Whittenburg Gerald E., Altus-Buller Martha. Income Tax Fundamentals
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Harold Brown
36,000
20,000
10,000
46,750
19,250
5,005
5,005
4,438
567
66,000
Solutions to Self-Study Problems S-33
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Step 3:
Regular tax (at 10% assumed rate) $ 95
Parental tax
165
Total tax liability
$ 260
Self-Study Problem 6.10
a. Tom’s salary (50 percent) $20,000
Rachel’s salary (50 percent) 15,000
Dividends, Rachel’s property (100 percent) 3,000
Interest (50 percent)
2,000
Total
$40,000
b. Tom’s salary (50 percent) $20,000
Rachel’s salary (50 percent) 15,000
Dividends, Tom’s property (50 percent) 2,500
Dividends, Rachel’s property (50 percent) 1,500
Interest (50 percent)
2,000
Total
$41,000
Chapter 7 Accounting Periods and Methods
and Depreciation
................................... .................................................
Self-Study Problem 7.1
Step 1:
Annualize the income $48,000
12
/
10 ¼ $57,600
Step 2:
Tax on annualized income 15% ($50,000) ¼ $ 7,500
25% (7,600) ¼
1,900
9,400
Step 3:
Short period tax $9,400
10
/
12 ¼ $ 7,833
Self-Study Problem 7.2A
Business income $ 63,000
Less: business expenses
(42,000)
Operating income $ 21,000
Add: rent received 9,000
Add: prepaid interest received 12,000
Less: ren t expense for one month ($7,200/6)
(1,200)
Net income
$ 40,800
Self-Study Problem 7.2B
1. Yes
2. Yes
3. No
4. Yes, assuming this is a personal service corporation.
S-34 Solutions to Self-Study Problems
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Self-Study Problem 7.3
Year Depreciation Deduction
20X1 $ 583
20X2 700
20X3 700
20X4 700
20X5 700
20X6
117
Total
$3,500
Self-Study Problem 7.4
a. See Form 4562 on pages S-37 and S-38.
b. 7-ye ar property, 24.49% $14,000 $3,429
Office building, 2.564% $175,000 $4,487
Self-Study Problem 7.5
Election to expense $137,500
Self-Study Problem 7.6
1. Yes Qualified b usiness use does not include invest-
ment use.
2. No Qualified business use is more than 50 percent;
therefore, Laura may use the accelerated method
of depreciation.
3. Yes Since the computer was acquired for Vicky’s own
convenience, not the convenience of her employer,
qualified business use does not include use of the
property in performing services as an employee.
Self-Study Problem 7.7
2010: ($26,000 20%) 90% ¼ $4,680, but limited t o
$3,060 90% ¼ $2,754.
Self-Study Problem 7.8
1. Yes 5. Yes
2. No 6. No
3. No 7. Yes
4. Yes 8. No
Self-Study Problem 7.9
1. 56%; 40% owned directly and 16% (80% 20%) through
X Corporation.
2. 40%; 20% owned directly plus 20% as Gene’s brother.
3. 40%; 20% owned directly plus 20% as Frank’s brother.
4. $0; since they are related parties, the loss would be
disallowed.
Solutions to Self-Study Problems S-35
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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.
S-36 Solutions to Self-Study Problems
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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.
Mary Moser
14,000
175,00003/03/10
HY7 years 200 DB 2,001
3,558
5,559
Solutions to Self-Study Problems S-37
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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.
S-38 Solutions to Self-Study Problems
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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.
Chapter 8 Capital Gains and Losses
.............................................. ......................................
Self-Study Problem 8.1
1. No Inventory is specifically excluded from the definition of
a capital asset.
2. Yes
3. No Property held by the creator is specifically excluded
from the definition of a capital asset.
4. No Accounts receivable are specifically excluded from the
definition of a capital asset.
5. Yes
6. No Section 1231 assets (depreciable property and real
estate used in a trade or business) are specifically
excluded from the definition of a capital asset.
7. Yes
8. Yes
9. Yes
10. Yes
11. No Inventory is specifically excluded from the definition of
a capital asset.
12. Yes
Self-Study Problem 8.2
1. Short-term
2. Long-term
3. Short-term
4. Long-term
Self-Study Problem 8.3
1. Adjusted basis ¼ $11,000
2. Capital improvements ¼ $2,000
3. Accumulated depreciation ¼ $15,000
4. Original cost ¼ $23,000
Self-Study Problem 8.4
Net long-term ($12,000 $4,000) þ
($14,000 $17,500) ¼ $ 4,500
Net short-term
(1,800)
Net capital gains $ 2,700
Capital gains rate
15%
Tax
$ 405
Self-Study Problem 8.5
See Schedule D and the worksheet on pages S-41 through S-43.
Self-Study Problem 8.6
See Form 4797 on pages S-45 and S-46.
Solutions to Self-Study Problems S-39
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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.
Self-Study Problem 8.7
1. $12,000 $7,0 00 ¼ $5,000
2. $5,000 þ $7,000 ¼ $12,000
3. $12,000 $5,0 00 ¼ $7,000
4. $6,000 $5,000 ¼ $1,000
5. $1,000, the lesser of the amounts in (3) or (4) above.
6. $1,000 (gain realized) $1,000 (Section 1245 ordinary income) ¼
$0. All of the gain is Section 1245 ordinary income.
Self-Study Problem 8.8
Step 1: Compute separate casualty gains and losses
Casualty
Gain or (Loss)
Furniture $2,000, lesser of adjusted basis or
decrease in fair market value, less
$1,600 insurance reimbursement,
less $100 floor $ (300)
Jewelry $2,500 insurance reimbursement,
less $1,800, adjusted basis 700
Business
machinery $14,000, adjusted basis, less
$10,000 insurance reimbursement (4,000)
Step 2: Net all personal casualty gains and losses
$(300) þ $700 ¼ $400 net casualty gain
Step 3: Determine nature of casualty gains and losses
a. Personal casualty gains and losses Since an
overall gain results, the gain or loss on
each item of personal property is treated
as a capital gain or loss as follows:
Furniture Short-term capital loss $ (300)
Jewelry Long-term capital gain $ 700
b. Business casualty gains and losses
Machinery Ordinary loss
$ (4,000)
The capital gain and capital loss are netted with other capital gains and
losses for the year. Since personal casualty gains exceed personal casualty
losses, the loss recognized on the furniture is not subject to the 10 percent
of adjusted gross income limitation.
Self-Study Problem 8.9
Cash $ 20,000
Add: buyer’s note
100,000
Selling price $120,000
Less: the adjusted basis ($80,000 $26,000)
(54,000)
Total gain realized
$ 66,000
Contract price ($20,000 þ $100,000)
$120,000
Taxable gain in 2010 ¼ $66,000/$120,000 $20,000
$ 11,000
S-40 Solutions to Self-Study Problems
Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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.
Gerry Appel
GM Stock 04/18/10 12/07/10 12,000
12,000
19,200 (7,200)
IBM Stock 06/21/03 08/15/10 18,000 12,500 5,500
Pan Am Stock 12/18/04 10/02/10 25,000
43,000
21,000 4,000
9,500
(7,200)
Solutions to Self-Study Problems S-41
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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.
x
x
2,300
0
0
S-42 Solutions to Self-Study Problems
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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.