South Western Federal Taxation 2013 Individual Income Taxes 36th Edition by Hoffman Smith Solutions Manual Test Bank


 
South Western Federal Taxation 2013 Individual Income Taxes 36th Edition by Hoffman Smith Solutions Manual Test Bank -- price  $35


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Contents:

* Test Bank
* Complete Solutions Manual
* Solutions to Research Problems
* Solution Transparency Masters
* Practice Set Solutions
* Instructor's Guide
* Solutions to Appendix E

Contents of Appendix E
Problem 1 – Karl F. and Jeanne S. Wheat – Individual Income Tax Return
Problem 2 – Robert (Bob) S. and Sally D. Grove – Individual Income Tax Return
Problem 3 – Pet Kingdom – Form 1120 Corporate Tax Return
Problem 4 – By the Numbers – Form 1120 Corporate Tax Return
Problem 5 – Rock the Ages – Form 1065 tax return
Problem 6 – Chocolat, Inc – Form 1120S
Problem 7 – Daniel and Lisa Ward – Form 709 Tax Returns
Problem 8 – Pam Butler – Form 706 Tax Return
Problem 9 – Green – Form 1041 Tax Return



Test Bank Chapter 7


51. Peggy is in the business of factoring accounts receivable. Last year, she purchased a $30,000 account receivable for $25,000. This year, the account was settled for $25,000. How much loss can Peggy deduct and in which year?
A. $5,000 for the current year.
B. $5,000 for the prior year and $5,000 for the current year.
C. $5,000 for the prior year.
D. $10,000 for the current year.
E. None of the above.

52. Jed is an electrician.  Jed and his wife are accrual basis taxpayers and file a joint return.  Jed wired a new house for Alison and billed her $15,000.  Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant.  Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement.  Jed was never able to collect the judgement nor the remainder of the bill from Alison.  What amount of loss may Jed deduct in the current year?
A. $0.
B. $2,000.
C. $3,000.
D. $5,000.
E. None of the above.

53. On June 2, 2011, Fred’s TV Sales sold Mark a large HD TV, on account, for $12,000.  Fred’s TV Sales uses the accrual method.  In 2012, when the balance on the account was $8,000, Mark filed for bankruptcy.  Fred was notified that he could not expect to receive any of the amount owed to him.  In 2013, final settlement was made and Fred received $1,000.  How much bad debt loss can Fred deduct in 2013?
A. $0.
B. $7,000.
C. $8,000.
D. $12,000.
E. None of the above.

54. Red Corporation incurred a $15,000 bad debt last year.  Red Corporation also had an $9,000 long-term capital gain last year.  Red’s taxable income for last year was $100,000.  During the current year, Red Corporation, unexpectedly, collected $7,000 on the debt.  How should Red Corporation account for the $7,000 collection?
A. $0 income.
B. $3,000 income.
C. $4,000 income.
D. $7,000 income.
E. None of the above.

55. Last year, Lucy purchased a $100,000 account receivable for $90,000. During the current year, Lucy collected $97,000 on the account. What are the tax consequences to Lucy associated with the collection of the account receivable? No subsequent collections are expected.
A. $0.
B. $2,000 gain.
C. $3,000 loss.
D. $13,000 loss.
E. None of the above.

56. Two years ago, Gina loaned Tom $50,000.  Tom signed a note the terms of which called for monthly payments of $2,000 plus 6% interest on the outstanding balance.  Last year, when the balance owing on the loan was $18,000, Tom defaulted on the note.  As of the end of last year, there appeared to be no reasonable prospect of Gina recovering the $18,000.  As a consequence, Gina claimed the $18,000 as a nonbusiness bad debt.  Last year, Gina had AGI of a negative $6,000 which included $5,000 net long-term capital gains and $4,000 of qualified dividends.  Gina did not itemize her deductions.  During the current year, Tom paid Gina $13,000 in final settlement of the loan.  How should Gina account for the payment in the current year?
A. File an amended tax return for last year.
B. Report no income for the current year.
C. Report $8,000 of income for the current year.
D. Report $12,000 of income for the current year.
E. None of the above.

