Reference no: EM132782466

Questions -

Q1) Lauren is a sole proprietor. She owns, leases, and manages apartment buildings. During thecurrent year, Lauren incurred the following costs. Which of these costs are deductible and inwhat amount? If so, are they for AGI or from AGI deductions?

(a) Attorney's fees of $350 for title searches on new property Lauren acquired.

(b) Legal fees of $600 to collect unpaid rent.

(c) CPA fees of $450 to prepare Lauren's 2018 federal income tax return, $350 of whichinvolved preparation of her Schedule C.

(d) Legal fees Lauren paid for an attorney to prepare her will.

(e) Legal fees Lauren paid for an unsuccessful challenge a county rezoning ordinancethat adversely affected her business.

Q2) Lamont uses the accrual method of accounting for his calendar-year computer sales and repair business. For tax purposes, (a) how should Lamont account for the following transactions; and (b) would your answers change if Lamont were a cash basis taxpayer?

(i) During 2019, Lamont hired a contractor to remodel his store. The remodeling was completed on November 28. On December 13, Lamont received a $20,000 bill from the contractor. He immediately contacted the contractor to contest the $7,000 labor charge included in the bill, which Lamont claims should only be $5,000. Lamont did not pay any amount to the contractor.

(ii) Lamont provides a one-year warranty on all of its computers. For computer sales during 2019, he paid $12,500 to service warranties during 2019, and he expects to pay$14,000 to fulfill the remaining 2019 warranty obligations in 2020.

Q3) Joe Smith, a cash-basis taxpayer, earned an annual salary of $80,000 at Resolute Corp. in2018, but he elected to take only $50,000. Resolute, which was financially able to pay Smith's full salary, credited the unpaid balance of $30,000 to Smith's account on the corporate books in2018, and actually paid this $30,000 to Smith on January 30, 2019. How much of the salary is taxable to Smith in 2018? Explain.

Q4) In the current year, Owens sold land with a basis of $80,000 to Yancey for $100,000. Yancey paid $25,000 down and agreed to pay $15,000 per year, plus interest, for the next five years, beginning in the second year. Under the installment method, what gain should Owens include in gross income for the year of sale?

Q5) In the current tax year, Gunther earned $125,000 from his job as a civil engineer. In addition, he received $30,000 of income from Activity A, and lost $40,000, and 20,000 from Activities B and C respectively. Activities A, B, and C are passive activities that Gunther acquired in the current year. What amount of loss may Gunther deduct on his current year taxes? What amount of loss, if any, must be carried over to the subsequent year for each activity?

Q6) In 2019, Clark's residence had an adjusted basis of $250,000 and it was destroyed by a tornado. The residence was located in a federally declared disaster area. An appraiser valued the decline in market value at $425,000. Later that same year, Clark received $200,000 from his insurance company for the property loss and did not elect to deduct the casualty loss in an earlier year. Clark's 2019 adjusted gross income was $100,000, and he did not have any casualty gains.

What is total amount that Clark can deduct as a 2019 itemized deduction for casualty loss, after the application of the threshold limitations?

Q7) A self-employed taxpayer had gross income of $57,000. The taxpayer paid self-employment tax of $8,000, health insurance of $6,000, and $5,000 of alimony for a divorce finalized in 2017. The taxpayer also contributed $2,000 to a traditional IRA. What is the taxpayer's adjusted gross income?

Q8) Which of the following types of costs are required to be capitalized under the Uniform Capitalization Rules of Code Sec. 263A? Only one option is correct.

a. Marketing.

b. Distribution.

c. Warehousing.

d. Office maintenance.

Q9) On March 1 of the previous year, a parent sold stock with a cost of $8,000 to her child, for $6,000, its fair market value. On September 30 of the current year, the child sold the same stock for $7,000 to Smith, who is unrelated to the parent and child. What is the proper treatment of these transactions?

a. Parent has a $2,000 recognized loss and child has $1,000 recognized gain.

b. Parent has $2,000 recognized loss and child has $0 recognized gain.

c. Parent has $0 recognized loss and child has $1,000 recognized gain.

d. Parent has $0 recognized loss and child has $0 recognized gain.

Q10) Robert Corp. granted an incentive stock option for 200 shares to Beverly, an employee, on March 14, Year 15. The option price and FMV on the date of grant was $150. Beverly exercised the option on August 2, Year 17, when the FMV was $180 per share. She sold the stock on September 20, Year 18, for $250 per share. How much gross income did Beverly recognize in Year 15?

a. $30,000

b. $150

c. $0

d. $20,000