BUS 261 Tax Return Problem 7 - Chris and Stefani Watanabe

COMPREHENSIVE PROBLEM 7

With Emphasis on Schedule E
Chris and Stefani Watanabe live with their two boys at 1400 Victoria Lane, Riverside, CA 92501.
Chris is an accountant who has his own accounting practice. Stefani is an elementary school
teacher. Their sons, Justin and Jordan, are ages 12 and 9, respectively. The following is
additional information regarding the Watanabes.
Social security numbers for the Watanabe family:

Chris 412-345670
Stefa 412-34ni
5671
Justin 412-345672
Jorda 412-34n
5673
They paid $4,500 to Friendly Hills Child Care center for after-school care for both Justin and
Jordan, allocated equally.
Stefani's W-2 from the Riverside school district showed the following:

Chris's accounting business is located in downtown Riverside. His business had the following
income and expense information for the year:

Gross revenues

$165,00
0

Expenses:
Advertising

$ 2,100

Insurance

1,200

Legal fees

10,500

Office supplies

800

Rent

24,000

Travel

6,945

Meals
entertainment

2,400

Utilities

2,800

Wages

34,000

Dues

650

Additionally, Chris and Stefani paid the following expenses during the year:

Medical and dental expenses

$
4,500

Property tax (home on Victoria Lane)

3,750

State income taxes

3,900

Donations to the church (cash)

3,500

Tax return preparation

800

Mortgage interest (home on Victoria
Lane)

14,90
0

Chris and Stefani also earned $975 of interest income from California Bank during the year.
Page B-8
Lastly, Chris and Stefani own a 3-bedroom cabin in Big Bear Lake (they bought it in 2003). The
address is 3105 Stonehedge Road, Big Bear Lake, CA 92315. They did not use the property for
personal use at any time during the year. The revenue and expenses for the Big Bear Lake
rental property are as follows:

Rental income

$18,00
0

Expenses:
Insurance

$
1,200

Property taxes

2,500

Auto (standard
mileage)

267

Management fees

1,600

Repairs and
maintenance

1,100

Mortgage interest

9,000

Depreciation

960

Utilities

450

The Watanabes also made $18,000 and $7,000 in federal and California estimated income tax
payments, respectively, during the year.
Required:
Required: Prepare the Watanabes' federal tax return for 2013. Use Form 1040, Schedule A,
Schedule C, Schedule E, Schedule SE, and any additional schedules or forms they may need.
They want to contribute to the presidential election campaign, and they do not want anyone to
be a third-party designee. For any missing information, make reasonable assumptions.