57. Five years ago, Tom loaned his son John $20,000 to start a business. A note was executed with an interest rate of 8%, which is the Federal rate. The note required monthly payments of the interest with the $20,000 due at the end of ten years. John always made the interest payments until last year. During the current year, John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800. Tom is a cash basis taxpayer whose only income is salary and interest income. The proper treatment for the nonpayment of the note is:
A. No deduction.
B. $3,000 deduction.
C. $20,000 deduction.
D. $21,800 deduction.
E. None of the above.

58. Three years ago, Sharon loaned her sister $30,000 to buy a car. A note was issued for the loan with the provision for monthly payments of principal and interest. Last year, Sharon purchased a car from the same dealer, Hank’s Auto. As partial payment for the car, the dealer accepted the note from Sharon’s sister. At the time Sharon purchased the car, the note had a balance of $18,000. During the current year, Sharon’s sister died. Hank’s Auto was notified that no further payments on the note would be received. At the time of the notification, the note had a balance due of $15,500. What is the amount of loss, with respect to the note, that Hank’s Auto may claim on the current year tax return?
A. $0.
B. $3,000.
C. $15,500.
D. $18,000.
E. None of the above.

59. On September 3, 2011, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000. On December 31, 2011, the stock was worth $85,000. On August 15, 2012, Able was notified that the stock was worthless. How should Able report this item on his 2012 tax return?
A. $85,000 capital loss.
B. $85,000 ordinary loss.
C. $50,000 ordinary loss and $35,000 capital loss.
D. $60,000 ordinary loss.
E. None of the above.

60. On February 20, 2011, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000. On May 1, 2012, the stock became worthless. During 2012, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain. How should Bill treat these items on his 2012 tax return?
A. $4,000 long-term capital loss and $9,000 short-term capital loss.
B. $4,000 long-term capital loss and $3,000 short-term capital loss.
C. $8,000 ordinary loss and $3,000 short-term capital loss.
D. $8,000 ordinary loss and $5,000 short-term capital loss.
E. $8,000 long-term capital loss and $6,000 short-term capital loss.

61. John files a return as a single taxpayer. In 2012, he had the following items:

·
Salary of $45,000.
·
Loss of $65,000 on the sale of § 1244 stock acquired two years ago.
·
Interest income of $6,000.



Determine John’s AGI for 2012.

A. ($5,000).

B. $0.
C. $45,000.
D. $51,000.
E. None of the above.

62. Bruce, who is single, had the following items for the current year:

·
Salary of $80,000.
·
Gain of $20,000 on the sale of § 1244 stock acquired two years earlier.
·
Loss of $75,000 on the sale of § 1244 stock acquired three years earlier.
·
Worthless stock of $15,000. The stock was acquired on February 1 of the prior year and became worthless on January 15 of the current year.



Determine Bruce’s AGI for the current year.

A. $27,000.

B. $38,000.
C. $42,000.
D. $47,000.
E. None of the above.

63. On July 20, 2010, Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is § 1244 small business stock) for $24,000.  On November 10, 2011, Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000.  On September 15, 2012, Matt sold the 4,000 shares of stock for $120,000.  How should Matt treat the sale of the stock on his 2012 return?
A. $54,000 ordinary loss.
B. $100,000 ordinary loss; $46,000 net capital gain.
C. $100,000 ordinary loss; $20,000 STCL.
D. $130,000 ordinary loss; $66,000 LTCG.
E. None of the above.

64. Which of the following events would produce a deductible loss?
A. Erosion of personal use land due to rain or wind.
B. Termite infestation of a personal residence over a several year period.
C. Damages to personal automobile resulting from a taxpayer’s negligence.
D. A misplaced diamond ring.
E. None of the above.

65. In 2012, Wally had the following insured personal casualty losses (arising from one casualty). Wally also had $42,000 AGI for the year before considering the casualty.



