Complete the following problems located in Taxation of Individuals and Business Entities:
• Comprehensive Problem 67 (Ch. 5) using Microsoft Excel, except prepare the computations for the tax year 2012 rather than 2009. That means a lookback to the prior tax year should be 2011.
67. Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, Understock.com. Though Ken is retired, he is still very active. Ken reported the following financial information this year. Assume Ken’s modified adjusted gross income for purposes of the bond interest exclusion and for determining the taxability of his Social Security benefits is $70,000 and that Ken files as a single taxpayer. Determine Ken’s 2012 gross income.
1. Ken won $1,200 in an illegal game of poker (the game was played in Utah, where gambling is illegal).
2. Ken sold 1,000 shares of stock for $32 a share. He inherited the stock two years ago. His tax basis (or investment) in the stock was $31 per share.
3. Ken received $25,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 20 years, for $210,000.
4. Ken received $13,000 in Social Security benefits for the year.
5. Ken resided in Ireland from July 1, 2008, through June 30, 2009, visiting relatives. While he was there he earned $35,000 working in his cousin’s pub. He was paid $17,000 for his services in 2008 and $18,000 for his services in 2009. Assume Ken elects to use the foreign-earned income exclusion to the extent he is eligible.
6. Ken decided to go back to school to learn about European history. He received a $500 cash scholarship to attend. He used $300 to pay for his books and he applied the rest toward his new car payment.
7. Ken’s son, Mike, instructed his employer to make half of his final paycheck of the year payable to Ken. Ken received the check on December 30 in the amount of $1,100.
8. Ken received a $610 refund of the $3,600 in state income taxes his employer withheld from his pay last year. Ken claimed $5,500 in itemized deductions last year (the standard deduction for a single filer was $5,450).
9. Ken received $30,000 of interest from corporate bonds and money market accounts.
• Comprehensive Problem 66 (Ch. 6) using Microsoft Excel, except prepare the computations for the tax year 2012 rather than 2009.
66. Jeremy and Alyssa Johnson have been married for five years and do not have any children. Jeremy was married previously and has one child from the prior marriage. He is self-employed and operates his own computer parts store. For the first two months of the year, Alyssa worked for Staples, Inc., as an employee. In March, Alyssa accepted a new job with Super Toys, Inc. (ST), where she worked for the remainder of the year. This year, the Johnsons received $255,000 of gross income. Determine the Johnson’s AGI given the following information:
1. Expenses associated with Jeremy’s store include $40,000 in salary (and employment taxes) to employees, $45,000 of cost of goods sold, and $18,000 in rent and other administrative expenses.
2. As a salesperson, Alyssa incurred $2,000 in travel expenses related to her employment that were not reimbursed by her employer.
3. The Johnsons own a piece of investment real estate. They paid $500 of real property taxes on the property and they incurred $200 of expenses in travel costs to see the property and to evaluate other similar potential investment properties.
4. The Johnsons own a rental home. They incurred $8,500 of expenses associated with the property.
5. The Johnson’s home was only five miles from the Staples store where Alyssa worked in January and February. The ST store was 60 miles from their home, so the Johnsons decided to move to make the commute easier for Alyssa. The Johnson’s new home was only ten miles from the ST store. However, it was 50 miles from their former residence. The Johnsons paid a moving company $2,000 to move their possessions to the new location. They also drove the 50 miles to their new residence. They stopped along the way for lunch and spent $60 eating at Denny’s. None of the moving expenses were reimbursed by ST.
6. Jeremy paid $4,500 for health insurance coverage for himself. Alyssa was covered by health plans provided by her employer, but Jeremy is not eligible for the plan until next year.
7. Jeremy paid $2,500 in self-employment taxes.
8. Alyssa contributed $4,000 to ST’s employer-provided traditional 401k plan.
9. Jeremy paid $5,000 in alimony and $3,000 in child support from his prior marriage.
10. Alyssa paid $3,100 of tuition and fees to attend night classes at a local university. The Johnsons would like to deduct as much of this expenditure as possible rather than claim a credit.
11. The Johnsons donated $2,000 to their favorite charity.
• Comprehensive Problem 81 (Ch. 8) using Microsoft Word assuming Joe applies the standard mileage rate in effect during May 2012.
81. Joe operates a business that locates and purchases specialized assets for clients, among other activities. Joe uses the accrual method of accounting but he doesn’t keep any significant inventories of the specialized assets that he sells. Joe reported the following financial information for his business activities during year 0. Determine the effect of each of the following transactions on the taxable business income.
1. Joe has signed a contract to sell gadgets to the city. The contract provides that sales of gadgets are dependent upon a test sample of gadgets operating successfully. In December, Joe delivers $12,000 worth of gadgets to the city that will be tested in March. Joe purchased the gadgets especially for this contract and paid $8,500.
2. Joe paid $180 for entertaining a visiting out-of-town client. The client didn’t discuss business with Joe during this visit, but Joe wants to maintain good relations to encourage additional business next year.
3. On November 1, Joe paid $600 for premiums providing for $40,000 of “key man” insurance on the life of Joe’s accountant over the next 12 months.
4. At the end of the year (year 1), Joe’s business reports $9,000 of accounts receivable. Based upon past experience, Joe believes that at least $2,000 of his new receivables will be uncollectible.
5. In December of year 0, Joe rented equipment for a large job. The rental agency required a minimum rental of three months ($1,000 per month), but Joe completed the job before year-end.
6. Joe hired a new sales representative as an employee and sent her to Dallas for a week to contact prospective out-of-state clients. Joe ended up reimbursing his employee $300 for airfare, $350 for lodging, $250 for meals, and $150 for entertainment. Joe requires the employee to account for all expenditures in order to be reimbursed.
7. Joe uses his BMW (a personal auto) to travel to and from his residence to his factory. However, he switches to a business vehicle if he needs to travel after he reaches the factory. Last month, the business vehicle broke down and he was forced to use the BMW both to travel to and from the factory and to visit work sites. He drove 120 miles visiting work sites and 46 miles driving to and from the factory from his home.
8. Joe paid a visit to his parents in Dallas over the Christmas holidays. While he was in the city, Joe spent $50 to attend a half-day business symposium. Joe paid $200 for airfare, $50 for meals during the symposium, and $20 on cab fare to the symposium.