Reference no: EM133001538

Questions -

Q1) Mr. James purchased a vacation house in Los Angeles on July 1, 2017. The purchase price was $1,000,000, and Mr. James spent $10,000 on capital additions. As of January 1, 2020, the house was worth $1,200,000. Mr. James was not entitled to depreciate the house as it was a personal-use asset. For the purposes of this question, assume that Mr. James sold the house on December 31, 2020 for $1,400,000. For tax purposes, how much income did Mr. James realize in 2020?

Q2) On December 20, 2020, Deb's employer gave her a Tag Heuer Limited Edition Tom Brady watch because Deb met her sales quota for the year.

Deb's employer originally purchased the watch at the beginning of 2020 for $3,750.

At the time Deb received the watch from her employer (Dec. 20, 2020), the price of similar watches had increased to $4,000 because everyone thought that Tom Brady was going to win another Super Bowl.

By Dec. 31, 2020, the last day of the tax year, Tag Heuer Limited Edition Tom Brady watches were selling on eBay for $500 because it became apparent that the Buffalo Bills were going to crush any dreams the Buccaneers had of winning the Super Bowl.

What is the amount of Deb's gross income, if any, from the receipt of the watch?

Q3) Ashley had $10,000 in credit card debt. She negotiated a settlement with the credit card company. Ashley paid $3,000 of the credit card debt, and the credit card company agreed to cancel $7,000 of the debt.

If Ashley had total assets of $15,000 and total liabilities of $16,000 immediately before the debt was cancelled, what amount of gross income does Ashley have as a result of the credit card company cancelling $7,000 of her debt?

Q4) Ashley had $10,000 in credit card debt. She negotiated a settlement with the credit card company. Ashley paid $2,000 of the credit card debt, and the credit card company agreed to cancel $8,000 of the debt.

If Ashley has total assets of $25,000 and total liabilities of $50,000 immediately before the debt was cancelled, what amount of gross income does Ashley have as a result of the credit card company cancelling $8,000 of her debt?

Q5) Taxpayer Info: Star Corp. is a calendar-year, accrual-method C corporation that sells inventory.

During 2020, Star Corp had gross sales of $300,000,000 and returns of $10,000,000. At the beginning of the year, Star Corp. had $20,000,000 worth of inventory. During the year, Star Corp. purchased $105,000,000 worth of inventory. Star Corp. had end of year inventory worth $26,000,000.

What is the amount of Star Corp.'s gross profit?