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tax-Al is a medical doctor who conducts his practice as a sole proprietor. During 2013, he received




Question;31. 5 Al is a medical doctor who conducts his practice as a sole proprietor. During 2013, he received cash of $280,000 for medical services. Of the amount collected, $40,000 was for services provided in 2012. At the end of 2013, Al had accounts receivable of $60,000, all for services rendered in 2013. In addition, at the end of the year, Al received $12,000 as an advance payment from a health maintenance organization (HMO) for services to be rendered in 2014. Compute Al?s gross income for 2013:a. Using the cash basis of accounting.b. Using the accrual basis of accounting.c. Advise Al on which method of accounting he should use.32. LO.2 Selma operates a contractor?s supply store. She maintains her books using the cash method. At the end of the year, her accountant computes her accrual basis income that is used on her tax return. For 2013, Selma had cash receipts of $1.4 million, which included $200,000 collected on accounts receivable from 2012 sales. It also included the proceeds of a $100,000 bank loan. At the end of 2013, she had $250,000 in accounts receivable from customers, all from 2013 sales.a. Compute Selma?s accrual basis gross receipts for 2013.b. Selma paid cash for all of the purchases. The total amount paid for merchandise in 2013 was $1.3 million. At the end of 2012, she had merchandise on hand with a cost of $150,000. At the end of 2013, the cost of merchandise on hand was $300,000.Compute Selma?s gross income from merchandise sales for 2013.33. LO.2, 3, 5 Your client is a new partnership, ARP Associates, which is an engineering consulting firm. Generally, ARP bills clients for services at the end of each month. Client billings are about $50,000 each month. On average, it takes 45 days to collect the receivables.ARP?s expenses are primarily for salary and rent. Salaries are paid on the last day of each month, and rent is paid on the first day of each month. The partnership has a line of credit with a bank, which requires monthly financial statements. These must be prepared using the accrual method. ARP?s managing partner, Amanda Sims, has suggested that the firm also use the accrual method for tax purposes and thus reduce accounting fees by $600. Assume that the partners are in the 35% (combined Federal and state) marginal tax bracket. Write a letter to your client explaining why you believe it would be worthwhile for ARP to file its tax return on the cash basis even though its financial statements are prepared on the accrual basis. ARP?s address is 100 James Tower,Denver, CO 80208.34. LO.2 Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that repairs automobiles. In late December 2013, the company repairedSamuel Mosley?s car and charged him $1,000. Samuel did not think the problem had been fixed and refused to pay, thus, Trip refused to release the automobile. In early January 2014, Trip made a few adjustments and convinced Samuel that the automobile was working properly. At that time, Samuel agreed to pay only $900 because he did not have the use of the car for a week. Trip said ?fine,? accepted the $900, and released the automobile to Samuel. An IRS agent thinks Trip, as an accrual basis taxpayer, should report $1,000 of income in 2013, when the work was done, and then deduct a $100 loss in 2014. Prepare a memo to Susan Apple, the treasurer of Trip, with the recommended treatment for the disputed income.35. LO.2 Determine the effects of the following on a cash basis taxpayer?s gross income for 2013 and 2014.a. On the morning of December 31, 2013, the taxpayer received a $1,500 check from a customer. The taxpayer did not cash the check until January 3, 2014.b. The same as part (a), except the customer asked the taxpayer not to cash the check until January 3, 2014, after the customer?s salary check could be deposited.c. The same as part (a), except the check was not received until after the bank had closed on December 31, 2013.36. LO.2 Marlene, a cash basis taxpayer, invests in Series EE U.S. government savings bonds and bank certificates of deposit (CDs). Determine the tax consequences of the following on her 2013 gross income:a. On September 30, 2013, she cashed in Series EE bonds for $10,000. She purchased the bonds in 2003 for $7,090. The yield to maturity on the bonds was 3.5%.b. On July 1, 2012, she purchased a CD for $10,000. The CD matures on June 30, 2014, and will pay $10,816, thus yielding a 4% annual return.c. On July 1, 2013, she purchased a CD for $10,000. The maturity date on the CD wasJune 30, 2014, when Marlene would receive $10,300.


Paper#41284 | Written in 18-Jul-2015

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