Fair Market Value
Insurance

Asset
Adjusted Basis
Before
After
Recovery
A
$9,200
$8,000
$1,000
$2,000
B
 3,000
 4,000
    –0–
  4,000
C
 3,700
 1,700
    –0–
     900






Wally’s casualty loss deduction is:

A. $1,500.

B. $1,600.
C. $4,800.
D. $58,000.
E. None of the above.

66. Jim had a car accident in 2012 in which his car was completely destroyed. At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of $40,000. Jim used the car 100% of the time for personal use. Jim received an insurance recovery of 70% of the value of the car at the time of the accident. If Jim’s AGI for the year is $60,000, determine his deductible loss on the car.
A. $900.
B. $2,900.
C. $3,000.
D. $9,000.
E. None of the above.

67. Norm’s car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2012. The car’s adjusted basis at the time of the accident was $13,000. Its fair market value was $10,000. The car was covered by a $2,000 deductible insurance policy. Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates. His adjusted gross income was $14,000 (before considering the loss). What is Norm’s deductible loss?
A. $0.
B. $100.
C. $500.
D. $9,500.
E. None of the above.

68. In 2012, Grant’s personal residence was damaged by fire. Grant was insured for 90% of his actual loss, and he received the insurance settlement. Grant had adjusted gross income, before considering the casualty item, of $30,000. Pertinent data with respect to the residence follows:

Cost basis
$170,000
Value before casualty
250,000
Value after casualty
60,000



What is Grant’s allowable casualty loss deduction?

A. $0.

B. $6,500.
C. $6,900.
D. $10,000.
E. $80,000.

69. John had adjusted gross income of $60,000. During the year his personal use summer home was damaged by a fire. Pertinent data with respect to the home follows:

Cost basis
$260,000
Value before the fire
400,000
Value after the fire
100,000
Insurance recovery
270,000



John had an accident with his personal use car. As a result of the accident, John was cited with reckless driving and willful negligence. Pertinent data with respect to the car follows:

Cost basis
$80,000
Value before the accident
56,000
Value after the accident
20,000
Insurance recovery
18,000



What is John’s itemized casualty loss deduction?

A. $0.

B. $2,000.
C. $17,000.
D. $18,000.
E. None of the above.

70. In 2012, Mary had the following items:

Salary
$30,000
Personal use casualty gain
10,000
Personal use casualty loss (after $100 floor)
17,000
Other itemized deductions
 4,000



Assuming that Mary files as head of household (has one dependent child), determine her taxable income for the current year.

A. $13,700.

B. $14,100.
C. $14,300.
D. $24,300.
E. None of the above.

71. In 2012, Morley, a single taxpayer, had an AGI of $30,000 before considering the following items:

Loss from damage to rental property
($6,000)
Loss from theft of bonds
(3,000)
Personal casualty gain
4,000
Personal casualty loss (after $100 floor)
(9,000)



Determine the amount of Morley’s itemized deduction from the losses.

A. $0.

B. $2,900.
C. $5,120.
D. $5,600.
E. None of the above.

72. In 2012, Theo, an employee, had a salary of $30,000 and experienced the following losses:

Loss from damage to rental property
($10,000)
Unreimbursed loss from theft of business computer
(5,000)
Personal casualty gain
4,000
Personal casualty loss (after $100 floor)
(3,000)



Determine the amount of Theo’s itemized deduction from these losses.

A. $0.

B. $2,800.
C. $2,900.
D. $4,580.
E. None of the above.

73. Alicia was involved in an automobile accident in 2012. Her car was used 60% for business and 40% for personal use. The car had originally cost $40,000. At the time of the accident, the car was worth $20,000 and Alicia had taken $8,000 of depreciation. The car was totally destroyed and Alicia had let her car insurance expire. If Alicia’s AGI is $50,000 (before considering the loss), determine her itemized deduction for the casualty loss.
A. $4,500.
B. $6,100.
C. $8,000.
D. $24,000.
E. None of the above.

