Misc. Accounting Problems

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33. LO.1 In 2012, Osprey Company had operating income of $320,000, operating expenses of $270,000, and a long-term capital gain of $20,000. How does Juanita, the sole owner of Osprey Company, report this information on her individual tax return under the following assumptions?
a. Osprey Company is a proprietorship, and Juanita did not make any withdrawals from the business during the year.
b. Osprey Company is a C corporation and pays no dividends during the year. 

34. LO.1 Ellie and Linda are equal owners in Otter Enterprises, a calendar year business. During the year, Otter Enterprises has $320,000 of gross income and $210,000 of operating expenses. In addition, Otter has a short-term capital loss of $15,000 and makes distributions to Ellie and Linda of $25,000 each. Discuss the impact of this information on the taxable income of Otter, Ellie, and Linda if Otter is:
a. A partnership.

b. An S corporation.

c. A C corporation.

35. LO.1, 2 In the current year, Azure Company has $350,000 of net operating income before deducting any compensation or other payment to its sole owner, Sasha. In addition, Azure has interest on municipal bonds of $25,000. Sasha has significant income from other sources and is in the 35% marginal tax bracket. Based on this information, determine the income tax consequences to Azure Company and to Sasha during the year for each of the following independent situations.
a. Azure is a C corporation and pays no dividends or salary to Sasha.

b. Azure is a C corporation and distributes $75,000 of dividends to Sasha.

c. Azure is a C corporation and pays $75,000 of salary to Sasha.

d. Azure is a sole proprietorship, and Sasha withdraws $0.

e. Azure is a sole proprietorship, and Sasha withdraws $75,000.

39. LO.1, 4, 7 Benton Company (BC) has one owner, who is in the 35% Federal income tax bracket. BCs gross income is $295,000, and its ordinary trade or business deductions are $135,000. Compute the tax liability on BCs income for 2012 under the following assumptions:
Decision Making
Communications

a. BC is operated as a proprietorship, and the owner withdraws $70,000 for personal

b. BC is operated as a corporation, pays out $70,000 as salary, and pays no dividends to its shareholder.
c. BC is operated as a corporation and pays out no salary or dividends to its shareholder.
d. BC is operated as a corporation, pays out $70,000 as salary, and pays out the remainder of its earnings as dividends.
e. Assume that Robert Benton of 1121 Monroe Street, Ironton, OH 45638 is the owner of BC, which was operated as a proprietorship in 2012. Robert is thinking about incorporating the business in 2013 and asks your advice. He expects about the same amounts of income and expenses in 2013 and plans to take $70,000 per year out of the company whether he incorporates or not. Write a letter to Robert [based on your analysis in (a) and (b) ] containing your recommendations.

47. LO.2 In 2012, Condor Corporation, a closely held C corporation that is not a PSC, has $225,000 of active business income, $35,000 of portfolio income, and a $300,000 passive loss from a rental activity. How much of the passive loss can Condor deduct in 2012? Would your answer differ if Condor were a PSC? Explain.
(Jr. 2-49)
Jr., William H. Hoffman,, William A. Raabe, James E. Smith, David M. Maloney. SouthWestern Federal Taxation 2013: Corporations, Partnerships, Estates and Trusts, 36th Edition.
South-Western, 2016-04-11. <vbk:9781285309705#outline(2.11)>.

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Question 8

Kumar Inc. uses a perpetual inventory system. At January 1, 2013, inventory was $245,030 at both cost and market value. At December 31, 2013, the inventory was $327,470 at cost and $308,005 at market value. Prepare the necessary December 31 entry under:

(a)

the cost of goods sold method

Description/Account

Debit

Credit

(b)

the loss method

Description/Account

Debit

Credit

Question 9

Boyne Inc. had beginning inventory of $15,360 at cost and $25,600 at retail. Net purchases were $153,600 at cost and $217,600 at retail. Net markups were $12,800; net markdowns were $8,960; and sales were $200,960. Compute ending inventory at cost using the conventional retail method.(Round computation for cost-to-retail ratio percentage and answer to 0 decimal places, e.g. 25,250.)

