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business
federal taxation 2019

Questions and Answers of Federal Taxation 2019

On January 1, 2017, Rodney Rapp paid \(\$ 110,000\) for taxable bonds with a face value of \(\$ 100,000\) which mature on January 1 , 2027. He sold them on December 31, 2018 for \(\$ 104,000\). What
Lance Lang received 50 shares of \(\$ 10\) par value stock from Randy Rainey in return for performing legal services. The fair market value of the 50 shares was \(\$ 750\). What is Lance's basis in
Which of the following results in a recognized gain or loss?a. Sale of stock, which has an adjusted basis of \(\$ 5,000\), for \(\$ 7,000\).b. Sale of a personal auto with an adjusted basis of \(\$
Gail Gumm purchased a piece of land, a building, and two trucks for a lump sum of \(\$ 630,000\). On the date of purchase, the land had a fair market value of \(\$ 125,000\), the fair market value of
Gordon Gladstone owns 120 shares of Jones Corp. common stock which he purchased on June 10,2017 , for \(\$ 1,800\). One year later, he received a 25 percent nontaxable common stock dividend. On
On August 2, 2017, Henry Hughes paid \(\$ 30,000\) for 500 shares of Young Corp. common stock. On July 28, 2018, he received a nontaxable 20 percent common stock dividend. On December 23, 2018, he
Naomi owns 1,000 shares of Nordstrom Corp. common stock which she purchased for \(\$ 40,000\) and later receives a nontaxable preferred stock dividend of 200 shares of Nordstrom preferred stock when
Jamie owns 1,000 shares of Jasper Corp. common stock with a basis of \(\$ 20,000\). She receives a 10 percent taxable stock dividend when the FMV of each share of stock is \(\$ 12\). How much income
Whitney Wells owns 600 shares of Fargo Company stock. She purchased these shares in 2016 for \(\$ 30\) each. In 2018, she received 600 nontaxable stock rights to subscribe to 600 additional shares at
Kevin Klein owns 900 shares of Palmer Corp. stock which he purchased three years ago for \(\$ 65\) each. He receives one nontaxable right for each share of stock owned. The rights entitle Kevin to
Brian owns 200 shares of Bell Corp. stock purchased in January 2016 for \(\$ 2,400\). On January 30, 2018, he receives 200 taxable stock rights valued at \(\$ 5\) with the right to purchase
Bradley Brownstone acquired depreciable gift property from Chester Craine. On the date of the gift, Chester's adjusted basis in the property was \(\$ 17,000\) and the fair market value was \(\$
Sarah Shore bought 500 shares of stock on October 22, 2017, for \(\$ 30,000\). On March 25,2018 , she gave half the shares to her sister Cindy when the fair market value of the shares was \(\$ 55\)
Maria Mann gives Peggy property worth \(\$ 15,000\). Maria's basis in the property is \(\$ 10,000\).a. If Peggy sells the property for \(\$ 17,000\), what is her gain or loss on the sale?b. If Peggy
In 2018, Paula Pierce receives gift property with a fair market value of \(\$ 95,000\) (adjusted basis to the donor of \(\$ 35,000\) ). Assume the donor purchased the property in 2008 and paid gift
In February 2018, Judy Judd gave her son Steven a Mercedes for his graduation gift. The automobile had a basis of \(\$ 55,000\) to Judy but was worth \(\$ 85,000\) at the time of the gift. Judy paid
Marsha Moore gave property with an adjusted basis of \(\$ 28,000\) to Alfred when the fair market value of the property was \(\$ 25,000\). Gift taxes paid on the property were \(\$ 3,000\). What is
