L0.2, S Al is a medical doctor who conducts his practice as a sole proprietor. During 2018, he received cash of $280,000 for medical services. Of the amount collected, $40,000 was for services provided in 2017. At the end of 2018, Al had accounts receivable of $60,000, all for services rendered in 2018. In addition, at the end of the year, Al received $12,000 as an advance payment from a health maintenance organization (HMO) for services to be rendered in 2019. Compute Al's gross
income for 2018:
- Using the cash basis of accounting.
- Using the accrual basis of accounting.
- Advise Al on which method of accounting he should use.
?
59. Daniel B. BurierandFreidaC. Butler,husbandarKIWife,leaioimremrn.TheButlers liveat 625 Oak Street inCorhin, KY 40701. Dan's Social Sealrlty number is 111-11-1112, and Freida's is 12345-6789. Dan was born onJanuary 15. 1967. and Freida was born on August 20. 1968. During 2018, Dan and Freida furnished over half of the total support of each of the following individuals, all of whom still live at home: a. Gina. their daughter, age 22. a full-time student. who married on December 21, 2018, has no income of her own and for 2018 did not file a joint return with her husband, Casey. who earned 310.600 during 2018. Gina's Social Security number is 12345-6788. b. Sam, their son, age 20, who had gross income of 36.300 in 2018, dropped out of college in October 2018. He had graduated from high school in May 2018. Sam's Social Security number is 12345-6787. c. Ben, their oldest son, age 26, is a full-time graduate student with gross income of $5,200. Ben's Social Security number is 123-415-6786. Dan was employed as a manager by W11], Inc. (employer identication number 11-1111111. 604 Franklin Street. Corbin. KY 40702). and Freida was employed as a salesperson for Corbin Realty, Inc. (employer identication number 987654321, 899 Central Street, Corbin. Ky 40701). Selected information from the WZ Forms pro- vided by the employers is presented below. Dan and Freida use the cash method. """" "I "" "'"l"""'J "" "" l""""'""" """"' "_"'" "'""' ' """"" """' '"" "'""" """""'""' momma. Dan run. ! Wagestipsothercompensaon $74,000 $36,000 2 Federal incommwitheld 11.000 12.400 1? State income tax withheld 2.960 3,440 FreidasoldahouseonDecemberSO.2018,2ndwillbepaidaoonunissionof33JOO (not included in the $86,000 reported on the \\V-Z) on thejanuary 10, 2019 closing date. Other income (as reported on 1099 Forms) for 2018 consisted of the following: DividendsonCSXstocquualied) $4,200 lnterestonsavingsatSecondBank 1,600 InterestanCityofCorbinbonds 900 lnterestonrstBanltCD 382 The 8382 from First Bank was original issue discount. Dan and Freida collected 316.000 on the FirSI Bank CD that matured on September 30. 2018. The CD was purchased on October 1, 2016, for $14,995, and the yield to maturity was 3.3%. Dan received a Schedule Kl from the Falcon Partnership. which showed his distributive share of income as $7,000. In addition to the above information, Dan and Freida's itemized deductions included the following: PaidonZOIBKentudtyincometax S 700 Personalpropenytaxpaid 600 Realestatetaxespald 1,000 InterestonhomemortgagetCorbinS.) 4,900 Cashconu'ibutionstodteoySmuts 000 Sales tax from the sales tax table is 31.860. Dan and Freida made Federal estimated tax payments of $8,000. All members of the family had health insurance coverage for all of 2018. Dan and Freida do not wish to contribute to the Presidential Election Campaign. The Kentucky mmme tax rate is 4%. Part JTax Computation Compute Dan and Freida's 2018 Federal income tax payable (or refund due). If you use tax forms for your computations, you will need Form 1040 and Schedules A, B, and E (if available). Part 2Tax Planning Dan plans to reduce his work schedule and work only half-time for W11] in 2019. He has been writing songs for several years and wants to devote more time to devel- oping a career as a songwriter. Because of the uncertainty in the music business. however, he would like you to make all computations assuming that he will have no income from songwriting in 2019. To make up for the loss of income, Freida plans to increase the amount of time she spends selling real estate. She estimates that she will be able to earn $90,000 in 2019. Assume that all other income and expense items will be approximately the same as they were in 2018. Assume that Sam will be enrolled in college as a full-time student for the summer and fall semesters. Will the Butlers have more or less disposable income (after Federal income tax) in 2019? Write a letter to the Butlers that contains your advice, and prepare a memo for the tax files
