Taxation For Decision Makers 2012 Edition Shirley Dennis Escoffier - Solutions

60. Roman Corporation (a calendar-year corporation) purchased and placed in service the following new assets during 2011:DATE PLACED IN SERVICE ASSET DESCRIPTION COST 5/8/11 New automobile $30,000 5/15/11 Used equipment $700,000 10/1/11 Used office furniture $800,000 11/3/11 Warehouse
61. Herald Corporation, a calendar-year taxpayer, purchased and placed the following business assets in service during 2011:ASSET DATE PLACED IN SERVICE INITIAL COST New computer equipment April 3 $50,000 Used office furniture July 14 940,000 Used office fixtures October 29 1,060,000 Herald
49. Is the treatment of purchased goodwill the same for tax and for GAAP?Explain.
31. McDowell Corporation (a calendar-year corporation) purchased and placed in service a new $25,000 automobile on August 15, $300,000 of new furniture on September 1, and a $680,000 warehouse (of which$100,000 is for the land) on November 8. Compute the depreciation deductions for the first two
33. In August, Jimbo Corporation (a calendar-year corporation) purchased used computers for $655,000. These are the only assets Jimbo purchased this year. Jimbo Corporation is in the 34 percent marginal tax bracket and uses a discount rate of 6 percent for evaluation. Assuming that Jimbo makes any
34. On June 26, 2009, Elaine purchased and placed into service a new computer system costing $8,000. The computer system was used 80 percent for business and 20 percent for personal use in both 2009 and 2010.Elaine claimed only regular MACRS depreciation. In 2011, the computer system was used 45
37. Orange Corporation acquires all of the assets of Apple Company for$10,000,000. The fair market value of the tangible assets totaled$8,000,000. The $2,000,000 difference is considered goodwill. Orange Corporation expects to continue its business operations for at least 40 years. What is the
38. Zenon Corporation (a calendar-year corporation) began work on a new experimental project in 2010. It incurred $8,000 in qualifying research expenses in 2010 and $11,000 in 2011. The benefits from the project will be realized beginning in February 2012.a. If Zenon elects a 60-month amortization
42. Nicko Corporation (a calendar-year corporation) purchased a machine(7-year property) in July 2010 for $20,000. Nicko did not elect Section 179 but did claim 50 percent bonus depreciation. In November 2013, Nicko sells the machine. What is the adjusted basis of the machine at the date of sale?
43. Karen is an employee of KF Corporation (a calendar-year taxpayer). In February 2011, KF purchased a new $40,000 car for Karen’s use. During 2011, 2012, and 2013, 60 percent of Karen’s mileage on the car was business related and 40 percent was for her personal driving. Her personal use was
44. Comprehensive Problem for Chapters 4, 5, and 6. Robert, the sole proprietor of a consulting business, has gross receipts of $600,000 in 2011.Expenses paid by his business are Advertising $ 2,500 Employee salaries 150,000 Office rent 24,000 Supplies 18,000 Taxes and licenses 17,000 Travel (other
45. How do you think assets that are acquired and disposed of in the same tax year are handled for depreciation purposes?
1. On October 1, Pembroke Inc. (a cash-basis, calendar-year corporation) borrows$60,000 from the bank at 12 percent annual interest. On December 30, Pembroke pays $7,200 to the bank for the first year’s interest on the loan. How much can Pembroke deduct for interest expense in the current year?a.
16. What are the UNICAP rules, and which businesses do they affect?
18. Explain the advantages and disadvantages of a publicly held company using LIFO for inventory valuation.
24. Elisa spends $1,000 on business lunches to entertain her customers at the local country club. The club charges an annual membership fee of $800.Elisa uses the facility 80 percent of the time for business. Her employer does not reimburse her for any of these expenses. What is her deductible
27. Mark flew from Baltimore to Phoenix on business. He spent four days on business and visited friends for two days before returning home. He stayed at a hotel for the four business days but he stayed at his friend’s home the last two days. He paid the following expenses:Airfare $420 Hotel 500
31. Luis, a self-employed individual, flies from New York to Rome. He spends seven days in Rome on business and stays over in Rome for an additional three days to vacation. Transportation costs incurred were $1,400; his hotel cost $200 per day for a total of $2,000; and his meals cost $100 per day
15. Explain the two-step evaluation process of FIN 48.
14. Which corporations are required to file Schedule M-3? What is the purpose of this schedule?
13. Differentiate permanent differences and temporary differences. Provide examples of each.
3. Howard, a self-employed consultant, uses one room in his home exclusively and regularly for his home office. This office space constitutes 15 percent of the floor space of his home. Howard’s wife works at a bank and is paid an annual salary of $80,000. Howard has gross income from his business
4. Esslinger Corporation has income per books before tax of $300,000.Included in the income per books is $4,000 interest income from taxexempt municipal bonds. Esslinger also deducted $20,000 for meals and entertainment expenses, $3,000 for premiums on officers’ life insurance policies (the
5. Stadler Corporation pays federal income tax at a 34 percent rate. Stadler Corporation reports $100,000 depreciation expense on its financial statements and deducts $140,000 depreciation expense on its tax return.How will Stadler account for the difference between its federal tax liability and
10. How are deductions for expenses of rental property limited if the taxpayer also uses the property as a vacation home?