Ending inventory

$

Question 10

(Gross Profit Method)

Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.

Inventory, May 1

$201,600

Purchases (gross)

806,400

Freight-in

37,800

Sales

1,260,000

Sales returns

88,200

Purchase discounts

15,120

(a)

Compute the estimated inventory at May 31, assuming that the gross profit is 25% of sales.

Inventory

$

(b)

Compute the estimated inventory at May 31, assuming that the gross profit is 25% of cost.

Inventory

$

Question 11

Previn Brothers Inc. purchased land at a price of $29,030. Closing costs were $3,350. An old building was removed at a cost of $11,670. What amount should be recorded as the cost of the land?

$

Question 12

Garcia Corporation purchased a truck by issuing an $115,200, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this truck.(Round answers to 0 decimal places, e.g. 15,510. List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2. Hint: Use tables in text.)

Description/Account

Debit

Credit

Question 13

Mohave Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of $330,750. The estimated fair values of the assets are land $63,000, building $231,000, and equipment $84,000. At what amounts should each of the three assets be recorded?(Note: Do not round the computation of the % of total.)

Recorded Amount

Land

$

Building

$

Equipment

$

Question 14

Fielder Company obtained land by issuing 2,000 shares of its $12 par value common stock. The land was recently appraised at $102,000. The common stock is actively traded at $49 per share. Prepare the journal entry to record the acquisition of the land.(List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account

Debit

Credit

Question 15

Navajo Corporation traded a used truck (cost $23,000, accumulated depreciation $20,700) for a small computer worth $4,255. Navajo also paid $1,150 in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)(List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account

Debit

Credit

Question 16

Mehta Company traded a used welding machine (cost $9,180, accumulated depreciation $3,060) for office equipment with an estimated fair value of $5,100. Mehta also paid $3,060 cash in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)(List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account

Debit

Credit

Question 17

Depreciation is normally computed on the basis of the nearest

day and to the nearest dollar.

full month and to the nearest cent.

full month and to the nearest dollar.

day and to the nearest cent.

Question 18

Fernandez Corporation purchased a truck at the beginning of 2012 for $46,200. The truck is estimated to have a salvage value of $2,200 and a useful life of 176,000 miles. It was driven 25,300 miles in 2012 and 34,100 miles in 2013. Compute depreciation expense for 2012 and 2013.(Round answers to 0 decimal places, i.e. 2,250.)

2012

$

2013

$

Question 19

Lockhard Company purchased machinery on January 1, 2012, for $71,400. The machinery is estimated to have a salvage value of $7,140 after a useful life of 8 years.

(a)

Compute 2012 depreciation expense using the double-declining balance method.

$

(b)

Compute 2012 depreciation expense using the double-declining balance method assuming the machinery was purchased on October 1, 2012.(Round answer to 0 decimal places, i.e. 2,250.)

$

Question 20

Jurassic Company owns machinery that cost $1,080,000 and has accumulated depreciation of $432,000. The expected future net cash flows from the use of the asset are expected to be $600,000. The fair value of the equipment is $480,000. Prepare the journal entry, if any, to record the impairment loss.

Description/Account

Debit

Credit

Question 21

Everly Corporation acquires a coal mine at a cost of $503,600. Intangible development costs total $125,900. After extraction has occurred, Everly must restore the property (estimated fair value of the obligation is $100,720), after which it can be sold for $201,440. Everly estimates that 5,036 tons of coal can be extracted. If 881 tons are extracted the first year, prepare the journal entry to record depletion.

Description/Account

Debit

Credit

Question 22

Francis Corporation purchased an asset at a cost of $57,800 on March 1, 2012. The asset has a useful life of 8 years and a salvage value of $5,780. For tax purposes, the MACRS class life is 5 years. Compute tax depreciation for each year 2012–2017. (Round answers to 0 decimal places.)

