Questions and Answers of Principles Of Taxation

Zeno, Inc. sold two capital assets in 2023. The first sale resulted in a $53,000 capital loss, and the second sale resulted in a $25,600 capital gain. Zeno was incorporated in 2019, and its tax
Keiji Jones is the owner of a small retail business operated as a sole proprietorship. During 2022, his business recorded the following items of income and expense: a. Compute taxable income
On April 1, 2023, Bullen Company transferred machinery used in its business to Eaton, Inc. in exchange for Eaton common stock. Both Bullen and Eaton use the calendar year for tax purposes. Bullen’s
On June 2, 2022, a tornado destroyed the building in which FF operated a fast-food franchise. FF’s adjusted basis in the building was $214,700. In each of the following cases, determine FF’s
On January 10, 2020, a fire destroyed a warehouse owned by NP Company. NP’s adjusted basis in the warehouse was $530,000. On March 12, 2020, NP received a $650,000 reimbursement from its insurance
Herold had been a calendar year S corporation since 1990. On October 10, 2023, Mrs. Hughes sold 18 shares of Herold stock to a foreign partnership, thereby terminating Herold’s S election.
On March 1, 2023, Eve and Frank each contributed $30,000 cash to the newly formed EF Partnership in exchange for a 50 percent general interest. The partnership immediately borrowed $50,000 from an
Calculate the total Social Security and Medicare tax burden on a sole proprietorship earning 2023 profit of $300,000, assuming a single sole proprietor with no other earned income.
In 2023, Wilma Way’s sole proprietorship, WW Bookstore, generated $120,000 net profit. In addition, Wilma recognized a $17,000 Section 1231 gain on the sale of business furniture. The business
For 2023, Ms. Deming earned wages totaling $225,000. Calculate any .9 percent additional Medicare tax owed, assuming that.a. Ms. Deming is single. b. Ms. Deming files a joint return with her
Rochelle is a limited partner in Megawatt Partnership. For 2023, her Schedule K-1 from the partnership reported the following share of partnership items: a. Calculate the net impact of the given
Jayanthi and Krish each own a 50 percent general partner interest in the JK Partnership. The following information is available regarding the partnership’s 2022 activities:a. Calculate the
On December 10, 2022, the representative of a national charitable organization contacted the CEO of Wilkie, Inc., a calendar-year, accrual basis corporation, to solicit a $100,000 donation. The CEO
Duka Corporation has the following adjusted financial statement income for the three years preceding 2023:Is Duka subject to the corporate AMT for 2023? Support your answer by computing Duka’s
Hallick, Inc. has a fiscal year ending June 30. Taxable income was $5,000,000 for its year ended June 30, 2018, and it projects similar taxable income for its 2023 fiscal year.a. Compute Hallick’s
For 2023, Sevilla Corporation’s AFSI exceeds its regular taxable income, yet it owes no AMT. Can you explain this result?
In 2022, NB, Inc.’s federal taxable income was $242,000. Compute the required installment payments of 2023 tax in each of the following cases:a. NB’s 2023 taxable income is $593,000. b.
Bangura, Inc. has regular taxable income of $932,500,000 and AFSI of $1,437,100,000. Compute Bangura’s regular tax liability, tentative minimum tax, AMT (if any) and total tax due.
The Chungs are married with one dependent child. They report the following information for 2023: Compute AGI, taxable income, and total tax liability (including self-employment tax). Assume that
Ortega Corporation wants to open a branch operation in eastern Europe and must decide between locating the branch in either Country R or Country S. Labor costs are substantially lower in Country R
Jumper, Inc., which has a 21 percent tax rate, owns 40 percent of the stock of a CFC. At the beginning of 2022, Jumper’s basis in its stock was $660,000. The CFC’s 2022 income was $1 million,
Determine Lilly’s 2023 filing status in each of the following independent cases: a. Lilly and Paul have been living together since 2021. They were married on December 13, 2023. b. Lilly
Determine Juan’s 2023 filing status in each of the following independent cases:a. Juan and his spouse were divorced on November 18. Juan has not remarried and has no dependent children. b.
This year, publicly held Corporation DF paid its PFO a $1.4 million salary, only $1 million of which was deductible. It also accrued a $200,000 liability for deferred compensation payable in the year
In 2021, Mr. Dale paid $47,600 for 3,400 shares of GKL Mutual Fund and elected to reinvest his year-end dividends in additional shares. In 2021 and 2022, he received Form 1099s reporting the
On September 30, 2018, Stalling, Inc. issued 2,000 shares of its publicly traded stock as compensation to its employee, Harry. On the date of issuance, the stock’s fair market value was $40,000.