12. What factors differentiate a hobby from an active business?
55. You rent your beach house to your friend, Sarah. Sarah rents her condo in Aspen to you. You each pay a fair rental price.
59. Gary Sanders owns his own real estate business. He has developed a reputation within the community for honesty and integrity. He believes that this is one of the reasons his firm has been so successful. Gary was a 30 percent shareholder in an unsuccessful fast-food restaurant, Escargotto-Go.
63. Go to the IRS Web site (www.irs.gov) and locate the publication on travel, entertainment, and gifts. Julie plans to attend a business convention in Costa Rica. Her friend told her that she cannot deduct expenses for attending a convention outside of North America. Does Costa Rica qualify as
66. Go to the IRS Web site (www.irs.gov) and print Schedule C: Profit or Loss for Business (Sole Proprietorship), Schedule SE: Self-Employment Tax, and Form 8829: Expenses for Business Use of Your Home. Use the information in problem 45 to complete these forms.
67. Go to the IRS Web site (www.irs.gov) and print the page of Form 1120:U.S. Corporate Income Tax Return that includes Schedule M-1. Use the information in example 38 to complete Schedule M-1.
41. Refer to the information in problem 40 for Arnold Corporation.a. Identify which of Arnold Corporation’s book/tax differences result in a deferred tax asset or a deferred tax liability.b. Prepare the journal entry to record the federal tax expense and federal tax liability for Arnold
42. Makai Corporation has a potential deduction of up to $1,000 that it would like to claim on its current-year tax return. Its tax position meets the recognition threshold of more likely than not, but the deduction cannot be measured by a single amount. The possible outcomes and their
45. Comprehensive Problem for Chapters 4 and 5. Martin, the sole proprietor of a consulting business, has gross receipts of $45,000 in 2011.Expenses paid by his business are Advertising $ 500 Supplies 2,900 Taxes and licenses 500 Travel (other than meals) 600 Meals and entertainment 400 Health
27. Danny’s living room furniture and his flat screen television were damaged in a fire in his home in January 2011. In March 2011, his golf cart was damaged in a flood. He was able to establish the following information to determine his losses on these assets.FMV BEFORE FMV AFTER INSURANCE DATE
28. Cora was in Europe from Thanksgiving of 2010 until early January of 2011. When she returned to her home, she found it had been broken into and jewelry with a fair market value of $40,000 and a basis of $54,000 was missing. Her adjusted gross incomes in 2010 and 2011 are $56,000 and $72,000,
15. What is a corporate reorganization?
14. Explain the tax treatment of services transferred to a partnership in exchange for a partnership interest.
3. The Joneses’ home that they had owned and lived in for 12 years was destroyed in a flood. Fortunately, they had flood insurance that paid$223,000. How much gain must they recognize if they purchase a new home for only $268,000?a. 0b. $12,000c. $45,000d. $57,000
7. What limits are placed on the deductibility of casualty and theft losses of personal-use property in 2011?
9. Explain the functional-use test. Explain the taxpayer-use test.
10. What provisions apply to a personal residence that is subject to an involuntary conversion?
55. Claiborne, Inc. has received an offer to purchase its manufacturing facilities for $7,500,000. If sold, it would have a gain of $5,000,000 on the property.Claiborne has found an ideal location for a new facility, but the only available property is three times as large as it needs. It can,
61. Locate and read Publication 550: Investment Income and Expenses. How do you report a wash sale?
65. The Glades Corporation has located a building that it would like to have for its new warehouse. The corporation has contacted the owner about making a trade for its existing property. The owner of the desired property is only willing to sell the building for cash as he will have little gain on
1. The Chester Corporation has $250,000 of taxable income. It distributes$100,000 of that income as a dividend to its sole shareholder whose other income places him in the 35 percent marginal tax bracket. What is the effective tax rate on the corporation’s $250,000 of taxable income?a. 34
53. Karen purchased her personal auto two years ago from a local new car dealer. Since purchasing the car, she took it into the dealer for major warranty repairs five different times and minor repairs a total of fourteen times. She is so unhappy with the car that one day she just drove the car into
35. Kelly was active in the market, buying and selling stocks for her own account. Below are a series of transactions Kelly initiated during the last quarter of 2011:DATE OF TRANSACTION TRANSACTION NUMBER OF SHARES STOCK PRICE PER SHARE 10/15 Bought 1,000 ABC $25 10/29 Bought 500 DEF $20 11/01 Sold
45. Comprehensive Problem for Chapters 5, 6, 7, and 8. Columbo Corporation, a calendar-year corporation, began business in 2008. With the initial capital contributions from its sole shareholder, it purchased a building on March 12 for $250,000. It also purchased the following items, all used, for
