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Take Home Final Exam
This exam is due by December 20, 2016 at 3pm. You can turn the exam in to the Accounting
Department student assistants in Room 300 Prentis. Please place answers in the appropriate boxes
and show your work for any potential partial credit.
PROBLEM 1 - TAX YEAR IS 2015.
Print NEATLY the appropriate treatment for each item listed.
ND Received and Includible in Gross Income
Received and Excludible from Gross Income
Paid and Deductible FOR calculating Adjusted Gross Income
Paid and Deductible FROM Adjusted Gross Income
Paid and Not Deductible
Child support received
Interest paid on home mortgage ($900,000 total debt)
State scholarship received for ten months (tuition and books)
Proceeds received from sale of term papers
Compensatory damages received for medical expenses not covered by
Interest received on bonds issued by Piglet County school district
Interest received on state income tax refund
Amount paid to attend a health spa for one week
Tax Return preparation fees paid
Reimbursement received for medical expenses from the employee?s
company?s group medical insurance plan
Damages received for slander
State sales tax paid (state has no income tax)
Interest received on United States Treasury bonds
Gift received from parents
College room and board paid Life insurance proceeds received from policy on aunt?s life (taxpayer was
named the beneficiary)
Wage continuation payments received from plan purchased by the
Gambling winnings earned
Penalty incurred for early withdrawal of a Certificate of Deposit
Cash prize received from church raffle
Lottery winnings received
Child support paid
Qualified moving expenses incurred to change jobs
Tuition paid for CPA review course
Scholarship received for room and board
Worker?s compensation benefits received
Embezzled funds received
Subscription paid to Wall Street Journal (employed as financial analyst)
One half of self employment tax paid PROBLEM 2
For each of the following situations, provide the requested information for tax year 2015. Be sure to
read carefully and answer the question that is being asked using the information given. All tax years are
2015 unless indicated differently. Place your answers in the indicated boxes.
Zeus, widowed, age 75, paid the entire cost of maintaining his mother, age 102, in a home for the aged,
for the entire year, 2016. Zeus? mother had $19,000 of social security income for 2016 which is not
taxable. She also received $4,000 from a taxable pension.
Filing status for Zeus
Standard Deduction Dollar Amount
Number of Exemptions allowed Situation 2
Pooh, who is 72 years old and single, is claimed as a dependent on his daughter?s tax return. During
2016, Pooh received $700 in interest on a savings account and $2,800 of social security benefits. Pooh
also earned $2,250 from a part-time job.
Filing status for Pooh
Standard Deduction for Pooh
Number of Exemptions allowed for Pooh Assume that Pooh?s Adjusted Gross Income was $3,100.
Taxable Income for Pooh Situation 3
Donald (age 69) and Daisy (age 67) are married taxpayers. They have two children (Huey (14 and a
sophomore in high school) and Dewey (21 who graduated from Wayne State in May 2016). During 2016
Huey earned $4,090 from his part-time summer job as a lifeguard and Dewey earned $13,500 from his
management job that he started in November 2016. Both Huey and Dewey live at home with their
parents. Daisy?s parents, Chip and Dale, (both age 89 and Dale is blind) also live with them. The parents
are completely supported by Donald and Daisy. Donald and Daisy?s total gross income for 2016 is
$158,000. Their itemized deductions are comprised of the following:
Real Estate taxes
Itemized Deductions or Standard Deduction
Number of Exemptions allowed 4,000
5,000 Situation 4
Char and Russ Dasrup (ages 46 and 49 respectively) have one daughter, Siera, who is 18 years old. In
November of last year, the Dasrup's took in Siera's 18 year old friend, Angela (who is blind), who has
lived with them ever since. The Dasrup's have not legally adopted Angela but Siera often refers to
Angela as "her sister." The Dasrup's provide all of the support for both girls, neither girl receives any
income during the year, and both girls live at the Dasrup's residence. The Dasrup?s incurred the
Medical expenses (amount that exceeds AGI limitation)
1,350 Filing status
Itemized Deductions or Standard Deduction
Number of Exemptions allowed Situation 5
Heather, a single taxpayer who files as a head of household, earns $60,000 in taxable income and $5,000
in interest from an investment in city of Oxford Bonds. Using the U.S. tax rate schedule for year 2015,
how much federal tax will she owe? What is her average tax rate? What is her effective tax rate? What is
her current marginal tax rate? Federal Tax Owed
Average Tax Rate
Effective Tax Rate
Current Marginal Tax Rate PROBLEM 3
For each of the following situations, provide the requested amount or amounts.
Sharif purchased a new business asset (three-year property) on July 23, 2016, at a cost of $50,000. He
did not elect to expense any of the asset under ? 179, nor did he elect straight-line cost recovery. He did
want to take any additional first year depreciation if it is available. Convention
Total cost recovery deduction for 2016. Adam purchased a hotel building on May 2, 2015, for $3,000,000. Determine the cost recovery
deduction for 2016. Convention
Total cost recovery deduction for 2016. Joseph purchased a new business asset (five-year property) on January 5, 2015, at a cost of $100,000.
