Comprehensive Problem 5-77 (LO 5-1, LO 5-2, LO 5-3) (Algo) [The following information applies to the questions displayed below.] Diana and Ryan Workman were married on January 1 of last year. Ryan has an eight-year-old son, Jorge, from his previous marriage. Diana works as a computer programmer at Datafile incorporated (DI) earning a salary of $100,000. Ryan is selfemployed and runs a day care center. The Workmans reported the following financial information pertaining to their activities during the current year. a. Diana earned a $100,000 salary for the year. b. Diana borrowed $12,800 from DI to purchase a car. DI charged her 2 percent interest ($256) on the loan, which Diana paid on December 31. DI would have charged Diana $800 if interest had been calculated at the applicable federal interest rate. Assume that tax avoidance was not a motive for the loan. c. Ryan received $2,400 in alimony and $5,300 in child support payments from his former spouse. They divorced in 2016 . d. Ryan won a $980 cash prize at his church-sponsored Bingo game. e. The Workmans received $900 of interest from corporate binds and $650 of interest from a municipal bond. Ryan owned these bonds before he married Daina. f. The couple bought 66 shares of ABC Incorporated stock for $48 per share on July 2 . The stock was worth $63 a share on December 31. The stock paid a dividend of $1 per share on December 1. 9. Ryan's father passed away on April 14. He inherited cash of $58,000 from his father and his baseball card collection. valued at $2,800. As the beneficiary of his father's life insurance policy, Ryan also received $158,000. h. The couple spent a weekend in Atlantic City in November and came home with gross gambling winnings of $2,000. i. Diana received $2,000 cash for reaching 10 years of continuous service at DI. 1. Assuming the Workmans file a joint tax return, determine their gross income minus expenses on the day care business (this is called otal income on the Form 1040). 3. Assuming the Workmans live in California, a community property state, and that Diana and Ryan file separately, what is Diana's gross income minus expenses on the day care business? i. Diana received $2,000 cash for reaching 10 years of continuous service at DI. j. Diana was hit and injured by a drunk driver while crossing a street at a crosswalk. she was unable to work for a month. She received $7,600 from her disability insurance. DI paid the premiums for Diana, but it reported the amount of the premiums as compensation to Diana on her year-end W-2. k. The drunk driver who hit Diana in part (j) was required to pay her $2,800 medical costs, $2,300 for the emotional trauma she suffered from the accident, and $6,600 for punitive damages. 1. For meeting her performance goals this year, Diana was informed on December 27 that she would receive a $5,800 year-end bonus. DI (located in Houston, Texas) mailed Diana's bonus check from its payroll processing center (Tampa, Florida) on December 28. Diana didn't receive the check at home until January 2. m. Ryan is a 10 percent owner of MNO Incorporated, a Subchapter $ corporation. The company reported ordinary business income for the year of $108,000. Ryan acquired the MNO stock two years ago. n. Ryan's day care business collected $75,000 in revenues. In addition, customers owed him $7,000 at year-end. During the year, Ryan spent $9,500 for supplies, $5,500 for utilities, $23,000 for rent, and $900 for miscellaneous expenses. One customer gave him use of their vacation home for a week (worth $6,500 ) in exchange for Ryan allowing their child to attend the day care center free of charge. Ryan accounts for his business activities using the cash method of occounting. o. Diana's employer pays the couple's annual health insuran premiums of $9,500 for a qualified plan. Comprehensive Problem 5-77 Part 1 and 3 (Algo) 1. Assuming the Workmans file a joint tax return, determine their gross income minus expenses on the day care business (this is called otal income on the form 1040)
