Week 3 Assignment
3-36 àCash and Accrual Methods. Carmen opens a retail store. Her sales during the first year are $600,000, of which $30,000 has not been collected at year-end. Her purchases are $400,000. She still owes $20,000 to her suppliers, and at year-end she has $50,000 of inventory on hand. She incurred operating expenses of $160,000. At year-end she has not paid $15,000 of the expenses.
a. Compute her net income from the business assuming she elects the accrual method.
b. Compute her net income from the business assuming she elects the cash method.
c. Would paying the $15,000 she owes for operating expenses before year-end change her net income under accrual method of reporting? under the cash method?
3-43 àGross Income. Susan’s salary is $44,000 and she received dividends of $600. She received a statement from SJ partnership indicating that her share of the partnership’s income was $4,000. The partnership distributed $1,000 to her during the year and $600 after year-end. She won $2,000 in the state lottery and spent $50 on lottery tickets. Which amounts are taxable?
3-46 àPension Income. Beth retires when she turns 65. She begins receiving a monthly pension of $300 from her employer’s qualified retirement plan. While employed, Beth contributed $13,000 to the plan.
a. Beth uses the simplified method to compute her exclusion. Why?
b. Compute her monthly exclusion.
c. How much gross income does she report in the first year if she receives 12 monthly checks?
3-50 àAdjusted Gross Income. Amir, who is single, retired from his job this year. He received a salary of $25,000 for the portion of the year that he worked, tax-exempt interest of $3,000, and dividends from domestic corporations of $2,700. On September 1, he began receiving monthly pension payments of $1,000 and Social Security payments of $600. Assume an exclusion ratio of 40% for the pension. Amir owns a duplex that he rents to others. He received rent of $12,000 and incurred $17,000 of expenses related to the duplex. He continued to actively manage the property after he retired from his job. Compute Amir’s adjusted gross income.
3-57 àMatt and Sandy reside in a community property state. Matt left home in April 2013 because of disputes with his wife, Sandy. Subsequently, Matt earned $15,000. Before leaving home in April, Matt earned $3,000. Sandy was unaware of Matt’s whereabouts or his earnings after he left home. The $3,000 earned by Matt before he left home was spent on food, housing, and other items shared by Matt and Sandy. Matt and Sandy have one child, who lived with Sandy after the husband left home.
a. Is any portion of Matt’s earnings after he left home taxable to Sandy?
b. What filing status is applicable to Sandy if she filed a return?
c. How much income would Sandy be required to report if she filed?
d. Is Sandy required to file?
3-62 àJim and Linda are your tax clients. They were divorced two years ago, and the divorce decree stated that Jim was to make monthly payments to Linda. The court designated $300 per month as alimony and $200 per month as child support, or a total of $6,000 per year. Jim has been unemployed for much of the year and paid Linda $2,000 that he said was for child support. In addition, Jim transferred the title to a three-year-old automobile claim she has against him for the unpaid child support and alimony. Does Linda have to report any alimony and is Jim entitled to an alimony deduction? Draft a memo for the file that discusses the tax consequences for both Jim and Linda.