2012

$

2013

$

2014

$

2015

$

2016

$

2017

$

Question 23

Celine Dion Corporation purchases a patent from Salmon Company on January 1, 2012, for $55,720. The patent has a remaining legal life of 16 years. Celine Dion feels the patent will be useful for 10 years. Prepare Celine Dion’s journal entries to record the purchase of the patent and 2012 amortization.

Account/Description

Debit

Credit

(To record purchase of patent.)

(To record amortization.)

Question 24

Karen Austin Corporation has capitalized software costs of $789,700, and sales of this product the first year totaled $408,900. Karen Austin anticipates earning $954,100 in additional future revenues from this product, which is estimated to have an economic life of 4 years. Compute the amount of software cost amortization for the first year.

(a)

Compute the amount of software cost amortization for the first year using the percent of revenue approach.

$

(b)

Compute the amount of software cost amortization for the first year using the straight-line approach.

$

Question 25

Jeff Beck is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2012, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Beck had had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. The representative of the Railroad has offered to assign any rights which the Railroad may have in the land to Beck in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Beck appears inclined to accept the Railroad’s offer. The Railroad’s 2012 financial statements should include the following related to the incident:

creation of a liability only.

disclosure in note form only.

recognition of a loss only.

recognition of a loss and creation of a liability for the value of the land.

Question 26

Roley Corporation uses a periodic inventory system and the gross method of accounting for purchase discounts. On July 1, Roley purchased $66,000 of inventory, terms 2/10, n/30, FOB shipping point. Roley paid freight costs of $1,350. On July 3, Roley returned damaged goods and received credit of $6,600. On July 10, Roley paid for the goods. Prepare all necessary journal entries for Roley.(For multiple debit/credit entries, list amounts from largest to smallest, e.g. 10, 8, 6.)

Date

Description/Account

Debit

Credit

July 1

Freight-in

July 3

July 10

Question 27

Takemoto Corporation borrowed $69,600 on November 1, 2012, by signing a $71,166, 3-month, zero-interest-bearing note. Prepare Takemoto’s November 1, 2012, entry; the December 31, 2012, annual adjusting entry; and the February 1, 2013, entry.(For multiple debit/credit en tries, list amounts from largest to smallest, e.g. 10, 8, 6. Round all answers to 0 decimal places, e.g. 11,150.)

Date

Description/Account

Debit

Credit

11/1/12

12/31/12

2/1/13

Cash

Question 28

Whiteside Corporation issues $675,000 of 9% bonds, due in 10 years, with interest payablesemiannually. At the time of issue, the annual market rate for such bonds is 10%. Compute the issue price of the bonds. (Use the present value tables in the text. Round your answer to zero decimal places, e.g. 2,510.)

$

Question 29

Indiana Jones Company enters into a 6-year lease of equipment on January 1, 2012, which requires 6 annual payments of $35,340 each, beginning January 1, 2012. In addition, the lessee guarantees a residual value of $19,700 at lease-end. The equipment has a useful life of 6 years. Assume that for Lost Ark Company, the lessor, collectibility is reasonably predictable, there are no important uncertainties concerning costs, and the carrying amount of the machinery is $180,427. Prepare Lost Ark’s January 1, 2012, journal entries.

Description

Debit

Credit

$

$

(To record the lease)

$

$

(To record first lease payment)

Question 30

On January 1, 2012, Irwin Animation sold a truck to Peete Finance for $27,650 and immediately leased it back. The truck was carried on Irwin’s books at $21,200. The term of the lease is 5 years, and title transfers to Irwin at lease-end. The lease requires five equal rental payments of $7,670 at the end of each year. The appropriate rate of interest is 12%, and the truck has a useful life of 5 years with no salvage value. Prepare Irwin’s 2012 journal entries.(Round your answer to the nearest dollar eg 58,591.For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)

Date

Description

Debit

Credit

Jan. 1

$

$

$

(To record the sale )

Jan. 1

$

$

(To record the leaseback)

Dec. 31

$

$

(To record depreciation)

Dec. 31

$

$

Dec. 31

$

$

$

(To record first lease payment)

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Misc. Accounting Problems

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1) An investment project requires a net investment of $100,000. The project is expected to generate annual net cash flows of $28,000 for the next 5 years. The firm’s cost of capital is 12%.