46. Why do you think the specifications for like-kind properties are so different for real property and for personalty?
4. Jonathon sells the computer that he has used 75 percent for business use and 25 percent for personal use for $1,200. The computer cost $4,000 and the allowable depreciation on the computer is $2,200. How much Section 1231 gain or loss does Jonathon recognize?a. $800 gainb. $400 gainc. $100
28. Performance Industries, Inc. sold three pieces of equipment and a small building on March 1, year 6. Data on these disposals are as follows:MACHINE COST DATE ACQUIRED DEPRECIATION SELLING PRICE 1 $45,000 April 24, year 2 $35,000 $19,000 2 $105,000 May 2, year 1 $90,000 $24,000 3 $63,000 June 4,
34. Chester provides you with the following income information for years 1 through 3, exclusive of capital loss carryovers:SHORT-TERM SHORT-TERM LONG-TERM LONG-TERM CAPITAL GAIN CAPITAL LOSS CAPITAL GAIN CAPITAL LOSS Year 1 0 $2,400 $400 $3,500 Year 2 $500 $1,700 $900 $1,000 Year 3 $2,000 $400 $300
17. Charlie sold Whiteacre for $40,000 cash and the buyer assumed Charlie’s$19,000 mortgage on the property. Charlie paid a realtor commission of$2,000 on the sale. What is his realized gain or loss if Whiteacre has an adjusted basis ofa. $47,000?b. $67,000?
16. If an individual taxpayer is in the 15 percent tax bracket, what is the maximum tax rate that applies toa. the initial dollar of gain on an investment bond held for two years?b. the long-term gain on collectibles?c. unrecaptured Section 1250 gain?
5. Mason is an original shareholder of 1,000 shares of Section 1244 stock in Miles Corporation that he acquired four years ago. He has a basis of$65,000 in the stock. The stock has significantly declined in value so he sells it in the current year for $5,000. Identify the amount and type of gain or
2. How is the amount realized on a sale or exchange determined?
12. What tax rates apply to an individual’s long-term capital gains on the sale of stocks, antiques and collectibles, and unrecaptured Section 1250 gains?
13. What is the significance of having stock qualify as Section 1244 stock?
62. Locate at least one article that comments on the problems confronted by tax planners when there is uncertainty regarding the future of capital gains tax rates and/or individual regular tax rates. Summarize the comments and provide a citation for your article.
63. Locate the Schedule D and the accompanying instructions for both an individual and a corporation on the IRS Web site, www.irs.gov. Compare the length of the two forms and the instructions as they appear on the Web site. Summarize your findings.
64. Go to the IRS Web site (www.irs.gov) and print Form 4797: Sales of Business Property. Complete Form 4797 for the following sales of machinery on December 20, year 6:MACHINE COST DATE ACQUIRED COST RECOVERY SELLING PRICE A $45,000 April 24, year 2 $25,000 $25,000 B $75,000 March 5, year 1
65. Go to the IRS Web site (www.irs.gov) and print Schedule D for Form 1040. Compute the net effect of the following asset sales on Gineen Tibeau’s taxable income using Schedule D:a. 100 shares of ABC stock; original cost $4,000; selling price $6,000b. $5,000 in CDF bonds; original cost
66. Using the IRS Web site, www.irs.gov, locate the information and instructions for reporting the sale of a personal residence. Write a summary of what the taxpayer needs to do to elect Section 121 gain exclusion and how the sale is reported.
71. Monique is planning to increase the size of the manufacturing business that she operates as a sole proprietorship. She has a number of older assets that she will replace as part of the expansion. In addition, to finance this expansion she will have to sell some of her personal assets.Because it
72. Joy purchased a home in Maine on December 15, 1995 for $250,000 and lived in it full-time until she purchased a second home in Florida on October 1, 2006 for $380,000. In 2006 and 2007 she continued to have her primary residence in Maine. In 2008, however, she changed her primary residence to
