Taxation For Decision Makers 2019 9th Edition Shirley Dennis Escoffier, Karen A. Fortin - Solutions

If a corporation changes its state of incorporation, what type of reorganization is it?
If a corporation changes its name, what type of reorganization is it?
Describe the three types of divisive reorganizations.
Which reorganizations allow the shareholders to divide one corporation into two or more corporations?
When does a shareholder recognize gain if he or she participates in a reorganization?
When does an acquiring corporation in a reorganization recognize gain?
Which reorganizations may use a subsidiary to acquire the assets or stock of another corporation?
Which reorganizations entail asset acquisitions?
These questions require answers that are beyond the material that is covered in this chapter.What policy reason do you think explains why losses on the personal-use property of individuals are nondeductible except for a limited amount of loss from involuntary conversions?
The Timberlake Corporation has an opportunity to sell its manufacturing facility to Carroll Corporation for $4,500,000. The property has a basis of $2,000,000, and the prospective purchaser is willing to wait up to six months for occupancy to allow Timberlake time to locate and purchase new
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 2018:The XYZ stock sold on 11/01 had been purchased two years earlier for $18 per share. What is Kelly’s realized and recognized gain or
Cora was in Europe from Thanksgiving of 2018 until early January of 2019. When she returned, she found her home office had been broken into and equipment with a fair market value of $40,000 and a basis of $54,000 was missing. Her adjusted gross incomes in 2018 and 2019 are $56,000 and $72,000,
Danny’s living room furniture and his flat screen television were damaged in a fire in his home in January. In March, his golf cart was damaged in a flood. He was able to establish the following information to determine his losses on these assets.Danny’s AGI is $37,000 before considering these
Jewel’s home was completely destroyed by a wildfire in 2018 in an area declared a national disaster. The building had an appraised value of $185,000 before the fire. Four years ago Jewel paid $160,000 for the house and the land, with $25,000 of the price allocated to the land.a. What is Jewel’s
Delta Corporation exchanges a warehouse for an office building from Gamma Corporation.Delta’s warehouse has a fair market value of $4,000,000 and a basis of $2,250,000. The office building has a fair market value of $3,750,000, so Delta received $250,000 cash from Gamma to complete the
Explain how the deductibility of personal casualty losses changed after 2017.
Explain the functional-use test. Explain the taxpayer-use test.
What is an indirect exchange? What are the two most common forms of indirect exchanges?
What types of realty qualify for like-kind exchange treatment?
Mark, Nancy, and Carl form a partnership with each partner having an equal share in profits and losses. Mark and Carl each contribute $40,000 in cash to the partnership. Nancy contributes land valued at $100,000. The land has a basis of $90,000 and is encumbered by a $60,000 mortgage that the
Marylou transfers $220,000 of equipment (basis = $170,000) to her wholly owned corporation in exchange for all the authorized nonvoting stock and $20,000 cash. How much gain or loss does Marylou recognize on the transfer, and what is her basis in the stock?a. Gain = 0; basis = $150,000b. Gain =
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 replacement value of $280,000 for their loss. The home had a basis of $223,000. How much gain must they recognize if they purchase a new home for only
Cragin’s manufacturing facility had an adjusted basis of $7,600,000: $2,000,000 for the land and $5,600,000 for the building when destroyed by fire. It received $7,000,000 from its insurance company to replace the building, and it sold the land for $2,800,000. How much must Cragin invest in a new
JB Manufacturing and BP Company exchange two pieces of land. JB’s land has a basis of $800,000 and a fair market value of $750,000. BP’s land has a basis of $560,000 and a fair market value of only $700,000 so BP gives JB an additional $50,000 cash. What are JB’s and BP’s deferred gain or
Go to the IRS website (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: Date acquired Machine Cost recovery Selling price Cost April 24, year 2 March 5, year 1 June 18, year 4 Nov. 10, year 5 $45,000 $75,000
Go to the IRS website (www.irs.gov) and print Schedule D for Form 1040 and Form 8949.Compute the net effect of the following asset sales on Gineen Tibeau’s taxable income using Form 8949 and Schedule D:a. 100 shares of ABC stock; original cost = $4,000; selling price = $6,000b. $5,000 in CDF
In 2018, Gregory, a single person, had $450,000 of ordinary taxable income. He sold Section 1202 stock at a taxable gain of $45,000, his art collection at a taxable gain of $102,000, and stock at a taxable gain of $55,000. Compare the tax result if Congress would simplify the capital gains tax
Joy purchased a home in Maine on December 15, 1999 for $250,000 and lived in it full-time until she purchased a second home in Florida on October 1, 2013 for $380,000. In 2013 and 2014 she continued to have her primary residence in Maine. On October 1, 2015, however, she changed her primary
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 plans to replace as part of the expansion. To finance this expansion she will have to sell some of her personal assets. Because it is close to
George has a short-term capital loss of $42,000 this year. His brother wants to buy a piece of land that George has owned as an investment for $60,000. The land’s basis is only $20,000. George also knows that the land is appreciating in value every year, and he is not sure he should sell it now.
