Accounting 3220 Chapter 7

QI:7-7
Bill, a plant​ manager, is suffering from a serious ulcer.​ Bill's doctor recommends that he spend three weeks fishing and hunting in the Colorado Rockies. Can Bill deduct the costs of the trip as a medical​ expense?


QI:7-9
What is the limit placed on medical expense​ deductions? When can a deduction be taken for medical​ care? What if the medical care is​ prepaid?


QI:7-10

a.	Which taxes are specifically deductible for federal income tax purposes under Sec.​ 164?
b.	If a tax is not specifically listed in Sec.​ 164, under what circumstances may it still be​ deductible?

QI:7-11
If Susan overpays her state income tax because of excess​ withholdings, can she deduct the entire amount in the year​ withheld? When Susan receives a refund from the state how must she treat that refund for tax​ purposes?


QI:7-14

a.	Identify the different categories of interest expense an individual may incur. How is the classification of the interest​ determined?
b.	Are these different categories of interest​ deductible? If​ so, how?

QI:7-26
For​ individuals, what is the overall deduction limitation on charitable​ contributions? What is the limitation for​ corporations?


QI:7-28
How are charitable contribution deductions reported on the tax return for​ individuals? What reporting requirements must be met for the contribution of​ property?


QI:7-29
List some of the more common miscellaneous itemized deductions and identify any limitations that are imposed on the deductibility of these items.


QI:7-30
Other than the 10​% limitation placed on medical​ expenses, the​ 10% reduction for casualty losses on personal​ property, the​ 2% reduction applied to certain miscellaneous itemized​ deductions, and the fact that itemized deductions are only deductible if they exceed the standard​ deduction, are there any other limitations or reductions applied to itemized deductions for​ individuals?


PI:7-35
Angela is single and has no dependents. For the​ year, her salary is $61,000. She pays $500 in medical and dental insurance​ premiums, which is withheld from her paycheck on an​ after-tax basis, $3,350 in mortgage interest on her​ home, and $1,220 in interest on her car loan. Her health insurance provider reimburses her for $9,700 of the medical expenses.



PI:7-50
During 2016​, Dean incurs the following deductible​ expenses: $1,400 in state income​ taxes, $2,900 in local property​ taxes, $3,400 in medical​ expenses, and $2,100 in charitable contributions. Doug is​ 33, single, has no​ dependents, and has $48,000 AGI for the year.


PI:7-54

In each of the following independent​ cases, determine the amount of the charitable contribution and the limitation that would apply. In each​ case, assume that the donee is a qualified public charity.

Accounting 3220 Chapter 6

QI:6-1
Why is the distinction between deductions for AGI and deductions from AGI important for​ individuals?


QI:6-2
Sam owns a small house that he rents out to students attending the local university. Are the expenses associated with the rental unit deductions for or from ​AGI?


QI:6-3
During the​ year, Sara sold a capital asset at a loss of​ $2,000. She had held the asset as an investment. This is the only capital asset she sold during the year. Is her deduction for this capital loss a deduction for or a deduction from ​AGI?


QI:6-4
Jake is a​ single, self-employed individual who owns his own business. During 2016 JakeJake reported $240,000 gross income and $75,000 expenses from his business. He also paid $28,000 in alimony to his former​ spouse, $4,600 mortgage interest on his personal​ home, $7,500 for health insurance​ premiums, and $2,400 for medicine and doctors. Ignoring any​ self-employment tax on the business​ income, what is Jake​'s AGI for 2016?


QI:6-7
If an activity does not generate a profit in three out of five consecutive​ years, is it automatically deemed to be a​ hobby? Why or why​ not?


QI:6-8
Because expenses incurred both in a business and for the production of investment income are​ deductible, why is it important to determine in which category a particular activity​ falls?


QI:6-10
What are the criteria for distinguishing between a deductible expense and a capital​ expenditure?


QI:6-12
Under what circumstances may a taxpayer deduct an illegal bribe or​ kickback?


QI:6-16
What documentation is required in order for a travel or entertainment expense to be​ deductible?


QI:6-25
Assume that Judy is engaged in painting as a hobby. During the​ year, she earns $1,300 from sales of her paintings and incurs $1,400 expenses for supplies and lessons. Judy​'s salary from her job is $65,000.

Requirement

What is the tax treatment of the hobby income and​ expenses?