54. What are the policy reasons for allowing a portion of the gain on a personal residence to escape taxation?
53. Why do you think Congress required capital assets held by individuals to be taxed at three different maximum tax rates? Do you believe Congress was justified by these reasons in adding this layer of complexity to determining the tax on capital gains? What do you believe will be the most likely
39. Taylor bought 10,000 shares of qualifying Section 1202 stock from a startup company A on May 1, 2007 for $1,000,000 and 5,000 shares of start-up company B on June 1, 2010 for $200,000. In February 2011, she sold 1,000 shares of A for $500,000; in December she also sold 2,000 shares of B for
51. Mary had the following transactions involving BMN stock:SHARES SHARES PRICE DATE PURCHASED SOLD PER SHARE TOTAL PRICE July 2, year 2 150 $5.00 $ 750 April 9, year 3 250 6.00 1,500 May 4, year 3 200 7.00 1,400 November 5, year 3 200 6.50 1,300 April 12, year 4 150 4.00 600a. Determine Mary’s
1. Jobe Manufacturing and BAP Company exchange two pieces of land. Jobe’s land has a basis of $800,000 and a fair market value of $750,000. BAP’s land has a basis of $560,000 and a fair market value of only $700,000 so BAP gives Jobe an additional $50,000 cash. What are Jobe’s and BAP’s
2. Which of the following applies only to individual taxpayers?a. Taxable incomeb. Estimated tax paymentsc. Total incomed. Standard deduction
3. Which of the following entities does not pass its income directly through to its owners?a. Sole proprietorshipb. Partnershipc. C corporationd. S corporation 4. What type of tax is a sales tax?a. Income taxb. Consumption taxc. Wealth transfer taxd. Turnover tax
1. When was the constitutional amendment permitting an income tax ratified?
2. What is a sin tax?
3. What are three objectives of income taxation?
4. What are the three taxable persons that pay all of the income taxes?
5. What is the difference between gross revenue and gross income for a business?
10. How is gain or loss on the disposition of business or investment property determined?
11. What is the difference between a deduction from income and a credit against a tax liability? Illustrate your answer.
13. Compare a C corporation to an S corporation.
14. What are consumption taxes?
15. Differentiate horizontal from vertical equity.
16. Determine Amy’s taxable income for 2011 if she has $40,000 of salary income, is single, and uses the standard deduction.
17. Marlee is a single parent with three dependent children and qualifies as head of household in 2011. Determine her taxable income if she has salary income of $71,000 and interest income of $1,500.
20. Determine George and Mary’s taxable income for 2011 if George has$65,000 of salary income and Mary has $45,000 of salary income and they file a joint tax return. They have two dependent children and $20,000 of itemized deductions.
21. Refer to the information in problem 16. Determine Amy’s income tax liability for 2011.
22. Refer to the information in problem 17. Determine Marlee’s income tax liability for 2011.
23. Refer to the information in problem 18. Determine the corporation’s income tax liability.
24. Refer to the information in problem 19. Determine Warner Corporation’s income tax liability.
25. Refer to the information in problem 20. Determine George and Mary’s income tax liability for 2011. How much tax do they save by itemizing their deductions rather than taking the standard deduction?
27. Conrad and Anita (a college student with no income) plan to marry on December 21, 2011. Filing jointly, they expect to have $180,000 of taxable income for the year. If they wait until January of 2012 to marry, Conrad will file as a single person and report the $180,000 of taxable income on his
28. John has taxable income of $30,000. William has taxable income of$60,000. Determine their 2011 income taxes if they are both single individuals.Compare their incomes and their income taxes. What does this illustrate?
29. Lilikoi Corporation began business in 2009. Lilikoi earned taxable income of $40,000 in 2009 and $120,000 in 2010. For 2011, Lilikoi Corporation has a net operating loss of $50,000 and decides to carry the loss back, filing a refund claim. Compute the amount of corporate income tax that Lilikoi
31. Carrie and Stephen have gross salary and wages of $76,000 in 2011 and file a joint return. They have one dependent child, itemized deductions of$13,200, and a $240 child care credit. Determine their taxable income and their tax liability.
33. Betty, a single woman, has $140,000 of taxable income in 2011. Her alternative minimum taxable income is $195,000. What is her alternative minimum tax?
34. An estate has $20,000 of taxable income in 2011. What amount of tax will the estate pay if it fails to distribute the income to the beneficiaries?
36. June and John decide to form a business. They each plan to contribute$20,000 in exchange for a 50 percent interest in the business. They will then take out a bank loan for $30,000 to cover the balance of their working capital needs. They expect that the business will make a profit of $64,000 in
38. Assume the same facts as in the previous problem, except that they expect the business will have a $50,000 loss in the first year (instead of a$64,000 profit) and will not make any cash distributions. Determine the income tax savings in the current year for the business and for them personally
45. If a taxpayer has $40,000 of employee salary, how much will be withheld for the Social Security and Medicare taxes? How would your answer change if the year was 2010?

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Taxation For Decision Makers 2012 Edition Shirley Dennis Escoffier - Solutions

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