Comprehensive Problems
\n73. [LO 1, LO 2, LO3] Charlie was hired by Ajax this year as a
\ncorporate executive and a member of the board of directors. During the current year, Charlie received the
\nfollowing payments or benefits paid on his behalf.
\n Salary payments $ 92,000
\n Contributions to qualified pension
\nplan 10,200
\n Qualified health insurance premiums 8,400
\n Year-end bonus 15,000
\n Annual director\u00e2\u0080\u0099s fee 10,000
\n Group-term life insurance premiums
\n(face=$40,000) 750
\n Whole life insurance premiums
\n(face=$100,000) 1,420
\n Disability insurance premiums (no
\nspecial elections) 4,350
\na. Charlie uses the cash method and calendar
\nyear for tax purposes. Calculate
\nCharlie\u00e2\u0080\u0099s gross income for the current year.
\nb. Suppose that Ajax agrees to pay Charlie an additional
\n$100,000 once Charlie completes five years of employment. Will this agreement alter Charlie\u00e2\u0080\u0099s gross
\nincome this year relative to your part (a) answer? Explain.<\/p>\n
c. Suppose that in exchange for his promise
\nto remain with the firm for the next four years, Ajax paid Charlie four years of director\u00e2\u0080\u0099s
\nfees in advance. Will this arrangement
\nalter Charlie\u00e2\u0080\u0099s gross income this year relative to your part (a) answer? Explain.
\nd. Assume that in lieu of a year-end bonus Ajax transferred 500 shares of Bell stock to Charlie as compensation. Further assume that the stock was listed at
\n$35 per share and Charlie would sell the shares by year-end, at which time he
\nexpected the price to be $37 per share.
\nWill this arrangement alter Charlie\u00e2\u0080\u0099s gross income this year relative to
\nyour part (a) answer? Explain.
\ne. Suppose that in lieu of a year-end bonus Ajax made Charlie\u00e2\u0080\u0099s house
\npayments (a total of $23,000). Will this
\narrangement alter Charlie\u00e2\u0080\u0099s gross income this year relative to your part (a)
\nanswer? Explain.
\n74. [LO 1, LO 2, LO3] Irene is disabled and receives payments from a
\nnumber of sources (see below). The
\ninterest payments are from bonds that Irene purchased over past years and a
\ndisability insurance policy that Irene purchased herself. Calculate Irene\u00e2\u0080\u0099s gross income.
\n Interest, bonds issued by City of Austin,
\nTexas $ 2,000
\n Social Security benefits 8,200
\n Interest, U.S. Treasury bills 1,300
\n Interest, bonds issued by Ford Motor
\nCompany 1,500
\n Interest, bonds issued by City of
\nQuebec, Canada 750
\n Disability insurance benefits 19,500
\n Distributions from qualified pension
\nplan 5,400<\/p>\n
75. {Tax Forms} [LO1, LO 2,
\nLO3] Ken
\nis 63 years old and unmarried. He
\nretired at age 55 when he sold his business, Understock.com. Though Ken is retired, he is still very
\nactive. Ken reported the following
\nfinancial information this year. Assume
\nKen files as a single taxpayer.
\nDetermine Ken\u00e2\u0080\u0099s gross income and complete page 1 of Form 1040 for Ken.
\na. Ken
\nwon $1,200 in an illegal game of poker (the game was played in Utah, where gambling is
\nillegal).
\nb. Ken
\nsold 1,000 shares of stock for $32 a share.
\nHe inherited the stock two years ago.
\nHis tax basis (or investment) in the stock was $31 per share.
\nc. Ken
\nreceived $25,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually
\nfor 20 years, for $210,000.
\nd. Ken
\nreceived $13,000 in disability benefits for the year. He purchased the disability insurance policy
\nlast year.<\/p>\n
e. Ken
\ndecided to go back to school to learn about European history. He received a $500 cash scholarship to
\nattend. He used $300 to pay for his
\nbooks and tuition, and he applied the rest toward his new car payment.
\nf. Ken\u00e2\u0080\u0099s
\nson, Mike, instructed his employer to make half of his final paycheck of the
\nyear payable to Ken. Ken received the
\ncheck on December 30 in the amount of $1,100.
\ng. Ken
\nreceived a $610 refund of the $3,600 in state income taxes his employer
\nwithheld from his pay last year. Ken
\nclaimed $6,150 in itemized deductions last year (the standard deduction for a
\nsingle filer was 6,100).
\nh. Ken
\nreceived $30,000 of interest from corporate bonds and money market accounts.<\/p>\n
76. {Tax Forms} [LO 1,
\nLO 2, LO 3]
\nConsider the following letter and answer Shady\u00e2\u0080\u0099s question.
\nTo my friendly student tax
\npreparer:
\nHello,
\nmy name is Shady Slim. I understand you are going to help me figure out my
\ngross income for the year\u00e2\u0080\u00a6whatever that means. It\u00e2\u0080\u0099s been a busy year and I\u00e2\u0080\u0099m a
\nbusy man, so let me give you the lowdown on my life and you can do your thing.
