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tax- Determine the taxpayer?s current-year (1) economic income and (2) gross income for tax purposes




Question;26. LO.1 Determine the taxpayer?s current-year (1) economic income and (2) gross income for tax purposes from the following events:a. Sam?s employment contract as chief executive of a large corporation was terminated, and he was paid $500,000 not to work for a competitor of the corporation for five years.b. Elliot, a 6-year-old child, was paid $5,000 for appearing in a television commercial.His parents put the funds in a savings account for the child?s education.c. Valery found a suitcase that contained $100,000. She could not determine who the owner was.d. Winn purchased a lottery ticket for $5 and won $750,000.e. Larry spent $1,000 to raise vegetables that he and his family consumed. The cost of the vegetables in a store would have been $2,400.f. Dawn purchased an automobile for $1,500 that was worth $3,500. The seller was in desperate need of cash.27. LO.1, 5 Andy recently completed medical school and is beginning his medical practice.Most of his patients are covered by health insurance with a co-pay requirement (e.g., the patient pays $10, and the insurance company is billed for the remainder). It takes approximately two months to collect from the health insurance plan. What advice can you provide Andy regarding the selection of a tax accounting method?28. LO.1, 2, 5 A taxpayer is considering three alternative investments of $10,000. Assume that the taxpayer is in the 28% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years. The selected investment will be liquidated at the end of five years. The alternatives are:? A taxable corporate bond yielding 5% before tax, and the interest can be reinvested at 5% before tax.? A Series EE bond that will have a maturity value of $12,200 (a 4% before-tax rate of return).? Land that will increase in value.The gain on the land will be classified and taxed as a long-term capital gain. The income from the bonds is taxed as ordinary income. How much must the land increase in value to yield a greater after-tax return than either of the bonds?Given: Compound amount of $1 and compound value of annuity payments at the end of five years:Interest Rate $1 Compounded for 5 Years $1 Annuity Compounded for 5 Years5% $1.28 $5.534% 1.22 5.423.6% 1.19 5.3729. LO.1 Determine the taxpayer?s gross income for tax purposes in each of the following situations:a. Deb, a cash basis taxpayer, traded a corporate bond with accrued interest of $300 for corporate stock with a fair market value of $12,000 at the time of the exchange.Deb?s cost of the bond was $10,000. The value of the stock had decreased to $11,000 by the end of the year.b. Deb needed $10,000 to make a down payment on her house. She instructed her broker to sell some stock to raise the $10,000. Deb?s cost of the stock was $3,000.Based on her broker?s advice, instead of selling the stock, she borrowed the $10,000 using the stock as collateral for the debt.c. Deb?s boss gave her two tickets to the Rabid Rabbits rock concert because she met her sales quota. At the time she received the tickets, each ticket had a face price of $200 and was selling on eBay for $300. On the date of the concert, the tickets were selling for $250 each. Deb and her son attended the concert.30. LO.1, 2 Determine Amos Watkins?s gross income in each of the following cases:a. In the current year, Amos purchased an automobile for $25,000. As part of the transaction,Amos received a $1,500 rebate from the manufacturer.b. Amos sold his business. In addition to the selling price of the stock, he received $50,000 for a covenant not to compete?an agreement that he will not compete with his former business for five years.c. Amos owned some land he held as an investment. As a result of a change in the zoning rules, the property increased in value by $20,000.


Paper#41283 | Written in 18-Jul-2015

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