PI:6-33

ReeseReese

is an accountant employed by a local firm. During the​ year,

ReeseReese

incurs the following unreimbursed​ expenses:

Requirements

a.	Identify which of these expenses are deductible and the amount that is deductible by ReeseReese. Indicate whether they are deductible for or from AGI.
b.	Would the answers to Part a change if the accounting firm reimburses ReeseReese for these expenses under an accountable​ plan?
c.	Assume all of the same facts as in Part​ a, except that ReeseReese is​ self-employed. Identify which of the expenses are​ deductible, and indicate whether they are deductions for or from AGI.

PI:6-35
Sam owns a small apartment building​ (this is the only rental building Sam​ owns). During the year Sam incurs the following​ expenditures:

Requirement

Select the proper tax treatment for these expenditures.

PI:6-37
Sam is a sole proprietor who​ owns, leases, and manages several apartment complexes and office buildings. During the current​ year, Sam incurs the following expenses.

Requirement

Which of these expenditures are​ deductible? Are they for or from AGI​ deductions?

Accounting 3220 Chapter 5

QI:5-1
What problem may exist in determining the amount realized for an investor who exchanges common stock of a publicly traded corporation for a used​ building? How is the problem likely to be​ resolved?


QI:5-2
In 2001​, Ethel purchased a house for $50,000 to use as her personal residence. She paid $10,000 and borrowed $40,000 from the local savings and loan company. In 2005 she paid $19,000 to add a room to the house. In 2007 she paid $800 to have the house painted and $1,100 for​ built-in bookshelves. As of January 1 of the current​ year, she has reduced the $40,000 mortgage to $36,000. What is her basis for the​ house?
Her basis for the house is $ 70100      (10000+40000+19000+1100)


QI:5-3
Vincent pays​ $20,000 for equipment to use in his trade or business. He pays sales tax of​ $800 as a result of the purchase. Must the​ $800 sales tax be capitalized as part of the purchase​ price?


QI:5-9
A corporate taxpayer plans to build a​ $6 million office building during the next 18 months. How must the corporation treat the interest on debt paid or incurred during the production​ period?


QI:5-10
Andy owns an applicance store where he has merchandise such as refrigerators for sale.​ Roger, a​ bachelor, owns a​ refrigerator, which he uses in his apartment for personal use. For which individual is the refrigerator a capital​ asset?


QI:5-13

In

20022002​,

Florence purchased 30 acres of land. She has not used the land for business purposes or made any substantial improvements to the property. During the current​year, she subdivides the land into 15 lots and advertises the lots for sale. She sells four lots at a gain.

a. What is the character of the gain on the sale of the four​ lots?

b. Explain how the basis of each lot would be determined.

QI:5-15
Four years​ ago, Susan loaned​ $7,000 to her friend Joe. During the current​ year, the​ $7,000 loan is considered worthless. Explain how Susan should treat the worthless debt for tax purposes.


QI:5-25

​Kurt, 

a​ cash-basis taxpayer, sells the following marketable​ securities, which are capital assets during

20162016.

QI:5-26
How might the current treatment of capital losses discourage an individual investor from purchasing stock of a​ high-risk, start-up​ company?


QI:5-27
An individual taxpayer has realized a​ $40,000 loss on the sale of an asset that had a holding period of eight months. Explain why the taxpayer may be indifferent as to whether the asset is a capital asset.


QI:5-28
If Pam transfers an asset to Fred and the asset is subject to a liability that is assumed by​ Fred, how does​ Fred's assumption of the liability affect the amount realized by​Pam? How does​ Fred's assumption of the liability affect his basis for the​ property?


PI:5-34
Dexter receives a duplex as a gift from his uncle. The​ uncle's basis for the duplex and land is $170,000. At the time of the​ gift, the land and building have FMV s of $52,000 and $78,000​, respectively. No gift tax is paid by Dexter's uncle at the time of the gift.

Requirements

a.	To determine​ gain, what is Dexter'sDexter's basis for the​ land?
b.	To determine​ gain, what is Dexter'sDexter's basis for the​ building?
c.	Will the basis of the land and building be the same as in Parts a and b for purposes of determining a​ loss?

a) (170000*52000) / (52000+78000)
b) (170000*78000) / (52000+78000)
c) No since FMV(52000+78000) is Less Than the donor's basis (170000)
   - therefore Yes if xx Greater Than xx.