problem- Jarret owns City of Charleston bonds with an adjusted basis of $190,000. During the year,
Question # 00017212
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Updated on: 06/09/2014 12:37 AM Due on: 07/12/2014
32. Jarret owns City of Charleston bonds with an adjusted basis of $190,000. During the year, he receives interest payments of $3,800. Jarret partially financed the purchase of the bonds by borrowing $100,000 at 5% interest. Jarret’s interest payments on the loan this year are $4,900, and his principal payments are $1,100.
a. Should Jarret report any interest income this year? Explain.
b. Can Jarret deduct any interest expense this year? Explain.
33. LO.1 Amos is a self-employed tax attorney. He and Monica, his employee, attend a conference in Dallas sponsored by the American Institute of CPAs. The following expenses are incurred during the trip:
Amos Monica
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 your answer to part (a) change if the American Bar Association had sponsored the conference? Explain.
34. LO.1 Daniel, age 38, is single and has the following income and expenses in 2013:
Salary income $60,000
Net rent income 6,000
Dividend income 3,500
Payment of alimony 12,000
Mortgage interest on residence 4,900
Property tax on residence 1,200
Contribution to traditional IRA 5,000
Contribution to United Church 2,100
Loss on the sale of real estate (held for investment) 2,000
Medical expenses 3,250
State income tax 300
Federal income tax 7,000
a. Calculate Daniel’s AGI.
b. Should Daniel itemize his deductions from AGI or take the standard deduction?
35. LO.1 Janice, age 22, is a student who earns $10,000 working part-time at the college ice cream shop in 2013. She has no other income. Her medical expenses for the year total $3,000. During the year, she suffers a casualty loss of $3,500 when her apartment catches on fire. Janice contributes $1,000 to her church. On the advice of her parents, Janice is trying to decide whether to contribute $1,000 to the traditional IRA her parents set up for her. What effect would the IRA contribution have on Janice’s itemized deductions?
36. LO.1 Kirby and his wife Melinda own all of the stock of Thrush. Melinda is the president, and Kirby is the vice president. Melinda and Kirby are paid salaries of $500,000 and $350,000, respectively, each year. They consider the salaries to be reasonable based on a comparison of salaries paid for comparable positions in comparable companies.
They project Thrush’s taxable income for next year, before their salaries, to be $975,000. They decide to place their three teenage children on the payroll and to pay them total salaries of $125,000. The children will each work about five hours per week for Thrush.
a. What are Kirby and Melinda trying to achieve by hiring the children?
b. Calculate the tax consequences on Thrush and on Kirby and Melinda’s family of hiring the children.
37. LO.1 A list of the items that Peggy sold and the losses she incurred during the current tax year is as follows:
Yellow, Inc. stock $ 1,600
Peggy’s personal use SUV 8,000
Peggy’s personal residence 10,000
City of Newburyport bonds 900
She also had a theft loss of $1,500 on her uninsured business use car. Calculate Peggy’s deductible losses.
a. Should Jarret report any interest income this year? Explain.
b. Can Jarret deduct any interest expense this year? Explain.
33. LO.1 Amos is a self-employed tax attorney. He and Monica, his employee, attend a conference in Dallas sponsored by the American Institute of CPAs. The following expenses are incurred during the trip:
Amos Monica
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 your answer to part (a) change if the American Bar Association had sponsored the conference? Explain.
34. LO.1 Daniel, age 38, is single and has the following income and expenses in 2013:
Salary income $60,000
Net rent income 6,000
Dividend income 3,500
Payment of alimony 12,000
Mortgage interest on residence 4,900
Property tax on residence 1,200
Contribution to traditional IRA 5,000
Contribution to United Church 2,100
Loss on the sale of real estate (held for investment) 2,000
Medical expenses 3,250
State income tax 300
Federal income tax 7,000
a. Calculate Daniel’s AGI.
b. Should Daniel itemize his deductions from AGI or take the standard deduction?
35. LO.1 Janice, age 22, is a student who earns $10,000 working part-time at the college ice cream shop in 2013. She has no other income. Her medical expenses for the year total $3,000. During the year, she suffers a casualty loss of $3,500 when her apartment catches on fire. Janice contributes $1,000 to her church. On the advice of her parents, Janice is trying to decide whether to contribute $1,000 to the traditional IRA her parents set up for her. What effect would the IRA contribution have on Janice’s itemized deductions?
36. LO.1 Kirby and his wife Melinda own all of the stock of Thrush. Melinda is the president, and Kirby is the vice president. Melinda and Kirby are paid salaries of $500,000 and $350,000, respectively, each year. They consider the salaries to be reasonable based on a comparison of salaries paid for comparable positions in comparable companies.
They project Thrush’s taxable income for next year, before their salaries, to be $975,000. They decide to place their three teenage children on the payroll and to pay them total salaries of $125,000. The children will each work about five hours per week for Thrush.
a. What are Kirby and Melinda trying to achieve by hiring the children?
b. Calculate the tax consequences on Thrush and on Kirby and Melinda’s family of hiring the children.
37. LO.1 A list of the items that Peggy sold and the losses she incurred during the current tax year is as follows:
Yellow, Inc. stock $ 1,600
Peggy’s personal use SUV 8,000
Peggy’s personal residence 10,000
City of Newburyport bonds 900
She also had a theft loss of $1,500 on her uninsured business use car. Calculate Peggy’s deductible losses.
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Solution: problem- Jarret owns City of Charleston bonds with an adjusted basis of $190,000. During the year,