Questions and Answers of Fundamentals Taxation 2019

Explain the role of a questionnaire in the research process. What should be the role of the client during the questionnaire development process?
What makes a question bad? Develop three examples of bad questions. Rewrite your examples so they could be judged as good questions.
Unless needed for screening purposes, why shouldn't demographic questions be asked up front in questionnaires?
Hanifah is the operating manager for Flowers Now, Inc. (FNI). FNI grants 1,000 incentive stock options to Hanifah on February 1, Year 8, when the stock has a fair market value of $135 per share. The
Currently, Sadie has $$100,000$ in her qualified pension plan and $$250,000$ in her IRA account. Sadie is 58 and would like to retire but is concerned about the tax consequences of withdrawing
Dennis and Sharon, ages 67 and 65, respectively, are going to retire at the end of the year. They will be collecting Social Security benefits (SSBs) of $$22,000$.They feel they need more than
Paige Mason recently became your client, and she would like you to prepare her tax return for the current year. While reviewing the previous three years returns, you notice that her income does not
Pasquel is a salesman for Champions Sporting Goods Store which has several stores in the Midwest and Pacific Northwest. Every year, the owner of Champions takes all the salespeople on a fishing trip
Ed and Lita, age 68 and 65 respectively, are retired and collect the following income:a. What are Ed and Lita’s taxable Social Security benefits (SSBs)?b. If Lita’s pension is $25,000, what are
Harry and Sally Wentz, ages 35 and 34 respectively, have been married for ten years and have two children, Henry and Sandy, ages 4 and 3 respectively.Both Harry and Sally work and the children are in
Briefly describe the three categories that activities can be divided into.
If Roger would like to own his own business as a sole proprietor, what form will he use to report his income and expenses?
Garth owns a farm in rural Iowa producing corn and soybeans.What form will Garth use to report his farming activity?
Nassif has his own recording studio business and has purchased equipment that will be used in the studio for the next several years. Is the equipment deductible immediately? Ignore the effect of
Why are bribes, fines, and penalties not deductible for tax purposes?
Genesis Company has a life insurance policy on its owner for $$1$ million. Genesis makes life insurance premium payments of $$280$ per month. Can Genesis deduct the life insurance premium
What do the phrases “for AGI” and “from AGI” mean?
If the standard deduction for a couple filing a joint tax return is $$27,700$ in 2023 but their itemized deductions only total $$20,000,$ is the couple receiving any benefit from the itemized
Can personal expenses be deducted for AGI, as an itemized deduction, or both?
Explain economic performance.
Hank has his own construction business which uses the accrual method of accounting with a calendar year end. Hank has agreed on December 31, Year 2 to pay his employees a bonus on February 1, Year
When can a business deduct a prepaid expense under the cash method of accounting?
Farmer Fred owns property in Colorado that is used for ranching. Describe the tax difference if Fred repairs various sections of the fence versus replacing the whole fence.
Do small businesses have to account for inventory under the accrual method of accounting?
In order for a business expense to be deductible, it must be:a. Ordinaryb. Necessaryc. Reasonabled. All of these
Deductions for an owner of a rental apartment building who does not provide substantial services are reported on which of the following forms?a. Schedule Cb. Schedule Ac. Schedule Ed. Schedule F
Which of the following is an allowable personal expense deduction?a. Groceriesb. Charitable contributionsc. Utility billd. Fuel for personal use automobile
Which of the following is a deductible expense for an illegal drug trafficking business?a. Cost of goods soldb. Salaries to bodyguardsc. Advertisingd. Office expenses
A deduction is allowed for which of the following business expenses?a. Bribesb. Finesc. Entertainmentd. Meals
Which of the following expenses is deductible for federal tax purposes?a. A fine paid due to violation of federal safety standards.b. Contributions made to a political organization.c. Pest control
Which of the following is allowed as an itemized deduction?a. Student loan interestb. Individual retirement account contributionc. Medical expensesd. Management fee paid for rental property
Allowable methods of accounting includea. Cashb. Accrualc. Hybridd. All of these
Sanjay took out a loan on November 1, Year 1, for $$100,000$ to purchase inventory for his clothing store, which he operates as a cash-basis sole proprietorship. His annual interest rate is 6%. On
Which of the following can be expensed?a. Replacing a small section of a roofb. Replacing a HVAC systemc. Remodeling the interior of your clothing stored. Replacing the machinery used on an assembly
A business can use LIFO in identifying inventory costs whena. FIFO is used for financial reporting purposesb. LIFO is used for financial reporting purposesc. Specific identification method is used
The cash-basis method of accounting is allowed whena. gross receipts do not exceed $29 million.b. assets do not exceed $29 million.c. inventory does not exceed $29 million.d. None of these
Describe when a personal expense might be deductible.
Clare Voyant is a therapist and political activist. She has paid the following expenses in her role as a therapist and political activist.What payments can Clare deduct on her tax return? Funeral
Explain why a deduction for AGI is typically better than a deduction from AGI?