Natalie expects her ordinary income to exceed $600,000 putting her in the 37 marginal percent tax bracket for 2018. So far this year, she has a $5,000 short-term capital loss. As of June 1, she is holding 1,000 shares of Dritco stock purchased on June 15 of last year for $15,000. The market value
Bill had the following gains and losses on asset sales: $500 gain on stock held 11 months; a $2,300 gain on land held two years; $1,900 loss on gold coins held two years; $1,200 gain on antique toys held three years; and a $1,300 loss on investment land held six months. Determine Bill’s taxable
A single taxpayer has $158,000 of ordinary taxable income in 2018 (after his standard deduction but before consideration of the following recognized gains), a $9,000 long-term capital gain on the sale of an antique painting, a $10,000 unrecaptured Section 1250 gain on realty, and a $25,000 gain on
What are the maximum tax rates that apply to a single individual’s $20,000 long-term capital gain on corporate stocks if total taxable income in 2018 isa. $30,000?b. $230,000?c. $450,000?d. How would your answer change for (c), if the $20,000 gain was from the sale of an Egyptian statue from the
Geraldine is single with $165,000 ordinary income that is taxed at a marginal tax rate of 32 percent after a number of transactions involving taxable gains and losses on several types of capital assets held more than one year, including several collectibles: a $10,200 gain on a stamp collection, a
Al Shalou, a single individual, had $170,000 of salary income in 2018 and also had a number of taxable gains and losses on his property transactions during the year with the following results:a. $26,000 Section 1202 gain on ABC stockb. $5,000 short-term capital loss on Zephyr bondsc. $24,000
Clarice became very ill in August of 2018 and was unable to work the rest of the year. She had only $30,000 of income from her job for the time she worked and was forced to sell the following investments to pay for her living expenses. She sold 10,000 shares of BBC stock purchased two years ago for
Barbara sold three assets during 2018. How much and what kind of gain or loss does she recognize from each sale? What tax rate applies to the net gain if Barbara is a single individual with $160,000 ordinary income taxed at a 32 percent marginal tax rate?a. On February 25 she sold 200 shares of XYZ
Taylor bought 10,000 shares of qualifying Section 1202 stock from a start-up company A on May 1, 2012 for $1,000,000 and 5,000 shares of Section 1202 stock from start-up company B on June 1, 2014 for $200,000. In February 2018, she sold 1,000 shares of A for $500,000; in December she also sold
In January 2009, Daniel bought some qualified small business stock for $2,000,000. In the current year, he sells that stock for $13,000,000. How much and what kind of gain or loss does he have? How would your answer change if Daniel sold the stock for $25,000,000?
Juno Corporation had ordinary taxable income of $167,000 in the current year before consideration of any of the following property transactions. It sold two blocks of stock held for investment. One yielded a short-term capital gain of $8,000 and the other a long-term capital loss of $14,000. In
What is the potential advantage to having a substantial investment in stock in a qualified small business corporation rather than an equal investment in other corporate stock not meeting their provisions?
How are assets classified to determine their tax treatment on disposition? What are other ways to classify assets?
