Comprehensive Problem 3-1 Ken (birthdate July 1, 1990) and Amy (birthdate July 4, 1992) Both have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of these items must be used to calculate taxable income. Income: Ken's salary (salesman) $38,900 Amy's wages (part-time nurse) 17,600 Insurance reimbursement for repairs from an auto accident 500 Gift from Uncle George 2,000 Interest income from Lodge State Bank 910 Federal income taxes withheld: From Ken's salary 2,800 From Amy's wages 650 Amy owns and operates a computer bookstore named "The Disk Drive". The store is located at 2000 Broadway Street, Menomonie, WI 54751. During 2021, Amy had the following income and expenses: Sales of books $321,400 Expenses Store rental 16,000 Office expense 6,075 Advertising 11,710 City business license 1,050 Payroll 83,500 Payroll taxes 8,400 Utilities 8,000 Other 3,000 Beginning inventory $75,000 Purchases 191,000 Ending inventory 80,000 Amy treats inventory as non-incidental materials and supplies. This year, Amy loaned a friend $10,000 so that he could make an investment. Instead of making the investment, the friend lost all the money gambling and left for parts unknown. Amy has no hope of ever collecting on this bad debt. Ken, who ordinarily never gambles, won $10,600 at a casino birthday party for one of his friends. The Booths provide the sole support for Ken's parents, Rod (Social Security number 124-80-8050) and Mary (Social Security number 489-37-6673) Booth, who live in their own home. Ken and Amy live at 2345 Wilson Avenue, Menomonie, WI, 54751, and their Social Security numbers are 343-75-3456 (Ken) and 123-45-7890 (Amy). Ken and Amy can claim a $500 other dependent credit for each parent. Ken and Amy received a $5,600 EIP in 2021. Required: Complete the Booth's Form 1040 and the related schedules and forms provided. Assume the taxpayers had full-year health coverage and neither taxpayer wants to contribute to the presidential election campaign. A statement is required to be attached to a return for a nonbusiness bad debt, but this requirement may be ignored for this problem. You may ignore any related self-employment taxes. Assume no 1099-B is filed in association with the bad debt when filling out Form 8949. You may need to complete the other forms before completing Form 1040. If an amount box does not require an entry or the answer is zero, enter "0". If required, round amounts to the nearest dollar. Enter all amounts as positive numbers. However, if required, use the minus sign to enter a "loss".

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