COMPREHENSIVE PROBLEM 7

With Emphasis on Schedule E

Chris and Stefani Watanabe live with their two boys at 1400 Victoria Lane, Riverside, CA 92501. Chris is an accountant who has his own accounting practice. Stefani is an elementary school teacher. Their sons, Justin and Jordan, are ages 12 and 9, respectively. The following is additional information regarding the Watanabes.

Social security numbers for the Watanabe family:

Chris 412-345670 Stefa 412-34-5671 Justin 412-34-5672 Jorda 412-34-5673

They paid $4,500 to Friendly Hills Child Care center for after-school care for both Justin and Jordan, allocated equally.

Stefani's W-2 from the Riverside school district showed the following: Wages =$56,925.04 Federal W/H =$ 9,085.90 Social security wages =$56,925.04 Social security W/H =$ 3,529.35 Medicare wages = $56,925.04 Medicare W/H = $825.41 California W/H = 2,105.75

Chris's accounting business is located in downtown Riverside. His business had the following income and expense information for the year:

Gross revenues $165,000 Expenses: Advertising $ 2,100 Insurance 1,200 Legal fees 10,500 Office supplies 800 Rent 24,000 Travel 6,945 Meals and entertainment 2,400 Utilities 2,800 Wages 34,000 Dues 650

Additionally, Chris and Stefani paid the following expenses during the year:

Medical and dental expenses $ 4,500 Property tax (home on Victoria Lane) 3,750 State income taxes 3,900 Donations to the church (cash) 3,500 Tax return preparation 800 Mortgage interest (home on Victoria Lane) 14,900

Chris and Stefani also earned $975 of interest income from California Bank during the year.

Lastly, Chris and Stefani own a 3-bedroom cabin in Big Bear Lake (they bought it in 2003). The address is 3105 Stonehedge Road, Big Bear Lake, CA 92315. They did not use the property forpersonal use at any time during the year. The revenue and expenses for the Big Bear Lake rental property are as follows:

Rental income $18,000

Expenses: Insurance $ 1,200 Property taxes 2,500 Auto (standard mileage) 267 Management fees 1,600 Repairs and maintenance 1,100 Mortgage interest 9,000 Depreciation 960 Utilities 450

The Watanabes also made $20,000 and $9,000 in federal and California estimated income tax payments, respectively, during the year.

Required:

Prepare the Watanabes' federal tax return for 2014. Use Form 1040, Schedule A,

Schedule C, Schedule E, Schedule SE, and any additional schedules or forms they may need. They want to contribute to the presidential election campaign, and they do not want anyone to be a third-party designee. For any missing information, make reasonable assumptions.if eligible take the child care credit.