Mason is single and the original shareholder of 1,000 shares of Section 1244 stock in Miles Corporation 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
Jonathon sells the computer that he used 75 percent for business and 25 percent for personal purposes for $1,200. The computer cost $4,000 and the allowable depreciation on the computer is $2,200. How much gain or loss does Jonathon recognize?a. $800 gainb. $400 gainc. $100 gaind. $800 loss
Trendy Corporation has a net short-term capital loss of $9,000 and a net long-term capital loss of $14,000 in year 5. Trendy Corporation cana. Deduct $3,000 of the short-term capital loss from its ordinary income and carry the remaining losses back to year 2.b. Deduct $3,000 of the long-term
A taxpayer has the following gains and losses from property transactions in the current year:$40,000.......................Section 1231 gain$25,000....................... Section 1231 loss$12,000...............Long-term capital gain$9,000.................Short-term capital lossHow are these
Vera has three assets she plans to sell. The first is her personal automobile that is seven years old; the second is a truck used in her business for 11 months; and the third is some land that she bought four years ago for expansion of her business. What types of assets are they: capital, Section
Maria Sanchez, the sole proprietor of a consulting business, has gross receipts of $720,000 for 2017. Expenses paid by her business are:Advertising .............................................................$4,500Employee salaries ...............................................150,000Office rent
Go to the IRS website at www.irs.gov and print Form 4562. Using the following information, complete this form to the extent possible. Barclays Corporation, a calendar-year taxpayer, had taxable income of $2,000,000 for 2017 before computing its depreciation deduction. It purchased and placed the
Identify the issues or problems suggested by the following situations. State each issue as a question.Monicon Corporation purchased a $24,000 computer in 2015 and elected to expense it under Section 179. In 2018, the IRS audited Monicon and determined that its taxable income was incorrectly
Identify the issues or problems suggested by the following situations. State each issue as a question.Demark Corporation took delivery of a new machine on December 31, 2018. Due to the high number of employees out for the holidays, the machine was not set up for use until January 3, 2019.
Identify the issues or problems suggested by the following situations. State each issue as a question.James Corporation had a net operating loss of $30,000 before claiming any depreciation deductions. James purchased $26,000 in equipment in 2018 but claimed no depreciation on its 2018 tax return.
Go to the IRS website at www.irs.gov and locate Publication 946: How to Depreciate Property. Locate the section on where amortization is reported. On what form is amortization reported? On which part of that form is amortization reported if this is the first year of amortization?
Go to the IRS website at www.irs.gov and locate Publication 946: How to Depreciate Property. Locate the depreciation tables at the end of the publication and calculate the first-year depreciation for a $60,000 bus using ADS.
Bing Corporation can buy a new car for business use for $40,000 (including tax, license, and title fees) or it can lease an identical car for $450 per month, paying $2,100 up front for tax, license, and title fees. The corporation normally keeps its cars for three years and, if the car is
Jennifer, age 35, is single and an active participant in her employer’s qualified retirement plan. Compute the maximum Roth IRA contribution that she can make in 2018 ifa. her adjusted gross income is $140,000.b. her adjusted gross income is $59,000.c. her adjusted gross income is $38,000 and she
Herald Corporation, a calendar-year taxpayer, purchased the following business assets:a. If these assets were placed in service in 2017, what is Herald Corporation’s depreciation deduction for 2017 if it makes any elections that will maximize its deduction?b. If these assets were instead placed
Roman Corporation (a calendar-year corporation) purchased and placed in service the following assets in 2017:$60,000 of the cost of the warehouse property is for the land.a. What is Roman Corporation’s depreciation deduction for 2017 if it only claims regular MACRS depreciation?b. What is
Arco Corporation acquired some heavy equipment mid-year (in addition to the $2,600,000 in equipment purchased in January of this year). The new equipment is 7-year class property, but Arco expects to use the equipment for 8 years. It could purchase the equipment for $120,000 cash, and at the end of
Robert Lento, the sole proprietor of a consulting business, has gross receipts of $600,000 in 2018. Expenses paid by his business areAdvertising ...........................................................$ 2,500Employee salaries ..............................................150,000Office rent
Zenon Corporation (a calendar-year corporation) began work on a new experimental project in year 1. It incurred $8,000 in qualifying research expenses in year 1 and $11,000 in year 2. The benefits from the project will be realized beginning in February year 3.a. If Zenon elects a 60-month
