Whittenburg Gerald E., Altus-Buller Martha. Income Tax Fundamentals
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Questions and Problems 7-41
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7-42 Chapter 7
Accounting Periods and Methods and Depreciation
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2. Larry and Lisa Williams, both 33 years old, have been married for 9 years. They live at
638 Arctic Way, Fairbanks, AK 99701. Lisa’s Social Security number is 445-81-1423
and Larry’s is 798-09-8526. Larry is the president of Arctic Birch Corporation located
in Fairbanks. The Arctic Birch stock is owned 40 percent by Larry, 40 percent by Lisa,
and 20 percent by Larry’s father. Larry’s Arctic Birch wages and income tax withhold-
ing for 2010 are:
Earnings from Arctic Birch $152,000
Federal tax withheld 10,000
State tax withheld 0
The Williams’s other income includes interest on a savings account at Alaska
National Bank of $500. In April, Larry canceled a small certificate of deposit at
Alaska National Bank and had to pay a $360 penalty on this early withdrawal of
savings.
During the year, L arry and Lisa paid the fol lowing amounts (all of which ca n be
substantiated):
Home mortgage interest $35,000
Real estate taxes on personal residence 5,600
Auto loan interest 4,800
Medical insurance 3,400
Other medical expenses 3,600
Income tax preparation fee 750
Charitable contributions:
A painting to the Fairbanks Museum of Arts
for exhibition (fair market value established
by qualified appraisal) 40,000
Church 2,000
Tree Huggers Foundation (a qualified charity) 3,000
University of Alaska, Fairbanks 5,000
Safe-deposit box 300
Sales tax actually paid in 2010 1,700
The tax basis for the donated painting is $25,000 and the painting has been owned
by Larry and Lisa for 5 years.
During the year, Larry sold land to Arctic Birch Corporation for $75,000. He
acquired the land 5 years ago for $160,000.
Arctic Birch Corporation does not have a qualified pension plan or Section 401(k)
plan for its employees. Therefore, Larry dep osited $10,000 ($5,000 each) into tradi-
tional IRA accounts for Lisa and himself.
Required: Complete the Williams’s federal tax return for 2010. Use Form 1040,
Schedule A, Schedule B, Schedule D, and Schedule M from pages 7-45 through 7-50
to complete this tax return. Make realistic assumptions about any missing data. Do
not complete Form 8283.
Questions and Problems 7-43
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GROUP 4:
CUMULATIVE SOFTWARE PROBLEMS
.............................................. .............................................. .
The following additional information is available for the Dr. Ivan and Irene Incisor family
from Chapters 1–6.
On December 12, Irene purchased the building where her store is located. She paid
$240,000 for the building and $100,000 for the land it is located on. Irene’s store is the
only business in the building.
Ivan owned 1,000 shares of Behemoth Airline stock with a basis of $30 per share. The
stock was purchased 5 years ago on June 10. Ivan sells 500 shares of Behemoth st ock to his
uncle Seth and 500 of the shares to his sister Sara for $5 per share on December 31, 2010.
Assume for purposes of the continuation of this problem and the problem in Chapter 8
that the Incisors do not have $50,000 in private activity bond interest income. As a result,
no AMT will be due.
Required: Combi ne this new infor mation about the Incisor family with the information
from Chapters 1–6 and complete a revised 20 10 tax return for Ivan and Irene. Be sure
to save your data input files since this case will be expanded with more tax information
in the next chapter. Note that your computer software should catch a surprise credit,
which is discussed briefly at the end of Section 3.8.
7-44 Chapter 7
Accounting Periods and Methods and Depreciation
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Questions and Problems 7-45
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
7-46 Chapter 7
Accounting Periods and Methods and Depreciation
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Questions and Problems 7-47
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
7-48 Chapter 7
Accounting Periods and Methods and Depreciation
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Questions and Problems 7-49
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
7-50 Chapter 7
Accounting Periods and Methods and Depreciation
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.