Callie Cooper purchased two pieces of property in 1988: Property Q cost \(\$ 15,000\) and Property R cost \(\$ 30,000\). In 2018, when Callie died, she left the property to her daughter, Christy. At
Beverly Bergman purchased land for \(\$ 30,000\) in 2008 . The land was valued at \(\$ 180,000\) on April 15, 2018, when Beverly died. Her son Jack inherited the land. Six months later, on October
Evelyn Everest gave property to her mother Sharon when the adjusted basis of the property was \(\$ 12,000\) and the fair market value was \(\$ 80,000\). Sharon died eight months later when the
Sam Spurr gave property to Robert Reddy when its fair market value was \(\$ 70,000\) and the adjusted basis was \(\$ 50,000\). Robert died two years later when the fair market value of the property
Brothers Andrew and Vincent Vaughn jointly acquired property for \(\$ 200,000\) with rights of survivorship, paying three-fourths and onefourth, respectively. Andrew died; the property was valued at
On April 18, 2018, Jane Juniper purchased 30 shares of Bryan Corp. stock for \(\$ 210\), and on September 29, 2018, she purchased 90 additional shares for \(\$ 900\). On November 28,2018 , she sold
Harold Haas owns 100 shares of Spartan Corp. common stock with an adjusted basis of \(\$ 10,000\). On July 28,2018 , he sold all 100 shares for \(\$ 9,000\). On August 18, 2018, he purchased 80
Ashley Adams owns stock in C Corp costing \(\$ 25,000\). She sells the stock to her daughter, Brittany, for \(\$ 18,000\). Two years later, Brittany sells the stock for \(\$ 27,000\).a. What is
Brenda Brewster owned stock costing \(\$ 12,000\) which she sold to her daughter, Rita, for \(\$ 8,000\). Rita sold the stock later for \(\$ 14,000\).a. What is Brenda's gain or loss?b. What is
On September 16, 2018, Donald Dunn sold for \(\$ 80,000\) property with an adjusted basis of \(\$ 20,000\). The buyer paid \(\$ 20,000\) down with the remaining \(\$ 60,000\) to be paid in four equal
In 2018, Cathy Cummings, single, 66 years of age, and legally blind, had wages and net rental income (after depreciation) of \(\$ 30,000\) and received \(\$ 500\) in interest income. She had \(\$
During 2018, Peter Patel sold a piece of land he had purchased for \(\$ 40,000\). The buyer paid cash of \(\$ 50,000\) and transferred to Peter a piece of farm equipnent having a fair market value of
During 2008, John Johnson purchased 50 shares of common stock in Corporation DEF for \(\$ 4,500\). In 2014, DEF declared a stock dividend of 20 percent. The new stock received by John in the stock
During 2018, Mary Maloney received a gift of property from her aunt. At the time of the gift, the property had a fair market value of \(\$ 165,000\), the taxable gift was \(\$ 150,000\), and the
Kenneth King inherited 100 shares of Corporation \(A B C\) stock from his father, who died on March 4, 2018. His father paid \$17 per share for the stock on May 3, 1998. The fair market value of the
Kevin Korda, age 35, married Emily, age 30 , during 2018 . Kevin pays alimony of \(\$ 1,000\) a month and provides \(\$ 7,200\) a year in support for his son from a previous marriage. The son lives
Comprehensive Problem (Tax Return Problem). Carl Chubbs, age 64, earned \(\$ 85,000\) during 2018 . His wife, Dawn, age 66, is blind. During 2018, Carl and Dawn received \(\$ 1,000\) in dividends.