\nI
\nwas unemployed at the beginning of the year and got $2,000 in unemployment
\ncompensation. I later got a job as a manager for Roca Cola. I earned $55,000 in
\nbase salary this year. My boss gave me a $5,000 Christmas bonus check on
\nDecember 22. I decided to hold on to that check and not cash it until next
\nyear, so I won\u00e2\u0080\u0099t have to pay taxes on it this year. Pretty smart, huh? My job\u00e2\u0080\u0099s pretty cool. I get a lot of fringe
\nbenefits like a membership to the gym that costs $400 a year and all the Roca
\nCola I can drink, although I can\u00e2\u0080\u0099t really drink a whole lot. As part of my manager duties, I get to decide
\non certain things like contracts for the company. My good buddy, Eddie, runs a
\nbottling company. I made sure that he won the bottling contract for Roca Cola
\nfor this year (even though his contract wasn\u00e2\u0080\u0099t quite the best). Eddie bought me
\na Corvette this year for being such a good friend. The Corvette cost $50,000
\nand he bought it for me out of the goodness of his own heart. What a great guy!
\nHere\u00e2\u0080\u0099s
\na bit of good luck for the year. Upon leaving my office one day, I found $8,000
\nlying in the street! Well, one person\u00e2\u0080\u0099s
\nbad luck is my good luck, right?
\nI
\nlike to gamble a lot. I won a $22,000 poker tournament in Las Vegas this year. I also won about $5,000
\nover the year playing the guys at our Friday night poker game. Can you believe
\nthat I didn\u00e2\u0080\u0099t lose anything this year?
\nSpeaking
\nof the guys, one of them hit me with his car as we were leaving the game one
\nnight. He must have been pretty ticked that he lost! I broke my right leg and my left arm. I sued
\nthe guy and got $11,000 for my medical expenses, $3,000 to pay my
\npsychotherapist for the emotional problems I had relating to the injuries (I
\ngot really depressed!), and I won $12,000 in punitive damages. That\u00e2\u0080\u0099ll teach
\nhim that he\u00e2\u0080\u0099s not so tough without his car!
\nAnother
\nbit of bad luck. My uncle Monty died this year. I really liked the guy, but the
\n$200,000 inheritance I received from him made me feel a little better about the
\nloss. I did the smart thing with the money and invested it in stocks and bonds
\nand socked a little into my savings account. As a result, I received $600 in
\ndividends from the stock, $200 in interest from the municipal bonds, and $300
\nin interest from my savings account.
\nMy
\nex-wife, Alice, is still paying me alimony. She\u00e2\u0080\u0099s a lawyer who divorced me a
\nfew years ago because I was \u00e2\u0080\u009cunethical\u00e2\u0080\u009d or something like that. Since she was
\nmaking so much money and I was unemployed at the time, the judge ruled that she
\nhad to pay ME alimony. Isn\u00e2\u0080\u0099t that something?
\nShe sent me $3,000 in alimony payments this year. She still kind of
\nlikes me, though. She sent me a check for $500 as a Christmas gift this year. I
\ndidn\u00e2\u0080\u0099t get her anything, though.
\nSo there you go. That\u00e2\u0080\u0099s the year in a nutshell.
\nCan you figure out my gross income and complete page 1 of Form 1040 for
\nme? And since you\u00e2\u0080\u0099re a student, this is
\nfree, right? Thanks, I owe you one! Let me know if I can get you a six-pack of
\nRoca Cola or something.<\/p>\n
77. {Tax Forms} [LO 1,LO 2,
\nLO 3]
\nDiana and Ryan Workman were married on January 1 of last year. Diana has an eight-year-old son, Jorge, from
\nher previous marriage. Ryan works as a
\ncomputer programmer at Datafile Inc. (DI) earning a salary of $96,000. Diana is self-employed and runs a day care
\ncenter. The Workmans reported the
\nfollowing financial information pertaining to their activities during the
\ncurrent year.
\na. Ryan
\nearned a $96,000 salary for the year.
\nb. Ryan
\nborrowed $12,000 from DI to purchase a car.
\nDI charged him 2 percent interest on the loan, which Ryan paid on
\nDecember 31, but would have charged Ryan $720 if interest was calculated at the
\napplicable federal interest rate. Assume that tax avoidance was not a motive
\nfor the loan.
\nc. Diana
\nreceived $2,000 in alimony and $4,500 in child support payments from her former
\nhusband.
\nd. Diana
\nwon a $900 cash prize at her church-sponsored Bingo game.
\ne. The
\nWorkmans received $500 of interest from corporate bonds and $250 of interest
\nfrom a municipal bond. Diana owned these
\nbonds before she married Ryan.
\nf. The couple bought 50 shares of ABC Inc. stock for $40 per share on July 2. The stock was worth $47 a share on December
\n31. The stock paid a dividend of $1.00
\nper share on December 1.
\ng. Diana\u00e2\u0080\u0099s father passed away on April 14. She inherited cash of $50,000 and his
\nbaseball card collection, valued at $2,000.