This was the only asset acquired by Joseph during 2015. He did not elect to expense any of the asset
cost under ? 179, nor did he elect straight-line cost recovery. On October 28, 2016, Joseph sold the
Total cost recovery deduction for 2016. Jennifer purchased a new business asset (five-year property) on November 2, 2016, at a cost of
$113,000. This was the only asset purchased and placed in service during this year. Jennifer did not
elect to expense any of the asset under ? 179, nor did she elect straight-line cost recovery. Convention
Total cost recovery deduction for 2016. Problem 4
For each of the following situations, provide the requested amount or amounts. Tax year is 2016 unless
Antonio and Christopher are both involved in operating illegal businesses. Antonio operates a gambling
business and Christopher operates a drug running business. Both businesses have gross revenues of
$500,000. The businesses incur the following expenses.
Bribes to police
Rent and utilities
Cost of goods sold
Taxable Income for Antonio Taxable Income for Christopher 25,000
125,000 Situation 2
Smith operates a roof repair business. This year Smith's business generated cash receipts of $32,000 and
Smith made the following expenditures associated with his business:
Car and Truck Expenses
Education $ 500
1,000 The education expense was for a two-week, nighttime course in business management. Smith believes
the expenditure should qualify as an ordinary and necessary business expense. What net income should
Smith report from his business? Smith is on the cash method and calendar year.
Taxable Income for Smith PROBLEM 5
In the following situation, provide the requested information. (Be sure to take into account all
limitations/adjustments that may be applicable and show all of your work for any potential partial
credit) and place your answer in the indicated box. Tax year is 2016.
Gaston is married has a full-time job as an electrical engineer for an automotive supply firm. In his spare
time, Gaston enjoys raising, breeding and training Border Collies. He attends numerous dog shows
throughout the year and receives income from the sale and training of dogs, awards and prizes. He and
his wife?s adjusted gross income for the year (ignoring the Border Collie activity) is $150,000.
This year he received income of $10,000 from awards, prizes, sale of puppies, fees for training dogs. He
had expenses for veterinary fees, vaccinations and medicines, dog licenses, dog food, grooming,
breeding fees, show fees, and other miscellaneous expenses of $7,000. In addition, he incurred
expenses for travel to and from shows in various cities amounting to $6,000 and also expenses for meals
while attending shows of $2,000. In addition, he conducts this activity at his principal residence and he
estimates that the real estate taxes allocable to the kennel and space for storage of items relating to this
activity were $1,000 for this year and depreciation for the kennel amounted to $500.
Gross Income from the Border Collie activity Deductible expenses for the Border Collie activity if it is
classified as a business (Show your work below ? place
answer in the box) Net Income/(Loss) from the Border Collie business Deduction for the Border Collie activity if it is classified as
a hobby (Show your work below ? place answer in the box) Problem 6
Matt Fig is a computer programmer and incurred the following transactions during 2016.
Sales Price Basis Purchased Sold Provo City
BondsPurchased when $10,000
by Provo City $5,000 11/1/2012 5/2/2016 Cisco Preferred
Stock 6,000 7/15/2007 1/12/2016 Dreyer?s Grand
Ice Cream Stock 10,000 7/1/2015 4/20/2016 Novell Common 2,000 10,000 2/12/2013 11/29/2016 IBM Stock 4,000 3,000 8/2/2004 5/2/2016 ABC Common 6,000 9,000 5/30/2014 10/20/2016 Prior year ST
Carryforward 5,500 Prior year LT
Carryforward 5,500 25,000 Net Short-Term Capital Gain/Loss reported on the
2016 Schedule D Net Long-Term Capital Gain/Loss reported on the
2016 Schedule D Amount of capital gain is subject to the
preferential capital gains rate Problem 7
For each situation indicated the requested answer. All tax years are 2016 unless indicated otherwise.
Four Friends Forever (FFF), an LLC, opened several years ago and reports the following net ?1231
gains and losses since it began business.
Year 7 (current year) Net ?1231 Gains/(Losses)
107,000 Character of the year 7 $107,000 gain Situation 2
Brett is self-employed and he uses a room in his home as his principal place of business. He meets
clients there and doesn't use the room for any other purpose. The size of his home office is 600 square
feet. The size of his entire home is 3,000 square feet. During the current year, Brett received $10,000 of
gross income from his business activities and he reports $7,500 of business expenses unrelated to his
home office. For his entire home, he reported $10,000 of mortgage interest, $2,000 of property taxes,
$2,500 of home operating expenses, and $4,500 of depreciation expense. Assume he uses the actual
expense method of computing home office expenses.
Amount of Home Office expenses allowed as a
deduction in the current year, if any. Amount and type of Home Office expenses
carried over to next year if any Situation 3
Tracy owns a condominium near Newport Beach in California. This year, she incurs the following
expenses in connection with her condo:
Insurance $1,200 Mortgage interest 7,500 Property taxes 4,000 Repairs and maintenance 850 Utilities 2,000 Depreciation 5,500 During the year, Tracy rented the condo for 90 days, receiving $20,000 of gross income. She personally
used the condo for 50 days. Assuming Tracy uses the IRS method of allocating expenses to rental use of
Net rental income for the year Situation 4
Kyle owns a condominium near Laguna Beach, California. This year, he incurs the following expenses in
connection with his condo:
Insurance $1,400 Mortgage interest 6,500 Property taxes 3,200 Repairs and maintenance 900 Utilities 1,600 Depreciation 5,700 During the year, Kyle rented the condo for 100 days, receiving $25,000 of gross income. He personally
used the condo for 60 days. Assuming Kyle uses the Tax Court method of allocating expenses to rental
use of the property.
Net rental income for the year
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