Research Problem. Brian Bradley, a calendar year taxpayer, purchased 1,000 shares of Newton Corp. stock on October 23, 2017, for \(\$ 15,000\). He sold these shares on January 12,2018 , for \(\$
Leonard and Linda Lindsay sold for \(\$ 350,000\) in October 2018 their residence that they had purchased in 2008 for \(\$ 100,000\). They made major capital improvements during their 10 -year
Milton and Maxine Miller purchased a home in New York City for \(\$ 350,000\) on October 1, 2017. Milton obtained a job in Richmond, Virginia, and on December 1, 2018, the Millers sold their home in
Tina and Tom Talley purchased a home in 2003 for \(\$ 450,000\). Over the years, they made substantial improvements, totaling \(\$ 100,000\). In 2017 , the couple was divorced.As part of the
Thomas and Tonya Taylor purchased a home for \(\$ 125,000\) on September 15,2016 . On October 8, 2017, they were divorced, and as part of the divorce agreement, the home was transferred to Thomas,
Arnold Atkins purchased a residence for \(\$ 160,000\) on September 26, 2016. In October 2017 he became ill and was confined to a nursing home. On October 8, 2018 , he sold the residence for \(\$
Oscar Olson, single, purchased a residence on February 19, 2016, for \(\$ 170,000\). On September 7, 2018, a tornado completely destroyed his home. The home was insured for its replacement value, and
Carl Carter had purchased a residence on January 12,2017 , for \(\$ 165,000\) and then sold it on April 12, 2018, for \(\$ 440,000\) because of severe health problems.a. How much gain can Carl
Charlotte Citron exchanged a business building with Darlene Darbey. Charlotte's building had an adjusted basis of \(\$ 105,000\) and a fair market value of \(\$ 90,000\). Darlene's machine had an
Sidney Southern owned a restaurant which was condemned on November 20, 2017. On January 15, 2018, he received a condemnation award of \(\$ 280,000\). The adjusted basis of his restaurant was \(\$
John and Amy Turner, married filing jointly, are both 36 years of age. They have two sons and a daughter. John and Amy have earned income of \(\$ 93,500\) and \(\$ 58,300\) respectively, and their
Adam Armstrong, age 60 and single, earned \(\$ 71,000\) during 2018 . He contributed \(\$ 9,000\) to the United church, paid \(\$ 16,000\) in federal income taxes, \(\$ 3,400\) in state income tax,
Carl Cushman, a college professor, age 58, purchased and moved into a house on August 1, 2016. He used the house continuously until September 1 , 2017, on which date he went abroad for a one-year
Jim Junction purchased a building business on November 17,2017 , for \(\$ 400,000\). On July 21, 2018, he exchanged the building for another business building in a like-kind exchange. The new
Boyd Bayer acquired 100 shares of Evans Corporation stock for \(\$ 3,000\) on January 8, 2017. He gave the stock to his daughter Susan on January 8, 2018, when the fair market value was \(\$ 2,400\).
Alice Almond purchased Smith Corporation stock on February 23, 2017, and on November 15, 2017, she gave the stock to her son Dennis. She paid \(\$ 10,000\) for the stock and the value at the time of
Ed Elsewhere has the following capital gains and losses during 2018 as a result of sales of shares of stock. What is the net effect of the gains and losses on Ed's tax return in each of the following
Ted Thomas, a single taxpayer has the following transactions in 2018:a. What is Ted's net capital gain or loss?b. If your answer to (a) was a net capital gain, what is the maximum rate at which it
Gordon Grumps is married and files separately. During 2018, he had the following capital gains and losses:Gordon's taxable income is \(\$ 6,000\). What is Gordon's capital loss deduction for 2018 and
Bert Baker had \(\$ 50,000\) salary during 2018 and had the following capital gains and losses:How should Bert treat the above on his 2018 tax return? STCL carryover from 2017 STCL STCG LTCL
Cannon Corporation had a net long-term capital gain of \(\$ 50,000\) and a net short-term capital loss of \(\$ 75,000\) in 2018 . What are the tax consequences to Cannon as a result of its capital
On April 22, 2018, Al Aikens, a calendar year taxpayer, purchased stock in Webster Corp. for \(\$ 15,000\). What is the nature of Al's loss if Webster Corp. files for bankruptcy and Al's stock
Charlotte and Carl Conner purchased 1,000 shares of qualifying Sec. 1244 stock in 2014 for \(\$ 125,000\). In 2018 , they sold the stock for \(\$ 15,000\).a. What is the amount of their loss?b. What
Compute the taxpayer's losses for the following situations.a. Arthur Angler, single, acquires 500 shares of Section 1244 stock in 2015 for \(\$ 100,000\) and sells all of it for \(\$ 40,000\) in
Shirley Swift transferred property with an adjusted basis of \(\$ 24,000\) and a fair market value of \(\$ 18,000\) to Alex Corporation in exchange for 100 shares of its Section 1244 stock. Three
Kirk Kelley, a single taxpayer, was engaged in the following transactions in 2018:∎ Kirk lent a friend \(\$ 2,500\); that person did not pay the loan when it was due and then declared bankruptcy.