Mr. and Mrs. Lay’s taxable income is $779,000, which includes a $22,030 dividend on their investment in Rexford Mutual Fund. Mr. and Mrs. Lay’s marginal rate on ordinary income is 37 percent, and
In 2014, BB granted an incentive stock option (ISO) to Raul to buy 8,000 shares of BB stock at $7 per share for 10 years. At date of grant, BB stock was trading on the AMEX for $6.23 per share. In
In 2021, Mrs. Ulm paid $80,000 for a corporate bond with a $100,000 stated redemption value. Based on the bond’s yield to maturity, amortization of the $20,000 discount was $1,512 in 2021, $1,480
MN’s compensation package for its PEO consisted of a $600,000 salary plus $200,000 unfunded deferred compensation. The PEO will receive the $200,000 upon retirement in 2027. The PEO is also a
On January 12, 2021, Mr. and Mrs. Nixon moved out of their old residence (where they had lived for 22 years) and into a new residence purchased nine days earlier on January 3. They finally sold their
Percy Wilson is a calendar year taxpayer. What is the unextended filing date of Percy Wilson’s 2023 federal income tax return if.a. Percy Wilson, Inc. is a corporation? b. Mr. Percy Wilson is
Mr. and Mrs. Kim Soo use a fiscal year ending July 31 as the taxable year for filing their joint Form 1040. a. What is the last date on which the Soos can apply for an automatic extension of
Egolf Corporation failed to include $300,000 of taxable interest income on its 2022 calendar year Form 1120. The gross income reported on the return was $4.7 million, and the return was filed on
LZ Corporation uses a fiscal year ending September 30. The controller filed LZ’s Form 1120 for the year ending September 30, 2023, on October 23, 2023.a. What is the last day on which the IRS may
Ms. Schmidt didn’t request an extension of time to file a 2022 income tax return and didn’t mail the completed return to the IRS until August 8, 2023. Ms. Schmidt enclosed a check for $2,380, the
Corporation VB was formed in 2023. Immediately prior to year-end, VB is considering a $500,000 deductible expenditure. It can either make the expenditure before the end of 2023, or wait until 2024.
Company Y began business in February 2023. By the end of the calendar year, it had billed its clients for $3.5 million of services and had incurred $800,000 of operating expenses. As of December 31,
Moleri, an accrual basis corporation with a fiscal taxable year ending on July 31, owns real estate on which it pays annual property tax to Madison County, Texas. The county assesses the tax for the
Brillo Company uses the calendar year and the cash method of accounting. On December 29, 2023, Brillo made the following cash payments. To what extent can Brillo deduct the payment in 2023? a.
Warren Company is a calendar year, cash basis firm. On December 6, 2023, Warren paid $7,200 cash to a landscape service business that maintains the lawns and gardens around Warren’s headquarters.
Wahoo, Inc., a calendar year taxpayer, leases equipment to a customer for $4,500 monthly rent. On November 27, 2023, Wahoo received a $36,000 rent payment for the eight-month period beginning on
GreenUp, a calendar year, accrual basis taxpayer, provides landscaping installation and maintenance services to its customers. In August 2023, GreenUp contracted with a university to renovate its
Parmco, a calendar year corporation, made the following accruals for 2023 financial statement purposes. In each case, determine how much of the accrued expense is deductible on Parmco’s 2023
On May 12, 2022, Nelson, Inc. purchased eight passenger automobiles for its business. Nelson did not make a Section 179 election to expense any portion of the cost of the automobiles, which are
Herelt, Inc., a calendar year taxpayer, purchased equipment for $383,600 and placed it in service on April 1, 2023. The equipment was seven-year recovery property, and Herelt used the half-year
Extronic, a calendar year, accrual basis corporation, reported a $41,900 liability for accrued 2022 state income tax on its December 31, 2022, balance sheet. Extronic made the following state income
MG is an accrual basis corporation. In 2022, it wrote off a $65,000 account receivable as uncollectible. In 2023, it received a $65,000 check from the creditor in full payment of this
In March 2022, Jones Company purchased a Mercedes for use in its business at a cost of $73,000. Assuming no bonus depreciation or Section 179 deduction, calculate the allowable tax depreciation on
Margo, a calendar year taxpayer, paid $1,580,000 for new machinery (seven-year recovery property) placed in service on August 1, 2023. a. Assuming that the machinery was the only tangible
In 2023, Firm L purchased machinery costing $21,300 and elected to expense the entire cost under Section 179. How much of the expense can Firm L deduct in each of the following cases?a. Its taxable