Jillian is an employee of Monrow Corporation (a calendar-year corporation). In February 2018, Monrow purchased a new $50,000 car for Jillian’s use. During 2018 and 2019, 60 percent of Jillian’s mileage on the car was business related and 40 percent was for her personal driving. Her personal use
On June 26, 2016, 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 2016 and 2017 and Elaine claimed only regular MACRS depreciation. In 2018, the computer system was used 45
Karen is an employee of KF Corporation (a calendar-year taxpayer). In February 2017, KF purchased a new $40,000 car for Karen’s use. During 2017, 2018, and 2019, 60 percent of Karen’s mileage on the car was business related and 40 percent was for her personal driving. Her personal use was
McDowell Corporation (a calendar-year corporation) purchased and placed in service in 2017 a $25,000 new automobile on August 15, $300,000 of new furniture on September 1, and a $680,000 warehouse (of which $100,000 was for the land) on November 8. Compute the maximum depreciation deductions for
Nicko Corporation (a calendar-year corporation) purchased a new machine (7-year property) in July 2015 for $20,000. Nicko did not elect Section 179 for this asset but did claim 50 percent bonus depreciation. In November 2018, Nicko sells the machine. What is the machine’s adjusted basis at the
In August, 2017 Jimbo Corporation (a calendar-year corporation) purchased used computer equipment for $665,000, the only assets Jimbo purchased this year. Jimbo Corporation was in the 34 percent marginal tax bracket for 2017 and used a discount rate of 6 percent for evaluation. Assuming that Jimbo
David operates his business as a sole proprietorship. In 2017, he spends $20,000 for a used machine (7-year property). His business income, before consideration of any Section 179 deduction, is $17,000. David elects to expense $20,000 under Section 179. Calculate his total depreciation deduction
On March 1, 2017 Harry Corporation (a calendar-year taxpayer) purchased and placed in service office furniture costing $550,000. Compute the maximum amount Harry Corporation could elect to expense under Section 179 for this furniture ifa. This is the only asset placed in service this year by Harry
Corando Corporation (a calendar-year taxpayer) purchased $850,000 of factory equipment in April 2018. Determine the maximum depreciation deduction for the equipment for 2018.
Kondar Corporation (a calendar-year taxpayer) spent $2,090,000 to purchase used machinery in February 2017. It elected to expense the maximum under Section 179. What is Kondar’s total depreciation deduction for 2017 and 2018?
In July 2017, Lenux Corporation (a calendar-year taxpayer) purchased $2,140,000 of new office furniture. Lenux claimed the maximum allowable Section 179 expensing and regular MACRS depreciation (but no bonus depreciation). Calculate Lenux’s total depreciation deduction for 2017 and 2018 for this
Willis Corporation (a calendar-year corporation) purchased $550,000 of machinery (7-year property) on August 1, 2018. No other property was acquired in 2018. What is the maximum depreciation expense Willis Corporation can claim for 2018?
Craig Corporation (a calendar-year corporation) purchased $3,000,000 of office furniture in April. It would like to know what is its reduction in depreciation expense for the first three years if it elects to use ADS to compute its depreciation instead of regular MACRS accelerated depreciation.
At the beginning of 2018, AB Corporation (a calendar-year corporation) owned the following assets:On February 1, 2018, AB sold its office furniture. On March 15, 2018, AB sold its computer equipment. Compute AB Corporation’s 2018 depreciation deduction for these two assets. Computer equipment
Azona Corporation (a calendar-year taxpayer) purchased only one business asset during the year, 7-year used property that cost $2,600,000. Compute Azona’s depreciation for 2017 assuming that bonus depreciation was not elected anda. The asset was purchased and placed in service on September 25,
In 2015, Chris purchased a machine (7-year property) that cost $20,000 for use in his sole proprietorship. He claimed only regular MACRS depreciation (no Section 179 expensing or bonus depreciation) due to his low income that year. In 2016 and 2017 his business had operating losses and he claimed
Blanco Corporation (a calendar-year taxpayer) purchased $2,200,000 of used manufacturing equipment in July, $400,000 of used computer equipment in August, and an office building for $850,000 (of which $170,000 was for the land) in November. Compute Blanco’s depreciation deduction for 2017.
Mark wants to purchase a new luxury sedan for $70,000 for use exclusively in his business. The car salesman told Mark that he could expense the entire cost in the first-year. Is he correct? Explain your answer.
Carl purchased a Jaguar automobile for $90,000 to use exclusively in his business. He boasts that he can recover his cost through MACRS depreciation deductions over five years. What restrictions reduce the tax benefits of purchasing a luxury automobile for business use? Explain these restrictions.