Terry Thompson, who meets all the requirements of Section 1237, sells five lots during 2017 at a gain of \(\$ 30,000\). During 2018 , he sells the sixth lot (basis \(\$ 5,000\) ) at a selling price
Andrew Graham had the following recognized gains and losses during 2018:What are the net tax consequences of these gains and losses to Andrew?Andrew's adjusted gross income is \(\$ 40,000\) without
Barbara Bliss had the following recognized gains and losses during 2018:What are the net tax consequences of these gains and losses for Barbara?Barbara's adjusted gross income is \(\$ 30,000\)
Steven Stronghold had a Section 1231 net gain of \(\$ 25,000\) in 2018 . His previous net Section 1231 items were \(\$ 12,000\) in \(2011,(\$ 8,000)\) in \(2012,(\$ 6,000)\) in \(2013,(\$ 3,000)\) in
In 2018, Dan Dunne sold a business machine for \(\$ 75,000\). He had purchased the machine in 2014 for \(\$ 90,000\), had depreciated it on the straight-line basis using a life of five years, and had
In 2018, Emma Evans sold a piece of equipment from her business for \(\$ 80,000\). The equipment was purchased in 2014 for \(\$ 72,000\), had a useful life of five years, and was depreciated on a
Harold Hunch purchased Section 1250 commercial property on January 1, 1980, and sold it on January 1, 2018, at a gain of \(\$ 250,000\). Depreciation taken was \(\$ 500,000\); straight-line
Determine the taxpayer's income and the treatment of the income.a. On January 1, 1975, Glen Gopher purchased an office building for his business for \(\$ 1,000,000\). He sold the building on January
On January 1, 1985, Ivan Innkeeper purchased an office building for $900,000$900,000. He used the ACRS statutory (accelerated) depreciation method and took $900,000$900,000 depreciation before he
Karen Klaus has a business building (Section 1250 property) with an adjusted basis of \(\$ 40,000\) and a fair market value of \(\$ 160,000\). The building originally cost \(\$ 170,000\) when
In March 2018, Mary Marionette sold equipment used in her business for \(\$ 80,000\), to be paid in eight annual installments of \(\$ 10,000\) plus interest beginning in 2019 . The equipment was
Ivan Investor sold a parcel of land during 2018 realizing a \(\$ 50,000\) gain. Ivan has used this parcel for a parking lot during the 120 months that he has owned the land. The amount and tax
Mary Martin owns a custom curtain/ drapery business. In 2018, she purchased three new sewing machines and in a separate transaction, sold her three old machines for \(\$ 6,000\). She had bought the
In 2018, Gordon Grant sold an office building for \(\$ 180,000\). He had purchased the building in 1986 for \(\$ 150,000\) and had properly deducted \(\$ 100,000\) of depreciation, which included
Terry Trooper, a single taxpayer, had the following transactions during 2018a. Sold 60 shares of Troy Corporation common stock on March 22, 2018, for \(\$ 660\). The stock was purchased on January
Bill and Alice Savage, husband and wife and both age 42, have the following transactions during 2018:a. They sold their old residence on January 28,2018 , for \(\$ 380,000\). The basis of their old
Mark Mullins had the following transactions or involuntary conversions during 2018:a. His diamond gemstones costing \(\$ 4,000\) in 2012 were sold for \(\$ 5,000\).b. His office building owned for
In 2017, Allen Appleton sells his business to David, but he sells the claim against Fred that arose during the course of his business to George, who is not in a business. The claim becomes worthless
Harlan Huston had a net Section 1231 gain in 2018 of \(\$ 40,000\). His net Section 1231 gains and losses were as follows:How is the \(\$ 40,000\) net Section 1231 gain treated by Harlan in 2018?