Loni Company paid $1,167,000 for tangible personalty in 2022 and elected to expense $1,080,000 of the cost (the limited dollar amount for 2022). Loni’s taxable income before a Section 179 deduction
At the beginning of its 2023 tax year, Hiram owned the following business assets:On July 8, Hiram sold its equipment. On August 18, it purchased and placed in service new tools costing $589,000;
In April 2023, Lenape Corporation completed security, fire, and heating system improvements to existing nonresidential real property with a total cost of $1,285,000. Assuming these improvements are
Visit the website for the Congressional Budget Office (www.cbo.gov), follow the link to Budget and Economic Information, and look up the most current Monthly Budget Review. What is the CBO’s
Visit the website for the Tax Foundation (www.taxfoundation.org). Select the link “About Us” to read the organization’s mission statement. Select the link “Tax Topics” to research the
Mr. and Mrs. Khalid’s taxable income from their business has been stable for the past five years, and their average federal income tax rate has ranged between 22 and 24 percent. Because of a boom
Using the 2023 corporate tax rate, a. What are the tax liability, the marginal tax rate, and the average tax rate for a corporation with $248,300 taxable income?b. What are the tax liability,
Mr. Fuentes has $15,000 to invest. He is undecided about putting the money into tax-exempt municipal bonds paying 3.5 percent annual interest or corporate bonds paying 4.75 percent annual interest.
Visit the website for the Tax Foundation (www.taxfoundation.org). Select the link “About Us” to read the organization’s mission statement. Select the link “Tax Topics” to research the
Mrs. Palencia, a resident of Rhode Island, traveled to Delaware to purchase an oil painting from a local artist. The cost of the painting was $9,400. Rhode Island has a 7 percent sales and use tax,
Visit the website for the Congressional Budget Office (www.cbo.gov), follow the link to Budget and Economic Information, and look up the most current Monthly Budget Review. What is the CBO’s
Ms. Valdez is considering investing $20,000 in a new business and projects that this investment should generate $3,000 income each year. In estimating the tax on this future income stream, should Ms.
Ms. Benoit is a self-employed architect who earns $300,000 annual taxable income. For the past several years, the tax rate on this income has been 35 percent. Because of recent tax law changes, Ms.
Ms. Vincent resides in a jurisdiction with a 35 percent income tax. Ms. Vincent is considering two options: invest $40,000 in bonds paying 8 percent annual interest or spend the $40,000 on a new
Mrs. Esposito, a petroleum engineer, earns an $83,000 annual salary, while Mr. Esposito has no earned income. Under current law, the couple pays 20 percent in state and federal income tax. Because of
Mrs. King, a single taxpayer, earns a $42,000 annual salary and pays 15 percent in state and federal income tax. If tax rates increase so that Mrs. King’s annual tax rate is 20 percent, how much
Firm B wants to hire Ms. Ali to manage its advertising department. The firm offered Firm B wants to hire Ms. Ali to manage its advertising department. The firm offered Ms. Ali a three-year employment
Mrs. Oliver is negotiating to purchase a tract of land from DC Company, a calendar year taxpayer. DC bought this land six years ago for $480,000. According to a recent appraisal, the land is worth
Mrs. Zhang is about to begin a new business activity and asks you if she can reduce taxable income by operating the activity as a corporation rather than as a sole proprietorship. How do you answer
Ms. Jolly recently made a gift to her 19-year-old daughter, Alison. Ms. Jolly’s marginal income tax rate is 37 percent, and Alison’s marginal income tax rate is 12 percent. In each of the
Mr. and Mrs. Jerald own a dry cleaning business that generates $125,000 taxable income each year. For the past few years, the couple’s federal tax rate on this income has been 32 percent. Congress
Using the 2022 corporate tax rate,a. What are the tax liability, the marginal tax rate, and the average tax rate for a corporation with $248,300 taxable income?b. What are the tax liability, the
Ms. Zelda has decided to invest $75,000 in state bonds. She could invest in State A bonds paying 5 percent annual interest or in State R bonds paying 5.4 percent annual interest. The bonds have the
Mr. Tanis is considering a strategy to defer $10,000 income for five years with no significant opportunity cost. Discuss the strategic implications of the following independent assumptions:a. Mr.