Part 1 – Determine the payback period for the project.

Part 2 – Determine the payback period accounting for the present value of future cash flow (ie. Present value calculations). Should the project be done? After considering present value is the 100,000 investment recovered in 3-4 years, 4-5 years or over 5 years?

2) What is the IRR for a project that has a net investment of $14,600 and a single net cash flow of $25,750 in 5 years?

3) Red Lake Mines, Inc. is considering adoption of a new project requiring a net investment of $10 million. The project is expected to generate 5 years of net cash inflows of $5 million per year. In the project’s sixth, and final, year it is expected to have a net cash outflow of $1 million. What is the project NPV, using a discount rate of 12%?

4) Zimmer, a manufacturer of modular rooms, plans to expand its operations in Landshut, Germany. The expansion will cost $14.5 million and is expected to generate annual net cash flows of €2.15 million for a period of 12 years and then the operation will be sold for €1 million (net of taxes). The cost of capital for the project is 14%. Using a spot exchange rate of $1.25/€ as the forecast FX rate for the euro for the term of the project, compute the NPV of this expansion project.

5) Dupree Funds is considering the fees charged by two banks. First America charges a flat rate of $0.11 per payment and First Western requires a deposit of $500,000 (that does not pay interest to Dupree), plus $.05 per payment. What is the number of payments per year where the costs of the two banks will be equal? Assume Dupree’s cost of funds is 9%.

6) What is the annual tax shield to a firm that has total assets of $80 million and a net worth of $55 million, if the average interest rate on debt is 8.5% and the marginal tax rate is 35%?

7) Jason is interested in finding the breakeven point for a new pump it plans to produce. The price of the pump is $250 and the variable cost ratio is 50% of the price. Jason calculated that the fixed costs will be about $400,000. What is the breakeven point of operations?

8) Crown Honda purchased one of its most popular motorcycle models for 965,000 yen. The FX rate for the yen was 142 yen per dollar at the time of purchase, but then rose to 171.8 yen by the time payment was made. What was the dealer’s gain or loss on the change in rates?

9) Seduak has estimated the costs of debt and equity capital for various proportions of debt in its capital structure.

% Debt After-tax cost of debt Cost of equity
0% – 13.0%
10 5.4% 13.3
20 5.4 13.8
30 5.8 14.4
40 6.3 15.2
50 7.0 16.0
60 8.2 17.0

Based on these estimates, determine Seduak’s optimal capital structure

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1. The target capital structure for Jowers Manufacturing is 50 percent common stock, 14 percent preferred stock, and 36 percent debt. If the cost of equity for the firm is 19.4 percent, the cost of preferred stock is 12.2 %, and the before-tax cost of debt is 9.1 percent, what is Jower?s cost of capital? The firm?s marginal tax rate is 34 percent. Jower’s WACC is % (ROUND TO THREE decimal places.)

2. (Weighted average cost of capital) The target capital structure for QM Industries is 40 percent common stock, 10 percent preferred stock, and 50 percent debt.
If the cost of equity for the firm is 18 percent, the cost of preferred stock is 10 percent, the before-tax cost of debt is 8 percent, and the firm’s tax rate is 35 percent, what is QM’s weighted average cost of capital?

