kaplan AC507 week 6 assignment 3 and assignment 2
Problem Assignments
19.Maggie Brown is a transcriptionist for several doctors in her town and works from her home. She spends three to four hours per day transcribing medical notes for the doctors. During the year, she earned $13,200 from the business. She had automobile expense of $800, phone expense of $150, and child care expense related to the job of $1,100. Explain how she will report her income and expenses. Calculate her income from the business and her self-employment taxes if she has no other income in 2012.
Gross sales $150,000
Cost of goods sold 95,000
Rent 15,000
Salaries to employees 15,000
Utilities 4,000
Charitable contribution 1,000
Section 1231 gain 2,000
a. What is the net income, excluding separately stated items, that each partner is required to report at the end of the year?
b. How is each of the separately stated items treated on the partners’ tax returns?
c. What is each partner’s basis at year-end?
Health Department just learned about this and now requires them to shut down or find a commercial kitchen that can be subject to the proper inspections. Clare and Cora located a suitable small restaurant they can rent for $1,000 per month or purchase for $100,000. Their monthly payments would be $1,000 per month for interest and taxes and $100 per month for the principal on a commercial mortgage if they put $10,000 down. Clara and Cora each have $10,000 in savings they can put into the business. Their husbands are also employed and would be able to provide some support during the start-up period. Both families are in the 28 percent marginal tax bracket. The women know that the first several years will be difficult, as they will need to build the business by more than word of mouth. As a result, their business plan shows losses of $5,000 in the first year, $4,000 in the second year, and $2,000 in the third year, but the fourth year and beyond show profits. These losses do not include either the rent or the mortgage payment. How do you suggest they set up their business? Should they buy or rent the building?
Tax-exempt income
Nondeductible expenses
Charitable contributions
Capital gains
All affect stock basis
2. Which of the following is not a requirement to make an S election? (Points : 5)
Maximum 100 shareholders
One class of stock
Shareholders must be citizens
It must be a domestic corporation
3. Corbin has a $15,000 basis in his 50 percent ownership in an S corporation and lent the corporation $5,000 last year. The corporation has $30,000 of other debt. This year the corporation reported a $100,000 loss. How much of this loss may Corbin deduct? (Points : 5)
$15,000
$20,000
$35,000
$50,000
4. What is the effect on the AAA if an S corporation distributes a piece of property valued at $10,000 with a $5,000 basis to 50 percent shareholder and $10,000 cash to the other 50 percent shareholder in a nonliquidating distribution? (Points : 5)
$10,000 net increase
$5,000 net increase
$15,000 net decrease
$20,000 net decrease
5. The S corporation income tax return includes all of the following except (Points : 5)
a Schedule K.
an M-1 Schedule.
a retained earnings reconciliation.
a reconciliation of the AAA account.
6. Greg and Samantha plan to establish a business in which they will both materially participate. They are both in the 35% marginal tax bracket. Although they expect the business to be very successful in the long-run, they project losses of approximately $100,000 for each of the first five years. Due to potential environmental concerns, limited liability is very important for the owners. Which form of business entity should they select considering both tax and nontax factors? (Points : 5)
General partnership
C corporation
S corporation
It makes no difference; any of the above should satisfy Greg and Samantha.
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Solution: kaplan AC507 week 6 assignment 1 and assignment 2