\nAs beneficiary of her father\u00e2\u0080\u0099s life insurance policy, Diana also
\nreceived $150,000.
\nh. The couple spent a weekend in Atlantic City in November
\nand came home with gambling winnings of $1,200.
\ni. Ryan received $400 cash for reaching 10
\nyears of continuous service at DI.
\nj. Ryan was hit and injured by a drunk
\ndriver while crossing a street at a crosswalk.
\nHe was unable to work for a month.
\nHe received $6,000 from his disability insurance. DI paid the premiums for Ryan but they
\nreported the amount of the premiums as compensation to Ryan on his year-end
\nW-2.
\nk. The drunk driver who hit Ryan in part (j)
\nwas required to pay his $2,000 medical costs, $1,500 for the emotional trauma
\nhe suffered from the accident, and $5,000 for punitive damages.
\nl. For meeting his performance goals this
\nyear, Ryan was informed on December 27 that he would receive a $5,000 year-end
\nbonus. DI (located in Houston, Texas)
\nmailed Ryan\u00e2\u0080\u0099s bonus check from its payroll processing center (Tampa, Florida)
\non December 28th. Ryan didn\u00e2\u0080\u0099t receive the check at his home until
\nJanuary 2.
\nm. Diana is a 10 percent owner of MNO Inc., a
\nSubchapter S corporation. The company
\nreported ordinary business income for the year of $92,000. Diana acquired the MNO stock last year.
\nn. Diana\u00e2\u0080\u0099s daycare business collected $35,000
\nin revenues. In addition, customers owed
\nher $3,000 at year-end. During the year,
\nDiana spent $5,500 for supplies, $1,500 for utilities, $15,000 for rent, and
\n$500 for miscellaneous expenses. One
\ncustomer gave her use of his vacation home for a week (worth $2,500) in
\nexchange for Diana allowing his child to attend the day care center free of
\ncharge. Diana accounts for her business
\nactivities using the cash method of accounting.
\no. Ryan\u00e2\u0080\u0099s employer pays the couple\u00e2\u0080\u0099s annual
\nhealth insurance premiums of $5,500 for a qualified plan.
\nRequired:
\nA. Assuming the Workmans file a joint tax
\nreturn, determine their gross income.<\/p>\n
B.
\nUsing your answer in part A, complete page 1 of Form 1040 through line 22 for
\nthe Workmans.<\/p>\n
Diane & Ryan Workman
\nForm 1040, Line 21
\nDetail Schedule<\/p>\n
Cash Prize<\/p>\n
900<\/p>\n
Gambling Winnings<\/p>\n
1,200<\/p>\n
Punitive Damages<\/p>\n
5,000<\/p>\n
Line 21 Income $7,100<\/p>\n
C. Assuming the Workmans live in California, a community
\nproperty state, and that Diana and Ryan file separately, what is Ryan\u00e2\u0080\u0099s gross
\nincome?
\nRyan Workman
\nForm 1040, Line 21
\nDetail Schedule<\/p>\n
Cash Prize<\/p>\n
450<\/p>\n
Gambling Winnings<\/p>\n
600<\/p>\n
Punitive Damages<\/p>\n
2,500<\/p>\n
Line 21 Income $3,550<\/p>\n","protected":false},"excerpt":{"rendered":"
Comprehensive Problems 73. [LO 1, LO 2, LO3] Charlie was hired by Ajax this year as a corporate executive and a member of the board\u2026<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7641,8827,10535,10533,10534,10531,10529,6744,10532,10530,7741],"tags":[10553,10549,10616,10615,7687,10254,10627,10104,10247,8857,10552,10295,10900,2984,3903,10548,10622,8901,10551,8907],"class_list":["post-127130","post","type-post","status-publish","format-standard","hentry","category-australia-essay-writers","category-australia-essays","category-do-my-university-assignment-for-me","category-essay-pro-dissertation-writers","category-homework-help-services-best-websites","category-i-need-help-writing-a-page-paper-assignment","category-masters-essays","category-nursing-studybay","category-pay-someone-to-write-a-paper-for-you","category-website-that-writes-assignments","category-studybay","tag-1-assignment-help-online-service-for-students-in-the-usa","tag-ai-plagiarism-free-essay-writing-tool","tag-australian-best-tutors","tag-best-trans-tutors","tag-buy-essay-uk","tag-can-someone-write-my-assignment-for-me","tag-cheap-dissertation-writer","tag-essypro","tag-help-me-write-my-dissertation","tag-help-with-writing-an-essay","tag-help-write-my-paper-ai-free","tag-homework-for-you","tag-nursing-bay","tag-nursing-essay","tag-nursing-study-bay","tag-online-essay-writers","tag-phd-essays","tag-studbay","tag-write-my-assignment-help-for-college-students","tag-write-my-essay-for-me"],"_links":{"self":[{"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/posts\/127130","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/comments?post=127130"}],"version-history":[{"count":0,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/posts\/127130\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/media?parent=127130"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/categories?post=127130"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.studyproessays.com\/help\/wp-json\/wp\/v2\/tags?post=127130"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}