3. Crypton electronics has a capital structure consisting of 44% common stock and 56% debt, a debt issue of 1000 par value, 6.5 bonds that matures in 15 years and pays an annual interest well sell for $975. Common stock of the firm is selling for 30.15 per share and the firm expects to pay a 2.31 dividend next year. Dividends have grown at the rate of 4.7% per year and expected to continue to do so for the foreseeable future. What is Cryptons cost of capital where the firms tax rate is 30% Crypton’s cost of capital is % (Round to three decimal places.)

4. As a member of the finance department of ranch manufacturing, your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant under the assumption that the firms present capital structure reflects the appropriate mix of capital source for the firms, you have determined the market value of the firm?s capital structure as follows Bonds $3,600,000, preferred stock $2,200,000, common stock $ 6,400,000. To finance the purchase ranch manufacturing will sell 10 year bonds paying 7.3 % per year @ a market price of 1,045 .preferred stock paying $2.09 dividend can be sold for 24.78 common stock for ranch manufacturing is currently selling for 54.14 per share and the firm paid a 2.92 dividend last year. Dividend are expected to continue growing at a rate of 5.1 per year into the indefinite future , if the firms tax rate is 30% what discount rate should you use to evaluate the equipment purchased .
Ranch manufacturing company WACC is _____________ round 3 decimal places.

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Misc. Accounting Problems

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1. XYZ has been an S corporation since its inception six years ago. On January 1 of the current year, the corporation’s two equal shareholders, John and Jane, had adjusted bases of $150,000 and $175,000, respectively, for their S corporation’s stock. The shareholders plan to have the corporation distribute land with a $50,000 adjusted basis and a $200,000 FMV in the current year. Ordinary income is expected to be $180,000 in the current year. What tax issues should John and Jane consider with respect to the distribution?

2. Zap Corporation has always been an S corporation and is 100% owned by David. David has a basis of $40,000 in his Zap stock at the beginning of the year. During the year, Zap has an ordinary loss of $20,000 and a long-term capital gain of $10,000. In addition, Zap Corporation distributed $55,000 in cash to David on December 1. Will the distribution cause David to recognize a gain? If so, what are its amount and character?

3. An S corporation, reports the following results for the current year:

Ordinary income $70,000
Long-term capital gain $20,000
Municipal bond interest income $10,000
Domestic corporate dividends $6,000
Charitable contributions $16,000

The corporation AAA and accumulated E&P balances at the beginning of the year are $80,000 and $50,000, respectively. The corporation makes a $100,000 cash distribution to its sole shareholder on June 1 and a second $100,000 cash distribution on December 1. The shareholder’s basis for the S Corp stock on January 1 was $120,000. Discuss the tax consequences of these transactions.

