ACCT 308 – Chp. 6 Questions (#33, 37, 38, 39, 43, 46)
Conference registration $900 $900
Airfare 1,200 700
Taxi fares 100 -0-
Lodging in Dallas 750 300
a. Amos pays for all of these expenses. Calculate the effect of these expenses on Amos’s AGI.
b. Would you answer to part (a) change if the American Bar Association had sponsored the conference? Explain.
Conference registration ($900 + $900) $1,800
Airline tickets ($1,200 + $700) 1,900
Taxi fares 100
Lodging ($750 + $300) 1,050
b. The answer in a. for Amos would not change. These expenses are associated with his business as a tax attorney.
Expense Payment Date
Rental of coliseum $25,000 Dec, 21, 2016
Cost of goods sold:
Food 30,000 Dec, 30, 2016
Souvenirs 60,000 Dec, 30, 2016
Performers 100,000 Jan 5, 2017
Cleaning of coliseum 10,000 Feb 1, 2017
Because the coliseum was not scheduled to be used again until January 15, the company with which Duck had contracted did not perform the cleanup until Jan 8-10, 2017.
Coliseum rental $ 25,000
Food (cost of goods sold) 30,000
Souvenirs (cost of goods sold) 60,000
Performers 100,000 (215,000)
Net income for 2016 $ 85,000
Because Duck is an accrual basis taxpayer, it may accrue and deduct in 2016 the costs of the performers of $100,000 even though it is not paid until January 5, 2017 (i.e., the economic performance test is satisfied). However, the cleaning cost of $10,000 may not be deducted until 2017 when the services are performed (i.e., at that time, the economic performance test is satisfied).
– $50 for a ticket for running a red light while he was commuting to work.
– $100 for a ticket for parking in a handicapped parking space
– $200 to an attorney to represent him in traffic court as to the two tickets.
– $500 to an attorney to draft an agreement with a tenant for a one-year lease on an apartment that Doug owns.
– $1,000 to an attorney to negotiate a reduction to his child support payments
– $2,500 to an attorney to negotiate a reduction in his qualified alimony payments to a former spouse.
Calculate the amount of Doug’s deductible expenses.
***only include ordinary and necessary expenses****
Tip income $16,000
Gambling income 52,000
Payout to winners 29,000
Employee compensation 8,000
Bribe to police officer who is aware of Trevor’s bookie activity 7,500
a. How will these items affect Trevor’s AGI (ignore the impact of self-employment taxes)?
b. His taxable income (ignore the impact of self-employment taxes)?
Gross income $52,000
Salaries $ 8,000
Payouts to winners 29,000 (37,000)
Increase in AGI $15,000
The bribe to police of $7,500 is not deductible because this expense violates public policy.
Trevor also must include the tip income of $16,000 in his gross income.
b. Trevor’s taxable income also increases by $15,000.
Depreciation on car 3,960
Operating expenses of car 3,100
Amortization of intangibles 680
Harold estimates that due to a depressed real estate market, the value of land owned by the business declined by $5,200.
a. Calculate the effect of Harold’s business on his AGI.
b. How would your answer in part (a) change if the activity was a hobby?
Depreciation on car $3,960
Operating expenses of car 3,100
Amortization 680 (21,940)
Net income (loss) ($ 1,940)
The decline in the value of the land of $5,200 has no immediate tax consequence.
b. As the activity is a hobby, Harold cannot deduct any loss.
a. What effect does the rental of the vacation cabin have on Sarah’s AGI?
b. What expenses can Sarah deduct, and how are they classified (i.e., for or from AGI)?
b. The only expenses that Sarah can deduct are those she normally would deduct as itemized deductions. This includes the following:
Mortgage interest $10,000
Property tax 1,500
Sarah cannot deduct any of the utilities, insurance, and maintenance expenses or the depreciation. None of the expenses are deductible for AGI.
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