74. Last year, Sarah (who files as single) had silverware worth $10,000 (basis $6,000) stolen from her home.  Sarah’s insurance company told her that her policy did not cover the theft.  Sarah’s other itemized deductions last year were $10,000.  She had AGI of $30,000 last year.  In August of the current year, Sarah’s insurance company decided that Sarah’s policy did cover the theft of the silverware and they paid Sarah $5,000.  Determine the tax treatment of the $5,000 received by Sarah during the current year.
A. None of the $5,000 should be included in gross income.
B. $2,900 should be included in gross income.
C. $5,000 should be included in gross income.
D. Last year’s return should be amended to include the $5,000.
E. None of the above.

75. Alma is in the business of dairy farming. During the year, one of her barns was completely destroyed by fire. The adjusted basis of the barn was $90,000. The fair market value of the barn before the fire was $75,000. The barn was insured for 95% of its fair market value, and Alma recovered this amount under the insurance policy. Alma has adjusted gross income for the year of $40,000 (before considering the casualty). Determine the amount of loss she can deduct on her tax return for the current year.
A. $3,750.
B. $14,650.
C. $14,750.
D. $18,750.
E. None of the above.

76. In 2012, Juan’s home was burglarized. Juan had the following items stolen:

·
Securities worth $25,000. Juan purchased the securities four years ago for $20,000.
·
New tools which Juan had purchased two weeks earlier for $8,000. Juan uses the tools in making repairs at an apartment house that he owns and manages.
·
An antique worth $15,000. Juan inherited the antique (a family keepsake) when the property was worth $11,000.



Juan’s homeowner’s policy had a $50,000 deductible clause for thefts. If Juan’s salary for the year is $50,000, determine the amount of his itemized deductions as a result of the theft.

A. $3,100.

B. $6,000.
C. $26,100.
D. $26,500.
E. None of the above.

77. Regarding research and experimental expenditures, which of the following are not qualified expenditures?
A. Costs of improving an existing pilot model.
B. Costs to develop a plant process.
C. Costs of developing a formula.
D. Depreciation on a building used for research.
E. All of the above are qualified expenditures.

78. Blue Corporation incurred the following expenses in connection with the development of a new product:

Salaries
$100,000
Utilities
18,000
Materials
25,000
Advertising
5,000
Market survey
3,000
Depreciation on machine
9,000



Blue expects to begin selling the product next year.  If Blue elects to amortize research and experimental expenditures over 60 months, determine the amount of the deduction for research and experimental expenditures for the current year.

A. $0.

B. $118,000.
C. $143,000.
D. $152,000.
E. $160,000.

79. Last year, Green Corporation incurred the following expenditures in the development of a new plant process:

Salaries
$250,000
Materials
90,000
Utilities
20,000
Quality control testing costs
40,000
Management study costs
5,000
Depreciation of equipment
15,000



During the current year, benefits from the project began being realized in May. If Green Corporation elects a 60 month deferral and amortization period, determine the amount of the deduction for the current year.

A. $48,000.

B. $50,400.
C. $54,667.
D. $57,067.
E. None of the above.

80. Ivory, Inc., has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in 2012. Ivory’s domestic production activities deduction is:
A. $36,000.
B. $42,000.
C. $54,000.
D. $63,000.
E. None of the above.

81. For the year 2012, Amber Corporation has taxable income of $880,000, alternative minimum taxable income of $600,000, and qualified production activities income (QPAI) of $640,000.  The total W-2 wages paid to employees engaged in qualified domestic production activities are $116,000.  Amber’s DPAD for 2012 is:
A. $54,000.
B. $57,600.
C. $58,000.
D. $79,200.
E. None of the above.

82. Cream, Inc.’s taxable income for 2012 before any deduction for an NOL carryforward of $30,000 is $70,000. Cream’s qualified production activities income (QPAI) is $60,000. What is the amount of Cream’s domestic production activities deduction (DPAD) for 2012?
A. $1,200.
B. $1,800.
C. $2,400.
D. $3,600.
E. None of the above.

83. In the computation of a net operating loss, which of the following items is not added to the negative taxable income?
A. Losses incurred in a transaction entered into for profit.
B. Personal casualty loss.
C. Personal theft loss.
D. Losses from theft of securities.
E. None of the above.

