Reference no: EM13854648

Question: 1. Ben lost his job when his employer moved its plant. During the year, he collected unemployment benefits for three months, a total of $1,800. While he was waiting to hear from prospective employers, he painted his house. I Ben had paid someone else to paint his house, the cost would have been $3,000. The cost of the paint Ben used was $800. What is Ben?s gross income for tax purposes from the above events?

2. On December 29, 2012, an employee received a $5,000 check from her employer's client. The check was payable to the employer. The employee did not remit the funds to the employer until December 30, 2012. The employer deposited the check on December 31, 2012, but the bank did not credit the employer's bank account until January 2, 2013. When is the cash basis employer required to include the $5,000 in gross income?

3. A taxpayer is considering 3 alternative investments of $10,000. The taxpayer is in the 28% marginal tax bracket for oridinary income and 15% for qualifying captial gains and dividends in all tax years. The selected investment will be liquidated at the end of 5 years.

The alternatives are:

a. A taxable corporate bond yielding 5% before tax, and the interest can be reinvested at 5% before tax.

b. A tax-favored bond that will have a maturity value of $12,200 (a 4%before tax rate of return)

c. Land that will increase in value.

4. Troy, a cash basis taxpayer, in employed by Eagle Corp., also a cash basis taxpayer. Troy is full-time employee of the corp. and receives a salary of $60,000 per yr. He also receives a bonus equal to 10% of all collections from clients he serviced during 2014. Determine the tax consequences of the following events to the corporation and to Troy. 

a. On Dec 31, 2014, Troy was visiting a customer. The customer gave Troy a $10,000 check payable to the corp. for appraisal services Troy performed during 2013. Troy did not deliver the check to the corp until Jan 2015. 
b. The facts are the same as in (a) except that the corp. is an accrual basis taxpayer and Troy deposited the check on Dec. 31, but the bank did not add the deposit to the corp. account until Jan 2015. 
c. Same (a) except that the customer told Troy to hold the check until Jan 2015 when the customer could make a bank deposit that would cover the check. 

5. Faye, Gary, and Heidi each have a one-third interest in the capital and profits of the FGH Partnership. Each partner had a capital account of $50,000 at the beginning of the tax year. The partnership profits for the tax year were $270,000. Changes in their capital accounts during the tax year were as follows:

Beginning balance Withdrawals Additional

contributions Allocation of profits Ending balance 
Faye   $ 50,000 (20,000) 
-0- 90,000 $120,000 
Gary  $ 50,000 (35,000) 
-0- 90,000 $105,000 
Heidi  $ 50,000 (10,000) 
5,000 90,000 $135,000

Total  $150,000 (65,000) 
5,000 270,000 $360,000

In arriving at the $270,000 of partnership profits, the partnership deducted $2,400 ($800 for each partner) in premiums paid for group term life insurance on the partners. Faye and Gary are 39 years old, and Heidi is 35 years old. Other employees are also eligi- ble for group term life insurance equal to their annual salary. These premiums of $10,000 have been deducted in calculating the partnership profits of $270,000. Compute each partner's gross income from the partnership for the tax year. 

6. Roy decides to buy a personal residence and goes to the bank for a $150,000 loan. The bank tells him that he can borrow the funds @ 4% if his father will guarantee the debt. Roy's father, Hal, owns a $150,000 CD currently yielding 3.5%. The Federal rat is 3%. Hal agrees to either of the following:

* Roy borrows from the bank with Hal's guarantee to the bank

* Cash in the CD (with no penalty) and lend Roy the funds at 2% interest.

Hal is in the 33% marginal tax bracket. Roy, whose only source of income is his salary, is in the 15% marginal tax bracket. The interest Roy pays on the mortgage will be deductible by him.

Which option will maximize the family's after-tax wealth?

7. Dolly is a college student who works as a part-time server in a restaurant. Her usual tip is 20% of the price of the meal. A customer ordered a piece of pie and said that he would appreciate prompt service. Dolly abided with the customer''s request. The customer''s bill was $8, but the customer left a $100 bill on the table and did not ask for a receipt. Dolly gave the cashier $8 and pocketed the $100 bill. 

Dolly concludes that the customer thought that he had left a $10 bill, although the customer did not return to correct the apparent mistake. The customer had commented about how much he appreciated Dolly''s prompt service. Dolly thinks that a $2 tip would be sufficient and that the other $98 is like "found money." How much should Dolly include in her gross income?

8. Wilbur has been offered a job at a salary that would put him in the 25% marginal tax bracket. In addition to his salary, he would receive health insurance coverage. Another potential employer does not offer health insurance but has agreed to match the first offer on an after-tax and insurance basis. The cost of health insurance comparable to that provided by the other potential employer is $9,000 per year. How much more in salary must the second potential employer pay so that Wilbur?s financial status will be the same under both offers?

9. Dolly is a cash basis taxpayer. In 2014, she filed her 2013 South Carolina income tax return and received a $2,200 refund. Dolly took the standard deduction on her 2013 Federal income tax return, but will itemize her deductions in 2014. Molly, a cash basis taxpayer, also filed her 2013 South Carolina income tax return in 2014 and received a $600 refund. Molly had $12,000 in itemized deductions on her 2013 Federal income tax return, but the take the standard deduction in 2014. How does the tax benefit rule apply to Dolly?s and Molly?s situations? Explain. 

10. Adrian was awarded an academic scholarship to State University for the 2011-2012 academic year. He received $6,000 in Aug & $7,000 in Dec. 2011. He had enough personal savings to pay all expenses as they came due. His expenditures for the relevant period were: 

Tuition Aug 2014 $3,7 00 
Tuition Jan 2015 $3,750 
Room & board Aug-Dec 2014 $2,8 00 
Room & board Jan-May 2015 $2,500 
Books & educational supplies Aug-Dec 2014 $1,000 
Books & educational supplies Jan-May 2015 $1,200

Determine the effect of Adrian's gross income for 2014 & 2015.

11. Mauve Corporation has a group hospitalization insurance plan that has a $200deductible amount for hospital visits and a $15 deductible for doctor visits and prescriptions. The deductible portion paid by employees who have children has become substantial for some employees. The company is considering adopting a medical reimbursement plan or a flexible benefits plan to cover the deductible amounts. Either of these plans can be tailored to meet the needs of the employers. What are the cost considerations to the employer that should be considered in choosing between these plans?

12. Fran, who is in the 35% tax bracket, recently collected $100,000 on a life insurance policy she carried on her father. She currently owes $120,000 on her personal residence and $120,000 on business property. National Bank holds the mortgage on both pieces of property and has agreed to accept $100,000 in complete satisfaction of either mortgage. The interest rate on the mortgage is 8%, and both mortgagees are payable over 10 years.

What would be the tax consequences of each of the following alternatives assuming that Fran currently deducts the mortgage interest on her tax return? 

a. Retire the mortgage on the residence.

b. Retire the mortgage on the business property.