What is listed property? Explain how the change to listed property affects computers purchased in 2018.
Delta Corporation purchased three assets during 2017: a new automobile costing $60,000 acquired in April, used office furniture costing $600,000 acquired in July, and a warehouse costing $850,000 (of which $100,000 is for the land) acquired in October. For which asset(s) should Delta Corporation
In May 2017, Jose purchased a used automobile for $12,000 and used it 75 percent for business. No Section 179 election was made for this asset. In 2018, Jose’s business use of the automobile decreased to 45 percent. As a result of this change in business usea. there is no change in the way Jose
On October 2, 2018 Bedrock Corporation (a calendar-year corporation) acquired and placed into service 7-year used business equipment costing $5,900,000. It made no other acquisitions during the year. What is the maximum depreciation expense Bedrock can claim for 2018?a. $510,000b. $555,366c.
Probest Corporation (a calendar-year corporation) purchased and placed the following assets in service during 2018:All assets are used 100 percent for business. $100,000 of the cost of the warehouse property is allocated to the cost of the land. The corporation has $1,000,000 in income from
Ricardo purchased a personal computer for $3,000 two years ago that is currently worth $1,000. He used the computer exclusively for personal use until the current year, when he began using it exclusively in his sole proprietorship. What basis must Ricardo use in calculating his depreciation on the
Maria received Mega Corporation stock as a gift from her Uncle Glen two years ago when its fair market value was $90,000. Glen paid $60,000 for the stock five years ago, and he paid $3,000 in gift taxes when he made the gift to Maria. What is Maria’s basis for the stock?a. $60,000b. $61,000c.
Jordan (SSN 150-66-7788) and Diana (SSN 150-67-4321) Diego are a married couple who reside at 111 Coral Drive in Miami, FL 33156. They have one dependent daughter, Emily (SSN 155-88-4321), age 18, who lives at home.Jordan is a manager at Big Box Corporation. His Form W-2 wages are $68,000 and
Comprehensive Problem for Chapters 4 and 6. Go to the IRS website (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 for 2017. Use the information in problem 47 to complete
Go to the IRS website (www.irs.gov) and print Form 2106: Employee Business Expenses for 2017. Use the following information to complete this form. Carl is an employee of Intelligent Devices, Inc. in San Jose. In a typical week in 2017, Carl spent the majority of his time on the road showing
Go to the IRS website (www.irs.gov) and locate the publication on travel. 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 part of North America?
These questions require answers that are beyond the material that is covered in this chapter.Effective 2018, Congress reduced the progressive corporate income tax rates to a flat rate of 21 percent. How do you think this affects deferred tax liabilities and deferred tax assets?
Kondex, a cash-basis sole proprietorsip, is considering paying $50,000 of expenses at the end of this year rather than waiting until next year. The owner of Kondex has a marginal tax rate for the current year of 35 percent but expects to be in the 24 percent marginal tax bracket next year. Kondex
Barley Corporation used the FIFO method for inventory valuation when it began operations because this reflected the true physical flow of inventory. Its inventory under FIFO is valued at $375,000 at the end of its first year of operations. If Barley instead used LIFO, its ending inventory would be
Sorbon Corporation pays federal income tax at a 21 percent rate. In year 1, Sorbon deducts $80,000 as bad debt expense in computing its book income but deducts only $70,000 for bad debt expense on its tax return.a. What is the difference between Sorbon’s book tax expense and its federal tax
John is a teacher at a local high school. During 2017 and 2018, he travels three days per week to a school in the next county to work with gifted children in an after-school program that does not end until 6:30 p.m. He normally eats dinner before driving home. If he drives 75 miles each way on 90
Jim, a self-employed individual, takes an important customer to the hockey playoffs. Although the face value of a ticket is only $70, he pays a scalper $400 for each ticket. How much can Jim deduct for the two tickets in 2018?
Elisa spends $1,000 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.a. What are her deductible expenses if incurred in
Mary, a taxpayer in the 35 percent marginal tax bracket, borrows $500,000 at 10 percent interest to invest in 7 percent tax-exempt municipal bonds. The annual interest expense on the loan is $50,000. Mary earns $35,000 interest income on the bonds. What is Mary’s interest expense deduction?

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Taxation For Decision Makers 2019 9th Edition Shirley Dennis Escoffier, Karen A. Fortin - Solutions

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