84. If a taxpayer has an NOL in 2012 of $20,000, of which $8,000 is attributable to a theft of rental use property, the taxpayer may:
A. Carry all of the NOL of $20,000 back 5 years.
B. Carry all of the NOL of $20,000 back 3 years.
C. Carry $8,000 of the NOL back 3 years and the remainder of the NOL of $12,000 back 2 years.
D. All of the above.
E. None of the above.

85. Wu, who is single, has the following items for 2012:

Salary
$25,000
Interest income
3,000
Itemized deductions ($27,000 attributable to casualty loss)
(32,000)



What is Wu’s NOL for 2012?

A. $0.

B. $1,000.
C. $2,000.
D. $25,000.
E. None of the above.

86. Khalid, who is single, had the following items for 2012:

Salary
$40,000
Interest income on U.S. Treasure bonds
8,000
Loss on theft of securities
(60,000)
Interest income on New York state bonds
12,000 



What is Khalid’s NOL for 2012?

A. $10,000.

B. $12,000.
C. $15,000.
D. $25,100.
E. None of the above.

87. Janice, single with one dependent child, had the following items for the year 2012:

Salary
$30,000
Dividend income
8,000
Loss on § 1244 small business stock held for three years
(45,000)
Total itemized deductions
(5,000)



Determine Janice’s net operating loss for the year 2012.

A. $0.

B. $5,000.
C. $15,000.
D. $20,000.
E. None of the above.

88. Bill, age 40, is married with two dependents. Bill had the following items for the year 2012:

Bill’s business loss
($40,000)
Bill’s salary
50,000
Personal casualty gains
5,000
Personal casualty loss (after $100 floor)
(23,000)
Other itemized deductions
(15,000)



Based on the above information, what is the net operating loss for Bill and his spouse for the year 2012?

A. $0.

B. $5,000.
C. $7,000.
D. $12,000.
E. None of the above.

89. Jack, age 30 and married with no dependents, is a self-employed individual. For 2012, his self-employed business sustained a net loss from operations of $10,000. The following additional information was obtained from his personal records for the year:

Nonbusiness long-term capital gain
$  2,000
Interest income
6,000
Itemized deductions—consisting of taxes and interest
(12,000)



Based on the above information, what is Jack’s net operating loss for the current year if he and his spouse file a joint return?

A. $2,000.

B. $8,000.
C. $10,000.
D. $11,000.
E. $16,400.

90. Mavis, age 70, is single with no dependents.  The following information was obtained from her personal records for the current year:

Interest income
$  7,000
Loss on sale of § 1244 stock
20,000
Itemized deductions
4,000



Based on the above information, what is Mavis’s net operating loss for the current year?

A. $18,000.

B. $19,800.
C. $20,000.
D. $23,300.
E. None of the above.

91. Ralph is single and has the following items for the current year:

Nonbusiness capital gains
$  9,000
Nonbusiness capital losses
(3,000)
Interest income
6,000
Itemized deductions (none of the amount resulted from a casualty loss)
(10,000)



In calculating Ralph’s net operating loss, and with respect to the above amounts only, what amount must be added back to taxable income (loss)?

A. $0.

B. $2,000.
C. $3,000.
D. $4,000.
E. None of the above.

92. Elizabeth has the following items for the current year:

Nonbusiness capital gains
$  5,000
Nonbusiness capital losses
(3,000)
Interest income
3,000
Itemized deductions (including a $20,000 casualty loss)
(27,000)



In calculating Elizabeth’s net operating loss, and with respect to the above amounts only, what amount must be added back to taxable income (loss)?

A. $0.

B. $1,000.
C. $2,000.
D. $20,000.
E. None of the above.

93. Steve and Holly have the following items for 2012:

Dividend income
$5,000
Interest income
7,000
Itemized deductions (none of the amount resulted from a casualty loss)
(9,000)
Business capital gains
1,000
Business capital losses
(3,000)



In calculating their net operating loss, and with respect to the above amounts only, what amount must be added back to taxable income (loss)?