Describe when the all-events test has been satisfied.
What must the taxpayer do to elect the de minimis safe harbor to expense outlays for lower cost items?
What type of assets does UNICAP apply toward and provide three examples of costs that must be capitalized under the UNICAP rules.
Classify the following expenses as being associated with a business, investment, or personal activity. Indicate whether each expense is deductible.a. Purchase of a dishwasher for your kitchenb.
Gladius Graham (SSN: 123-45-6789) owns a roller-skating rink as a sole proprietor in Aurora, IL named Roll with Me. She has provided the following information for the current tax year:Complete
Jose Taquia (SSN: 123-45-6789) owns and actively manages a two flat rental apartment in Flagstaff, AZ. The property is rented for 365 days. He has provided the following information:Complete Schedule
Dean is preparing his individual tax return and needs guidance on what is deductible. He works for a grocery store and dabbles in trading stock in his free time. Dean provides the following
Jasmine owns an art gallery that provides up and coming artists a place to display their work. She has frequent gallery events and recently had the following expenses:Which expenses can Jasmine
Hal Capone owns several businesses in the downtown area. One business he owns is a restaurant that also provides illegal cash laundering services. Hal had the following tax items this year:a. Which
Carissa is the Chief Technology Officer for her employer, Greenfree, Inc. Carissa is a highly paid employee and valued for her expertise. Greenfree has a life insurance policy on Carissa for $1
Nico owns a home and has secured a mortgage of $$300,000. He$ was recently laid off and could not make his mortgage payments nor pay his real estate taxes. The mortgage interest expense is
DaShawn recently took out a loan for $20,000 and used the proceeds to invest 60% in stock that pays dividend income and 40%in municipal bonds which pay interest income. The interest expense generated
BeSafe Company produces personal protective equipment in Atlanta, GA. They have the following revenue and expenses:BeSafe has substantiation for only 55% of the travel. What is BeSafe Company’s
Identify the following as either deductions for AGI or itemized deductions (from AGI):a. State income taxb. Charitable contributionsc. Student loan interest expensed. Sales taxe. IRA contribution
On November 2, 2023, Dirty Company, a calendar year, cash-basis taxpayer, paid an $9,900 premium to acquire a casualty insurance policy on its business assets.a. If the policy has a one-year term
On November 1, 2023, Pablo Company, which is a calendar year, cash-basis taxpayer, borrowed $200,000 from National Bank at 3.2% interest per year. On December 22, 2023, Pablo Company paid$6,400 to
BlueJay Company, a calendar year accrual basis taxpayer, has its busy season at the end of the year and typically hires an additional 50 temporary workers. The temporary workers complete their work
The agency that provided the temporary workers did not provide an invoice by the end of the year. Based on the number of hours worked, BlueJay calculated that the invoice would be $$45,000.$
SafeNow is an accrual-based calendar year corporation that manufacturers, sells, and installs sprinkler systems in commercial buildings. The price of the system includes two free service calls. The
GridIron Company, a calendar year business, employs 75 employees. On December 1, 2023, it decided that it will pay bonuses to all its employees. Each employee will receive their $$2,000$ bonus on
Buck is a cattle rancher in Wyoming and owns 20,000 acres. His gross income for the current year is $$125,000.$ Buck spent $$35,000$ for soil and water conservation expenditures under a plan
During the current tax year, a calendar-year farmer purchased a 6-month supply of feed for $$12,000$ and purchased $$5,000$ of seed that she plans to use in the subsequent spring planting season.
Draper has paid the following expenses while operating his phone repair shop:What can be expensed immediately rather than be capitalized? Ignore bonus depreciation and Section 179 expensing explained
Jermaine owns an auto body shop and has average gross receipts of $$1,200,000$ for the last three years. At the beginning of the current year, his inventory had a value of $$165,000.$ He
BB Company is a manufacturer of guns. At the end of the current tax year, its inventory had the following values:BB uses the FIFO method to value its inventory. What value should be used for the
Lee is a 48-year-old nurse who earns an annual salary of $$87,000.$ His employer provides group-term life insurance coverage equal to twice the annual salary for all employees. The annual amount of
Which of the following do the discrimination rules not apply to?a. Working condition fringe benefitb. Transportation and parking fringe benefitc. Lodging on the employer’s premisesd. The
Marco works three jobs part time to help support his family. He works at two different restaurants as a waiter and as a clerk at a grocery store. Restaurant A paid him $$15,600$ in salary and Marco
Dominique works for a large retail store in the sporting goods department. She received the following payments in the current year through her employer:• Wages $55,000• Box seats to the Miami
Desmond works for an employer who provides health and dental insurance as well as short and long-term disability insurance.The employer paid the following this year on Desmond’s behalf:How much
Francis purchased short-term and long-term disability insurance and paid monthly premiums of $$195.$ In April, Francis contracted COVID-19 and was unable to work for three months while he
Short-term and long-term disability insurance were purchased for Francis and monthly premiums of $$195$ were paid. In April, Francis contracted COVID-19 and was unable to work for three months
Gargoyle Inc. purchased a life insurance policy on its top four executive officers and continues to pay the premiums on these policies. In August, Gargoyle’s CFO died, and the company received
Roger is a well-paid shift manager at a high-end hotel in St. Louis. He is classified as a highly compensated individual. Roger receives reimbursement for his parking of $$265$ a month and also
Indicate which of the following are taxable fringe benefits or nontaxable fringe benefits provided by an employer.a. Coffee while workingb. Employer contribution to an employer-sponsored pension
Indicate which of the following benefits provided to the employees must be included in taxable income?a. SKY Airlines allows employees to fly for free if seats have not been sold within 15 minutes of
Anthony is a volunteer EMT in his small hometown and he works two weekends a month. This year, Anthony received a length of service award of $5,000. Is this award taxable to Anthony and, if so, how
Employees at Carnes & Youngberg, CPAs work long hours during tax season and often do not leave until 10pm. Carnes & Youngberg typically cater two meals a week for its employees on these long nights.
