 years old and is married to Michele R. Albert (Social Security number 123-45-6789). The Alberts live at 512 Ferry Road, Newport News, VA
Lime Finance Company requires its customers to purchase a credit life insurance policy associated with the loans it makes. Lime is the beneficiary of the policy to the extent of the remaining balance
Sarah, who has a terminal illness (i.e., one year or less), cashed in her life insurance policy (cost of $24,000 and proceeds of $50,000) to go on an around-the-world cruise (recommended by her
Joe is a graduate student who works as a resident adviser (RA) in the college dormitory. As compensation for serving as an RA, he is not charged the $2,200 other students pay for their dormitory
Murray reported to the Environmental Protection Agency that his employer was illegally dumping chemicals into a river. His charges were true, and Murray's employer was fined. In retaliation, Murray's
Your client, John Butler, is an avid Houston Astros fan. Last March at the Astros' home opener, as a result of a random drawing of those in attendance at the game, John won 300 Shipley Do-Nut
Aubrey Brown is a decorated veteran of the Vietnam War. As a result of his exposure to Agent Orange during the war, Aubrey developed lung cancer and is unable to work. He received $12,000 of Social
Dave uses the second floor of a building for his residence and the first floor for his business. The uninsured building is destroyed by fire. Are the tax consequences the same for each part of the
What is the "actually paid" requirement for the deduction of an expense by a cash basis taxpayer? Does actual payment ensure a deduction? Explain.
Aubry, a cash basis and calendar year taxpayer, decides to reduce his taxable income for 2014 by buying $65,000 worth of supplies for his business on December 27, 2014. The supplies will be used up
What is the significance of the all events and economic performance tests?
Ted, an agent for an airline manufacturer, is negotiating a sale with a representative of the U.S. government and with a representative of a developing country. Ted's company has sufficient capacity
Stuart, an insurance salesperson, is arrested for allegedly robbing a convenience store. He hires an attorney who is successful in getting the charges dropped. Is the attorney's fee deductible?
Aaron has AGI of $85,000 and deductions of $9,500. Does it matter to Aaron whether the deductions are for or from AGI? Why or why not?
What limits exist on the deductibility of executive compensation? Do the limits apply to all types of business entities? Are there any exceptions to the limitations? Explain.
Paul operates a restaurant in Cleveland. He travels to Columbus to investigate acquiring a business. He incurs expenses as follows: $1,500 for travel, $2,000 for legal advice, and $3,500 for a market
Under what circumstances may a taxpayer deduct a rental loss associated with a vacation home?
Karen and Andy own a beach house. They have an agreement with a rental agent to rent it up to 200 days per year. For the past three years, the agent has been successful in renting it for 200 days.
Hank was transferred from Arizona to North Dakota on March 1 of the current year. He immediately put his home in Phoenix up for rent. The home was rented May 1 to November 30 and was vacant during
Ray loses his job as a result of a corporate downsizing. Consequently, he falls behind on the mortgage payments on his personal residence. His friend Ted would like to make the delinquent mortgage
Edna incurs various legal fees in obtaining a divorce. Which types of expenses associated with the divorce are deductible by Edna, and which are not?
Michael earned $20,000 at the K-M Resort Golf Club during the summer prior to his senior year in college. He wants to make a contribution to a traditional IRA, but the amount is dependent on whether
Amos is a self-employed tax attorney. He and Monica, his employee, attend a conference in Dallas sponsored by the American Institute of CPAs. The following expenses are incurred during the
Daniel, age 38, is single and has the following income and expenses in 2014. Salary income .................................................................. $60,000 Net rent income
Janice, age 22, is a student who earns $10,000 working part-time at the college ice cream shop in 2014. She has no other income. Her medical expenses for the year total $3,000. During the year, she
A list of the items that Peggy sold and the losses she incurred during the current tax year is as follows: Yellow, Inc. stock ................................................... $ 1,600 Peggy's
Falcon, Inc., paid salaries of $500,000 to its employees during its first year of operations. At the end of the year, Falcon had unpaid salaries of $45,000. a. Calculate the salary deduction if
Maud, a calendar year taxpayer, is the owner of a sole proprietorship that uses the cash method. On February 1, 2014, she leases an office building to use in her business for $120,000 for an 18-month
Doug incurred and paid the following expenses during the year: • $50 for a ticket for running a red light while he was commuting to work. • $100 for a ticket for parking in a handicapped parking
Trevor, a friend of yours from high school, works as a server at the ST Café. He asks you to help him prepare his Federal income tax return. When you inquire about why his bank deposits
Classify each of the following expenditures as a deduction for AGI, a deduction from AGI, or not deductible: a. Sam gives cash to his father as a birthday gift. b. Sandra gives cash to her church. c.