A. $0.

B. $1,300.
C. $1,900.
D. $3,000.
E. None of the above.

94. Tonya had the following items for last year:

Salary
$40,000
Short-term capital gain
12,000
Nonbusiness bad debt
(25,000)
Long-term capital gain
8,000 



For the current year, Tonya had the following items:

Salary
$45,000
Collection of last year’s bad debt
25,000



Determine Tonya’s adjusted gross income for the current year.
 

 

 

 

 

95. Maria, who is single, had the following items for 2012:

Salary
$80,000
Loss on sale of § 1244 small business stock acquired 3 years ago
(60,000)
Stock acquired 2 years ago became worthless during the year
(5,000)
Long-term capital gain
25,000
Nonbusiness bad debt
(8,000)
Casualty loss on property held 6 months
(4,000)
Casualty gain on property held 4 years
4,000



Determine Maria’s adjusted gross income for 2012.
 

 

 

 

 

96. Mike, single, age 31, had the following items for 2012:

Salary

$50,000 

Nonbusiness bad debt

(6,000)

Casualties—independent events




Asset A (personal use property held for two years)—gain
3,000 


Securities (stolen)—loss
(8,000)

Dividends

2,000 

Interest expense on personal residence

10,000 






Compute Mike’s taxable income for 2012.
 

 

 

 

 

97. Jose, single, had the following items for 2012:

Salary


$44,000
§ 1244 loss on stock acquired 3 years ago

(70,000)

§ 1244 gain on stock acquired 10 months ago

26,000

Worthless security purchased in June of last year

(4,000)

Nonbusiness bad debt

(7,000)

Interest income

8,000
 

Compute Jose’s adjusted gross income for 2012.









 

 

 

 

98. Julie, who is single, has the following items for 2012:

·
Salary—$100,000.
·
A hurricane completely destroyed Julie’s duplex during the current year. Julie lived in one-half of the duplex and rented out the other half. Julie paid $400,000 for the duplex and has taken $80,000 of cost recovery on the rental portion of the duplex. The duplex was worth $420,000 at the time of the destruction. Julie’s insurance policy paid her 90% of the fair market value of the duplex.
·
Household items destroyed in the hurricane had a basis of $15,000 and a fair market value of $8,500. There was no insurance recovery on the household items.
·
Julie purchased a painting three years ago for $4,000. At the time of the hurricane, the painting was worth $10,000. Julie purchased the painting as an investment with the intent that she would sell it when its value exceeded $12,000. There was no insurance recovery on the painting.
·
Home mortgage interest—$10,000.
Determine the amount of Julie’s taxable income for 2012.





 

 

 

 

99. Juanita, single and age 43, had the following items for 2012:

Salary
$60,000 
Interest income
6,000 
Casualty loss on business property
(15,000)
Casualty loss on rental property
(5,000)
Loss on theft of securities
(8,000)
Personal casualty gains
 6,000 
Personal casualty loss (after $100 floor)
(13,000)
Other itemized deductions
(9,000)



Compute Juanita’s taxable income for 2012.
 

 

 

 

 

100. While Susan was on vacation during the current year, someone broke into her home and stole the following items:

·
A computer used 60% in connection with Susan’s employment as an employee and 40% for her personal use.  The cost of the computer was $8,000.  Depreciation of $3,000 had been taken on the computer and it had a fair market value of $4,000 at the time of the theft.
·
A painting, which Susan purchased as an investment for $10,000, had a fair market value of $17,000.
·
Silverware purchased for $3,000 had a fair market value of $5,000.
·
Cash of $30,000.




Susan’s adjusted gross income, before considering any of the above items, is $60,000. 
Determine the total amount of Susan’s itemized deductions resulting from the theft.
 

 

 

 

 

101. Neal, single and age 37, has the following items for 2012:

Salary
$50,000 
Casualty loss on business property
(8,000)
Casualty loss on rental property
(5,000)
Personal casualty gains
3,000 
Personal casualty losses (after $100 floor)
(12,000)
Interest expense on personal residence
(7,000)



Determine Neal’s taxable income for 2012.
 

