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[answered] ACC 5170 Take Home Final Exam Fall 2016 This exam is due by


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ACC 5170

 

Take Home Final Exam

 

Fall 2016

 

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.

 

INC

 

EXC

 

FOR

 

FROM

 

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

 

Salary 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

 

insurance

 

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

 

Alimony received

 

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

 

taxpayer

 

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

 

Alimony paid

 

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.

 

Situation 1

 

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

 

Dollar amount

 

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:

 

Charitable Contributions

 

Mortgage interest

 

Real Estate taxes

 

Filing status

 

Itemized Deductions or Standard Deduction

 

Dollar Amount

 

Number of Exemptions allowed 4,000

 

3,800

 

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

 

following expenses:

 

Medical expenses (amount that exceeds AGI limitation)

 

Mortgage interest

 

Charitable contributions

 

Taxes 3,780

 

3,280

 

690

 

1,350 Filing status

 

Itemized Deductions or Standard Deduction

 

Dollar Amount

 

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

 

asset. Convention

 

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

 

indicated differently.

 

Situation 1

 

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.

 

Antonio

 

Christopher

 

Employee salaries

 

$200,000

 

$200,000

 

Bribes to police

 

Rent and utilities

 

Cost of goods sold

 

Taxable Income for Antonio Taxable Income for Christopher 25,000

 

50,000

 

?0? 25,000

 

50,000

 

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:

 

Advertising

 

Car and Truck Expenses

 

Depreciation

 

Employee compensation

 

Education $ 500

 

1,360

 

3,200

 

5,000

 

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

 

originally issued

 

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

 

14,000

 

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

 

Capital Loss

 

Carryforward 5,500 Prior year LT

 

Capital Loss

 

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.

 

Situation 1

 

Four Friends Forever (FFF), an LLC, opened several years ago and reports the following net ?1231

 

gains and losses since it began business.

 

Year

 

Year 1

 

Year 2

 

Year 3

 

Year 4

 

Year 5

 

Year 6

 

Year 7 (current year) Net ?1231 Gains/(Losses)

 

($11,000)

 

8,000

 

(15,000)

 

(2,000)

 

20,000

 

(27,000)

 

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

 

the property.

 

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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