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1. (Weighted average cost of capital) The target capital structure for QM Industries is 45% common stock, 7%.justanswer.com/multiple-problems/863cy-linda-1-weighted-average-cost-capital-target.html#”>preferredstock, and 48% debt. If the cost of common.justanswer.com/multiple-problems/863cy-linda-1-weighted-average-cost-capital-target.html#”>equityfor the firm is 17.8%, the cost of preferred stock is 9.8%, the before-tax cost of debt is 8.4%, and the firm’s tax rate is 35%, what is QM’s weighted average cost of capital?
QM’s WACC is _________%. (Round to three decimal places.)
2. (Weighted average cost of capital) Crypton Electronics has a capital structure consisting of 35% common stock and 65% debt. A debt issue of $1,000 par value, 6.5% bonds that mature in 15 years and pay annual interest will sell for $972. Common stock of the firm is currently selling for $30.96 per share and the firm expects to pay a $2.16.justanswer.com/multiple-problems/863cy-linda-1-weighted-average-cost-capital-target.html#”>dividendnext year. Dividends have grown at the rate of 5.1% per year and are expected to continue to do so for the foreseeable future. What is Crypton’s cost of capital where the firm’s tax rate is 30%?
Crypton’s cost of capital is _________%. (Round to three decimal places.)
3. (Weighted average cost of capital) The target capital structure for Jowers Manufacturing is 46% common stock, 13% preferred stock, and 41% debt. If the cost of common equity for the firm is 20.4%, the cost of preferred stock is 11.4%, and the beforetax cost of debt is 9.9%, what is Jowers’ cost of capital? The firm’s tax rate is 34%.
Jowers’ WACC is ____________%. (Round to three decimal places.)
4. (Weighted average cost of capital) As a member of the Finance Department of Ranch Manufacturing, your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm’s present capital structure reflects the appropriate mix of capital sources for the firm, you have determined the market value of the firm’s capital structure as follows:
To fiancé the purchase, Ranch Manufacutring will sell 10-year bonds paying 7.1% per year at the market price of $1,027. Preferred stock paying a $2.09 dividend can be sold for $25.66. Common stock for Ranch Manufacturing is currently selling for 455.21 per share and the firm paid a $3.04 dividend last year. Dividends are expected to continue growing at a rate of 4.8% per year into the indefinite future. If the firm’s tax rate is 30%, what discount rate should you use to evaluate the equipment purchase?
Ranch Manufacturing’s WACC is __________%. (Round to three decimal places.)
DATA TABLE
Source of capital Market values
Bonds $3,700,000
Preferred stock $1,800,000
Common Stock $5,900,000
5. (.justanswer.com/multiple-problems/863cy-linda-1-weighted-average-cost-capital-target.html#”>EBIT-EPS analysis) Abe Forrester and three of his friends from college have interested a group of ventre capitalists in backing their business idea. The proposed operation would consist of a ceries of retail otlets to distribute and service a full line of vacuum cleaners and accessories. These stores would be locted in Dallas, Houston, and San Antonio. To fiace the new ventre two plans have been proposed:
-Plan A is an all-common-equity structure in which $2.1 million dollars would be raised by selling 82,000 shares of common stock.
-Plan B would involve issuing $1.4 million dollars in long-term bonds with an effective interest rate of 11.8% plus $0.7 million would be raised by selling 41,000 shares of common stock. The debt funds raised under Plan B have no fixed maturity date, in that this amount of financial leverage is considered a permanent part of the firm’s capital structure. Abe and his partners plan to use a 38% tax rate in their analysis, and they have hired you on a consulting basis to do the following:
a. Find the EBIT indifference level associated with the two financing plans.
b. Prepare a pro forma income statement for the EBIT level solved for in Part a. that shows that EPS will be the same regarless whether Plan A or B is chosen.
a. Find the EBIT indifference level associated with the two financing plans.
The EBIT indifference level associated with the two financing plans is $__________. (round to the nearest dollar).
b. Prepare a pro forma income income statement for the EBIT level solved for in Part a. that shows that EPS will be the same regarless whether Plan A or B is chosen.
Complete the segment of the income statement for Plan A below: (Round income statement amounts to the nearest dollar except the EPS to the nearest cent.)
Stock Plan
EBIT $____________
Less: interest expense $____________
Earnings Before Taxes $_____________
Less: Taxes at 38% $____________
Net Income $_____________
Number of common shares $_____________
EPS $_____________
Complete the segment of the income statement for Plan B below: (round income statement amount to the nearest dollar except the EPS to the nearest cent.)
Bond/Stock Pan
EBIT $____________
Less: Interest expense $____________
Earnings Before Taxes $_____________
Less: Taxes at 38% $_____________
Net Income $_______________
Number of common shares $_____________
EPS $________________

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Which of these statements concerning the alternative minimum tax (AMT) is correct?
A) If the tentative minimum tax is smaller than the regular tax, he or she must pay the alternative minimum tax.
B) The alternative minimum tax credit rate is 26 percent.
C) For married taxpayers, the alternative minimum tax rate is 26 percent of the first $175,000.
D) The alternative minimum tax rate for capital gains and dividends is 26 percent.
E) Married taxpayers are allowed an exemption allowance, regardless of their level of alternative minimum taxable income.