 

 

 

 

102. Gary, who is an employee of Red Corporation, has the following items for 2012:

Salary
$80,000
Personal casualty gain
7,000
Personal casualty loss from one event (before the $100 floor)
15,000
Loss on rental property
6,000
Theft of bearer bonds
18,000
Unreimbursed loss from theft of a computer used 100% for business
4,000



Determine Gary’s AGI and total amount of itemized deductions for 2012.
 

 

 

 

 

103. Susan has the following items for 2012:
·    Loss on rental property caused by termites—$150,000.  Insurance covered 80% of the loss.

·    Loss on personal use automobile—$10,000.  The insurance policy does not cover the first $3,000 of loss.  Susan decided not to file a claim for the loss.

·    Loss on a painting stolen from Susan’s house.  Susan purchased the painting three years ago as an investment.  She paid $40,000 for the painting and it was worth $45,000 at the time of the theft.  The painting was insured for the fair market value.

·    Salary—$40,000.

Determine Susan’s AGI and total amount of itemized deductions for 2012. 

 

 

 

 

104. Roger, an individual, owns a proprietorship called Green Thing.  For the year 2012, Roger has the following items:

·    Business income—$200,000.
·    Business expense—$150,000.
·    Loss on a completely destroyed business machine.  The machine had an adjusted basis of $25,000 and a fair market value of $20,000.

·    Loss on a business truck.  The truck had an adjusted basis of $8,000.  The repairs to fix the truck cost $10,000.

Determine Roger’s adjusted gross income for 2012. 

 

 

 

 

105. In 2011, Robin Corporation incurred the following expenditures in connection with the development of a new product:

Salaries
$100,000
Supplies
40,000
Market survey
10,000
Depreciation
25,000



In 2012, Robin incurred the following additional expenditures in connection with the development of the product:

Salaries
$125,000
Supplies
50,000
Depreciation
30,000
Advertising
10,000



In October 2012, Robin began receiving benefits from the project. If Robin elects to expense research and experimental expenditures, determine the amount and year of the deduction.
 

 

 

 

 

106. In 2011, Tan Corporation incurred the following expenditures in connection with the development of a new product:

Salaries
$  60,000
Supplies
20,000
Depreciation on research equipment
10,000
Testing for quality control
5,000
Advertising
8,000
Overhead allocated to research
2,000



Tan began selling the product in November, 2011.  If Tax elects to amortize research and experimental expenditures, determine Tan’s deduction for 2012.
 

 

 

 

 

107. Green, Inc., manufactures and sells widgets.  During 2012, an examination of the company records showed the following items:

Domestic production gross receipts
$3,000,000
Cost of goods sold for domestic products
750,000
Expenses directly related to domestic production gross
    receipts (other than wages)

300,000
W-2 wages paid to employees engaged in qualified domestic
    production activities

300,000
Ratable portion of other expenses
100,000
Total W-2 wages
325,000
Taxable income
1,600,000



Determine Green’s domestic production activities deduction for 2012.
 

 

 

 

 

108. Red Company is a proprietorship owned by Sally, a single individual.  Red manufactures and sells widgets.  During 2012, an examination of Red’s records shows the following items:


Domestic production gross receipts
$2,500,000

Cost of goods sold for domestic products
600,000

Expenses directly related to domestic production gross
    receipts (other than wages)
280,000

Ratable portion of other expenses
100,000

Other expenses not allocated to domestic production
    gross receipts
30,000

W-2 wages paid to employees engaged in qualified domestic
    production activities
270,000

Total W-2 wages
320,000



Sally also had the following additional items:



Dividends received
$   20,000

Interest income
10,000




Determine Sally’s domestic production activities deduction for 2012.
 

 

 

 

 

109. Nora, divorced with two dependent children, had the following income and deductions for 2012:

Sales
$  50,000
Business expenses
(100,000)
Alimony received
30,000
Interest income
1,000
Dividends
2,000
Nonbusiness capital gains
4,000
§ 1244 stock loss
(18,000)
Itemized deductions
(4,000)
Business capital loss
(2,000)
Business capital gain
1,000



Compute Nora’s net operating loss for 2012.
 