Describe two advantages of using an online database to conduct tax research.
Corporation VB was formed in 2022. Immediately prior to year-end, VB is considering a $500,000 deductible expenditure. It can either make the expenditure before the end of 2022, or wait until 2023.
Company Y began business in February 2022. By the end of the calendar year, it had billed its clients for $3.5 million of services and had incurred $800,000 of operating expenses. As of December 31,
For many years, Mr. Kane, the president of KJ, Inc., took the corporation’s most important clients golfing at The Links Golf Club several times a year. However, after the tax law was amended to
Besito Company, a calendar year, cash basis taxpayer, leases lawn and garden equipment. During December, it received the following cash payments. To what extent does each payment represent current
Firm F is a cash basis legal firm. In 2021, it performed services for a client, mailed the client a bill for $6,150, and recorded a $6,150 receivable. In 2022, Firm F discovered that the client was
Nunez Company, a retail hardware store, began business in August and elected a calendar year for tax purposes. From August through December, Nunez paid $319,000 for inventory to stock the store.
Calculate the total Social Security and Medicare tax burden on a sole proprietorship earning 2022 profit of $300,000, assuming a single sole proprietor with no other earned income.
Heliot Company operates its business in State H, which levies a 6 percent sales and use tax. This year, Heliot purchased a $600,000 item of tangible property in State K and paid $18,000 sales tax to
TRW, Inc. began business in 2021 and incurred net operating losses for its first two years. In 2023, it became profitable. The following table shows TRW’s taxable income before consideration of
In 2021, AS, an accrual basis corporation, contracted with a nationally prominent artist to paint a mural in the lobby of the new corporate headquarters under construction. The artist’s commission
Extronic, a calendar year, accrual basis corporation, reported a $41,900 liability for accrued 2021 state income tax on its December 31, 2021, balance sheet. Extronic made the following state income
Grimes Corporation began business in 2017 and incurred losses for its first two years. In 2019, it became profitable. The following table shows Grimes’s taxable income before consideration of its
LSG Company is a calendar year, cash basis taxpayer. On November 1, 2022, LSG paid $9,450 cash to the janitorial service firm that cleans LSG’s administrative offices and retail stores. How much of
On February 1, Mr. Barnes purchased a business from Mr. and Mrs. Sanchez for a lump-sum price of $750,000. The business included the following balance sheet assets:By buying the business, Mr. Barnes
Warren Company is a calendar year, cash basis firm. On December 6, 2022, Warren paid $7,200 cash to a landscape service business that maintains the lawns and gardens around Warren’s headquarters.
BZD, a calendar year corporation, made the following year-end accruals for 2022 financial statement purposes. In each case, determine how much of the accrued expense is deductible on BZD’s 2022
Parmco, a calendar year corporation, made the following accruals for 2022 financial statement purposes. In each case, determine how much of the accrued expense is deductible on Parmco’s 2022
Company N, an accrual basis taxpayer, owes $90,000 to Creditor K. At the end of 2021, Company N accrued $7,740 interest payable on this debt. It didn’t pay this liability until March 3, 2022. Both
Acme is an accrual basis corporation. Mrs. Torres, Acme’s chief financial officer, is a cash basis individual. In December 2021, Acme’s board of directors decided that Mrs. Torres should receive
MG is an accrual basis corporation. In 2021, it wrote off a $65,000 account receivable as uncollectible. In 2022, it received a $65,000 check from the creditor in full payment of this receivable.a.
The Tax Cuts and Jobs Act of 2017 changed the tax treatment of research and experimentation costs incurred after 2021. This change requires capitalization and amortization of costs that previously
Ms. Drake sold a business that she had operated as a sole proprietorship for 18 years. On the date of sale, the business balance sheet showed the following assets:The purchaser paid a lump-sum price
Mr. and Mrs. Fabrizio, a retired couple, decided to open a family restaurant. During March and April, they incurred the following expenses:Mr. and Mrs. Fabrizio served their first meal to a customer
At the beginning of its 2022 tax year, Hiram owned the following business assets:On July 8, Hiram sold its equipment. On August 18, it purchased and placed in service new tools costing $589,000;

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