Amber, a publicly held corporation, currently pays its president an annual salary of $900,000. In addition, it contributes $20,000 annually to a defined contribution pension plan for him. As a means
Vermillion, Inc., a publicly held corporation, pays the following salaries to its executives:Vermillion normally does not pay bonuses, but after reviewing the results of operations for the year, the
Terry traveled to a neighboring state to investigate the purchase of two hardware stores. His expenses included travel, legal, accounting, and miscellaneous expenses. The total was $52,000. He
Harold conducts a business with the following results for the year: Revenue ......................................................... $20,000 Depreciation on car
Samantha, an executive, has AGI of $100,000 before considering income or loss from her miniature horse business. Her outside income comes from prizes for winning horse shows, stud fees, and sales of
Sarah owns a vacation cabin in the Tennessee mountains. Without considering the cabin, she has gross income of $65,000. During the year, she rents the cabin for two weeks for $2,500 and uses it
Adelene, who lives in a winter resort area, rented her personal residence for 14 days while she was visiting Brussels. Rent income was $5,000. Related expenses for the year were as follows: Real
During the year (not a leap year), Anna rented her vacation home for 30 days, used it personally for 20 days, and left it vacant for 315 days. She had the following income and expenses: Rent income
Classify each of the following expenditures as a deduction for AGI, a deduction from AGI, or not deductible: a. Amos contributes to his H.R. 10 plan (i.e., a retirement plan for a self-employed
How would your answer to Problem 49 differ if Anna had rented the house for 87 days and had used it personally for 13 days?
Chee, single, age 40, had the following income and expenses during 2014:IncomeSalary .................................................................. $43,000Rental of vacation home (rented 60 days,
Elisa and Clyde operate a retail sports memorabilia shop. For the current year, sales revenue is $55,000 and expenses are as follows: Cost of goods sold .....................................
During the current year, Robert pays the following amounts associated with his own residence: Property taxes ..................................... $3,000 Mortgage interest
John and Mary Jane Diaz are married, filing jointly. Their address is 204 Shoe Lane, Blacksburg, VA 24061. John is age 35, and Mary Jane is age 30. They are expecting their first child in early 2015.
Larry and Susan each invest $10,000 in separate investment activities. They each incur deductible expenses of $800 associated with their respective investments. Explain why Larry's expenses might be
Nanette is a first-grade teacher. Potential deductions are charitable contributions of $800, personal property taxes on her car of $240, and various supplies purchased for use in her classroom of
List three items that § 162 specifically excludes from classification as a trade or business expense?
Rex and Agnes Harrell purchased a beach house at Duck, North Carolina, in early 2012. Although they intended to use the beach house occasionally for recreational purposes, they also planned to rent
In early 2012, Walter Hodges began investigating the real estate market with the intention of acquiring real estate for investment or rental. He had not previously been involved in any real estate
The $1 million maximum compensation deduction does not seem to have deterred large corporations from remunerating their executives at very high levels. What techniques are being used to work around
Jim discovers that his residence has extensive termite damage. Discuss whether he may take a deduction for the damage to his residence?
Discuss at what point in time a theft loss generally is recognized?
Mary's diamond ring was stolen in 2013. 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
Discuss the circumstances under which the cost of repairs to the damaged property can be used to measure the amount of a casualty loss?
Hazel sustained a loss on the theft of a painting. She had paid $20,000 for the painting, but it was worth $40,000 at the time of the theft. Evaluate the tax consequences of treating the painting as
Discuss the tax treatment when personal casualty gains exceed personal casualty losses?
Amos began a business, Silver, Inc., on July 1, 2011. The business extracts and processes silver ore. During 2014, Amos becomes aware of the domestic production activities deduction (DPAD) and would
The DPAD is unlike other deductions and is designed to provide a tax benefit in a somewhat unique manner? Explain this statement.
Discuss the impact of an NOL on the DPAD?
Several years ago, John Johnson, who is in the lending business, loaned Sara $30,000 to purchase an automobile to be used for personal purposes. In August of the current year, Sara filed for
Mary, a single taxpayer, purchased 10,000 shares of § 1244 stock several years ago at a cost of $20 per share. In November of the current year, Mary received an offer to sell the stock for $12 per
During 2014, someone broke into Jacob's personal residence and took the following items:Jacob is an employee and used the computer 100% of the time in his employment. Although his homeowner's
Heather owns a two-story building. The building is used 40% for business use and 60% for personal use. During 2014, a fire caused major damage to the building and its contents. Heather purchased the
On July 24 of the current year, Sam Smith was involved in an accident with his business use automobile. Sam had purchased the car for $30,000. The automobile had a fair market value of $20,000 before
During the past tax year, Jane identified $50,000 as a non-business bad debt. In that tax year, Jane had $100,000 of taxable income, of which $5,000 consisted of short term capital gains. During the
Red Corporation manufactures hand tools in the United States. For the current year, the QPAI derived from the manufacture of hand tools was $1 million. Red's taxable income for the current year was
Green Corporation manufactures skirts and blouses in the United States. The DPGR derived from the manufacture of one skirt is $12, and the DPGR from one blouse is $10. The cost of goods sold is $5
Nell, single and age 38, had the following income and expense items in 2014: Non-business bad debt .................................... $ 6,000 Business bad debt
Assume that in addition to the information in Problem 43, Nell had the following items in 2014: Personal casualty gain on an asset held for four months ................ $10,000 Personal casualty loss
Mason Phillips, age 45, and his wife, Ruth, live at 230 Wood Lane, Salt Lake City, UT 84101. Mason's Social Security number is 111-11-1111. Ruth's Social Security number is 123-45-6789. Mason and
Sean is in the business of buying and selling stocks and bonds. He has a bond of Green Corporation for which he paid $200,000. The bond is currently worth only $50,000. Discuss whether Sean can take
During 2014, John was the chief executive officer and a shareholder of Maze, Inc. He owned 60% of the outstanding stock of Maze. In 2011, John and Maze, as co-borrowers, obtained a $100,000 loan from
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