 

 

 

 

110. Juan, married and filing jointly, had the following income and deductions for 2012:

Sales
$600,000
Business expenses
(650,000)
Interest income
3,000
Dividends
4,000
Personal casualty loss (after deducting the $100 floor)
(25,000)
Personal casualty gain
8,000
Taxes paid on personal residence
(7,000)
Interest paid on personal residence
(9,000)



Juan has three dependent children. Calculate the net operating loss for 2012.
 

 

 

 

 

111. Jason, married and filing jointly, had the following income for 2012:

Salary
$  70,000
Loss on the sale of § 1244 stock held for 5 years
(110,000)
Dividends
25,000
Interest income
10,000
Itemized deductions (no casualty losses)
(12,000)



Jason has four dependent children. Calculate the net operating loss for 2012.
 

 

 

 

 

112. Ruth sustains a net operating loss (NOL) of $15,000 for 2012.  Because Ruth had no taxable income in 2010, the loss is carried back to 2011.  For 2011, the joint income tax return of Ruth and her husband was as follows:

Salary
$20,000

Interest income
5,000

Net short-term capital loss
   (2,000)

AGI
$23,000

Itemized deductions



Charitable contributions
$4,000


Medical expenses [$2,000 – ($23,000 ´ .075)]
 275


Interest
5,000


Taxes
  2,500
(11,775)
Personal exemptions (2 ´ $3,700)
   (7,400)

Taxable income
$  3,825


Calculate Ruth’s remaining 2012 NOL to be carried to 2013.








 

 

 

 

113. Milt, married and filing jointly, had the following items for 2012:

Sales
$200,000
Business expenses
210,000
Interest income
    3,000
Dividends
    5,000
Salary
   20,000
Alimony received
    8,000
Nonbusiness long-term capital gains
    5,000
Nonbusiness short-term capital losses
    7,000
Business short-term capital losses
    4,000
Business long-term capital gains
    2,000
IRA contributions
    5,000
Charitable contributions
    9,000
Medical expenses
    8,000
Property taxes
    7,000
Casualty loss on personal property (after the $100 floor)
   35,000
Loss on stolen bonds
    5,000
Unreimbursed employee business expenses
    8,000



Milt has two dependent children.  If Milt and his wife file a joint return, compute their net operating loss for 2012.
 

 

 

 

 

114. Identify the factors that should be considered in determining whether a transaction is a bona fide loan or a gift. 

 

 

 

 

115. Identify the factors that should be considered in determining whether a transaction is a business bad debt or a nonbusiness bad debt. 

 

 

 

 

116. A taxpayer who sustains a casualty loss in an area designated by the President of the United States as a disaster area may take the loss in the year in which the loss occurred or elect to take the loss in the previous year. Identify factors that should be considered in deciding in which year to take the loss. 

 

 

 

 

117. Discuss the treatment, including the carryback and carryforward periods, of casualty losses incurred with personal use property. 

 

 

 

 

118. What are the three methods of handling research and experimental expenditures incurred in a trade or business? Under what circumstances would you choose each? 

 

 

 

 

119. Why was the domestic production activities deduction (DPAD) enacted by Congress? 

 

 

 

 

120. How is qualified production activities income (QPAI) calculated? 

 

 

 

 

121. Sally is an employee of Blue Corporation.  Last year, she purchased a very expensive computer with her own funds.  She used the computer 100% for business purposes.  During the current year, the computer was completely destroyed in a fire.  Blue Corporation did not reimburse her for her loss.  Discuss whether Sally’s loss will create or increase Sally’s net operating loss. 

 

 

 

 

122. Discuss the calculation of nonbusiness deductions for purposes of determining an individual’s NOL. 

 

 

 

 

123. Discuss the computation of NOL remaining to be carried forward after the NOL has been applied in a carryback year. 

 

 

 

 

124. Discuss the effect of alimony in computing a net operating loss.