Jason is single and uses the calendar year for his tax year. He died on May 15, 2018. When is his final income tax return due?
If a corporation begins business on June 12, 2018 , when may it close its first tax year?
Hal is single and in 2018 he obtained IRS permission to change from the calendar year to a fiscal year ended August 31, 2018. Hal earned \(\$ 80,000\) through August 31, 2018 and had \$7,000 in
The Light Record Corporation has been on the calendar year since its inception five years ago. It wishes to change to an April 30 natural business year. For 2018, the calendar year of proposed
Lyle Inc. is a cash-basis, calendar-year taxpayer. In 2018, it changes to the accrual method of accounting. Its 2018 income computed under the accrual method is \(\$ 75,000\). The following
Wagner Co. is a cash-basis, calendar-year taxpayer. On August 1, 2018, it paid an insurance premium of \(\$ 4,800\) for coverage from August 1, 2018 to July 31, 2019. What is the largest deduction
Assume the same facts as the problem above except the premium is for coverage from August 1,2018 to July 31, 2020. What is the largest deduction Wagner Co. can take in 2018?
Jen Company decided to change its method of accounting from the cash basis to the accrual basis in 2018. Its taxable income for 2018 under the accrual basis was \(\$ 250,000\). It determined that the
Berry Co. started business in 2017. Its ending inventory at actual prices was \(\$ 150,000\) at base-period prices. It uses the simplified dollarvalue LIFO inventory method and the price index was
Ludlow Inc. started business in 2017. It uses the simplified dollar-value LIFO inventory method. Ending inventories at actual prices are as follows:The price index in 2017, 2018 and 2019 is \(120 \%,
Smith Inc, discovered it had made several math errors during 2018. It wants to correct the errors and is unsure as to whether this would qualify as a major change in accounting method requiring IRS
Wash Company sells washing machines. On January 1, 2018, it had 20 units in inventory, valued at \(\$ 400\) per unit. During 2018, it sold 200 units at \(\$ 700\) per machine. Wash Company purchased
Falzone Inc. uses the dollar-value LIFO method to account for its inventory. Inventory on January 1, 2018, was \(\$ 30,000\) at base-year prices. Inventory on December 31, 2018, was \(\$ 63,000\) at
Mar Co. is a construction company. In 2018 , it entered into a two-year contract to construct a building for \(\$ 3,000,000\). It estimated that actual costs will be \(\$ 2,500,000\). Actual costs in
\(\$ 20\) million of nondealer real estate obligations arose in and are outstanding at the end of calendar-year 2018. Deferred gross profit on such installment obligations equals \(\$ 5\) million.
Joe England sold equipment on May 10,2017 for \(\$ 100,000\). He bought the equipment on November 7, 2015 for \(\$ 140,000\), and accumulated depreciation at the date of sale was \(\$ 60,000\). Joe
Assume the same facts as the problem above except the selling price is \(\$ 180,000\) and Joe will collect \(\$ 90,000\) in 2017 and 2018.a. What is Joe's recognized gain in 2017 and 2018?b. Go to
Adjustments due to a change in accounting method do not include which of the following:a. Taken into account in the year of changeb. Spread over four years starting with the year of changec. Spread
In 2018, Bob will sell land that he bought in 2008 for \(\$ 50,000\) to Tom. The selling price is \(\$ 250,000\). Tom has given Bob two options for the sale. Under option 1, Bob would receive the
Jessica sold an apartment building, in which she had a \(\$ 400,000\) adjusted basis, for \(\$ 1,100,000\). The buyer paid \(\$ 150,000\) down, assumed Jessica's mortgage, and signed an installment
In 2018, Chris sold a painting to Bernie for \(\$ 40,000\). Chris received \(\$ 10,000\) in 2018 and will receive \(\$ 30,000\) in 2019 . Chris's bought the painting in 2014 for \(\$ 15,000\). Bernie

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