-From the records of Ted, a cash basis sole proprietor, the following information was available:

Gross receipts $45,000
Interest income on personal investments 600
Cost of sales 25,000
Other operating expenses including rent on office 5,000
State business license 300
Property taxes on home 1,200

What amount should Ted report as net earnings from self-employment?
A) $15,000
B) $12,900
C) $13,500
D) $14,100
E) $14,700

-On January 1, 2011, Rusty, a sole proprietor, purchased for use in his business a new production machine (7-year property) at a cost of $60,000. Rusty did not purchase any other property during 2011 and has net income from his business of $80,000. The standard double-declining balance recovery period table would allow $8,574 of depreciation expense on the $60,000 of equipment purchased in 2011. What is Rusty’s maximum depreciation deduction for 2011 if he elects to use a double-declining balance recovery period table, including the amount that could be deducted under the election to expense (Section 179)?
A) $68,574
B) $500,000
C) $80,000
D) None of these.
E) $60,000

-Wonton Foods is a partnership owned 40 percent by Sze-Ern, 25 percent by Quinquang, and 35 percent by Zhaou. Sze-Ern and Zhaou each have an October 31 tax year-end, while Quinquang has a February 28 tax year-end. Under the general rule, what tax year-end should the partnership adopt?
A) October 31
B) November 30
C) February 28
D) October 31 or January 31
E) December 31

-G&M Enterprises purchased a 6,500 pound SUV (not considered a passenger automobile for purposes of the listed property and luxury automobile limitations) on June 1, 2011 for use in its business. The SUV, with a cost basis of $29,000, has a 5-year estimated life. It also is 5-year recovery property. How much depreciation and Section 179 expense should be taken on the SUV for the 2011 calendar tax year, assuming G&M Enterprises wishes to maximize its deduction? Do not consider bonus depreciation.
A) $4,000
B) $5,800
C) $25,000
D) $25,800
E) $2,917

-Ponce acquired raw land costing $60,000 as an investment in 1998. In 2011, the land is sold for a total sales price of $150,000, consisting of $30,000 cash and the buyer’s note for $120,000. Assume that Ponce uses the installment method to recognize the gain and receives only the $30,000 down payment in the year of sale. How much gain should Ponce recognize in 2011?
A) $12,000
B) $18,000
C) $0
D) $90,000
E) $30,000

-On December 31, 2011, Harold, a sole proprietor, sold for $85,000 a machine that was used in his business. The machine had been purchased in 2006 for $60,000, and when it was sold it had an adjusted basis of $45,000. For the year 2011, how should this gain be treated?
A) Section 1231 gain of $40,000
B) Ordinary income of $40,000
C) None of these
D) Section 1231 gain of $15,000 and ordinary income of $25,000
E) Section 1231 gain of $25,000 and ordinary income of $15,000

-In 2011, Philippe, a single taxpayer, has taxable income of $40,000 exclusive of capital gains and losses. Philippe incurred a $2,000 short-term capital loss and a $6,000 long-term capital loss in 2011. What is the amount of his long-term capital loss carryover to 2012?
A) $0
B) $6,000
C) $3,000
D) $2,000
E) $5,000

-Burt purchased an apartment building on January 1, 1998, for $345,000. The building has been depreciated over the appropriate recovery period using the straight-line method. On December 31, 2011, the building was sold for $420,000, when the accumulated depreciation was $126,500. On his 2011 tax return, Burt should report which of the following?
A) Section 1231 gain of $75,000 and unrecaptured depreciation of $126,500
B) Ordinary income of $201,500
C) None of these
D) Section 1231 gain of $126,500 and ordinary income of $75,000
E) Section 1231 gain of $75,000 and ordinary income of $126,500

-What minimum amount of tips must an employer report as allocated to employees if gross food and beverage sales in the restaurant are $175,000?
A) $26,250
B) $10,500
C) $21,000
D) $14,000
E) $17,500

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