Kelly works for a computer manufacturer, MBI Company.MBI allows its employees to receive one free computer each year.Kelly selected a laptop which retails for $$2,400$ with a cost of $$1,600$ to
Imamu works for a law firm in downtown Chicago as a senior manager. He takes the train for his commute into the city and pays for a monthly train pass of $$350.$ The firm reimburses Imamu $$350.$
Zaire’s employer provided the following to him in the current year:• Dependent care assistance for his son of $5,000• Educational assistance of $10,000 for two graduate courses that Zaire
Luther’s employer provided the following to him in the current year:• Retirement advice service, $125• Moving expense reimbursement when Luther moved from Illinois to Alabama, $2,200•
Eleanor works for Maids R Us (MRU), a commercial cleaning service. MRU offers its employees a choice of benefits to choose from up to $10,000 as follows:What are the tax consequences of the cafeteria
Carlotta receives 150 incentive stock options from her employer in Year 1 when the underlying stock has a value of $$22$ per share. In Year 2, she exercises all the options at the option price of
Preston received 100 nonqualified stock options (each option allows the right to purchase 20 shares of Sport Inc. stock for $$15$ per share) at the time he started working for Sport Inc. on January
Friends, Inc. grants 200 stock options to Phoebe, its CEO, on February 1, Year 2 when the stock has a fair market value of $$85$ per share. The terms are as follows:• Exercise price is $$110$
Darlene works for a real estate company that buys and sells homes. Darlene submitted the following substantiated expenses for reimbursement:• Business meals with prospective buyers $980• Gift
Donald and Daisy, age 44 and 42 respectively, each have an IRA and make contributions yearly. Assume that the total earnings shown below is equivalent to modified AGI. They both are active
Akina and Russ are both 33 years old and file a joint tax return. Akina works at a hospital and participates in a qualified retirement plan through the hospital. Russ is a bartender and does not
Ángel and Emilia file a joint return, participate in qualified retirement plans at work, and have modified AGI of $222,000.a. How much can Ángel and Emilia contribute to a Roth IRA?b. How much can
Bernice is a partner in a firm that has a pension plan. At age 62, an employee who retires can receive an annual benefit equal to:3% × the number of years employed at firm × average salary for last
Duke is the plant manager for a manufacturing company and has an annual salary of $142,000. He is 59 years old and wishes to maximize his contribution to his 401(k) plan. His employer has agreed to
Yiling is 32 years old and has worked for his employer for 8 years. His employer offers a simplified employee pension (SEP).a. If Yiling earns a salary of $100,000, what is the maximum contribution
Ashton is 45 years old and single and works for Ten Company. She has participated in her company’s qualified retirement plan for the last 20 years. Ashton resigned from her position as a manager at
Reginald retired 7 years ago and reached age 73 last year in 2023. His required minimum distribution from his traditional IRA is $26,000 this year. If Reginald does not have these funds distributed
Nellie purchased an annuity contract 12 years ago for $$225,000$ that will pay her $$2,500$ per month when she turns age 68 for the rest of her life. She received her first annuity payment in
Keith and Diane, age 70 and 68 respectively, have the following income items:• Pension distribution: $$25,000$• Municipal bond interest income: $$1,000$• Social Security benefits:
Pauline is single and had the following tax information for the current tax year:• Pension income: $60,000• Social Security benefit: 17,500• Tax-exempt interest: 3,300 How much of her SSB must
Santos works for PBA Inc. located in Cincinnati, OH. PBA has a branch office located in Munich, Germany of which Santos is the manager. Santos earned a salary of $227,000 in 2023 in Germany.He paid
Carol is employed for Global Network Inc. (GNI) and works in both the U.S. and Sweden. Carol arrived in Sweden on January 14, 2023 and returned to the U.S. on December 29, 2023.Assume that she is a
The Jackson family recently participated in the game show Family Feud. The family won $$21,370$ in cash and a Jeep Grand Cherokee valued at $$32,500.$ The Jackson family does not think the money

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