Q1.Problem 3-3 Inventories (LO 3.2)

Lawrence owns a small candy store that sells one type of candy. His beginning inventory of candy was made up of 10,000 boxes costing $1.50 per box ($15,000), and he made the following purchases of candy during the year

March 1	10,000 boxes at $1.60	$16,000
August 15	20,000 boxes at $1.70	34,000
November 20	10,000 boxes at $1.80	18,000

At the end of the year, Lawrence's inventory consisted of 15,000 boxes of candy.

Question Content Area

a. Calculate Lawrence's ending inventory and cost of goods sold using the FIFO inventory valuation method.

Ending inventory	$fill in the blank 7a1703016f9afaf_1
Cost of goods sold	$fill in the blank 7a1703016f9afaf_2

Question Content Area

b. Calculate Lawrence's ending inventory and cost of goods sold using the LIFO inventory valuation method.

Ending inventory	$fill in the blank 1412fe076015040_1
Cost of goods sold	$fill in the blank 1412fe076015040_2

Q2.Problem 3-4 Inventories (LO 3.2)

Kevin owns a retail store, and during the current year he purchased $578,000 worth of inventory. Kevin's beginning inventory was $58,000, and his ending inventory is $79,000. During the year, Kevin withdrew $560 in inventory for his personal use. Assume that he uses the cost method to value the inventory and there was no change in determining quantities, costs, or valuations between opening and closing inventory.

Use Part III of Schedule C below to calculate Kevin's cost of goods sold for the year.

Enter amounts as positive numbers.

Part III

Cost of Goods Sold (see instructions)

33	Method(s) used to
	value closing inventory: CostLower of cost or marketOther (attach explanation)
34	Was there any change in determining quantities, costs, or valuations between opening and closing inventory?
	If "Yes," attach explanation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	YesNo

35	Inventory at beginning of year. If different from last year's closing inventory, attach explanation . . . . . . . .	35	fill in the blank 3
36	Purchases less cost of items withdrawn for personal use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36	fill in the blank 4
37	Cost of labor. Do not include any amounts paid to yourself . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
38	Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
39	Other costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
40	Add lines 35 through 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40	fill in the blank 5
41	Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41	fill in the blank 6
42	Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 . . . . . . . . . . . . . . .	42	fill in the blank 7

Q3.Problem 3-6 Transportation (LO 3.3)

Teresa is a self-employed civil engineer who uses her automobile for business. Teresa drove her automobile a total of 12,000 miles during 2021, of which 82% was business mileage. The actual cost of gasoline, oil, depreciation, repairs, and insurance for the year was $6,400. Teresa is eligible to use the actual or standard method.

If required, round your answers to the nearest dollar.

Question Content Area

a. How much is Teresa's transportation deduction based on the standard mileage method? $fill in the blank 44c000047f92055_1

Question Content Area

b. How much is Teresa's transportation deduction based on the actual cost method? $fill in the blank 87fa79fd7009f95_1

Q4.Problem 3-9 Travel Expenses (LO 3.4)

Joan is a self-employed attorney in New York City. Joan took a trip to San Diego, CA, primarily for business, to consult with a client and take a short vacation. On the trip, Joan incurred the following expenses:

Airfare to and from San Diego	$ 480
Hotel charges while on business	440
Restaurant meals while on business	260
Car rental while on business (she drove 240 miles)	110
Hotel charges while on vacation	460
Restaurant meals while on vacation	290
Car rental while on vacation	180
Total	$2,220

Calculate Joan's travel expense deduction for the trip, assuming the trip was made in 2021. $fill in the blank 1

Q5.Problem 3-11 Travel Expenses, Meals And Entertainment, Educational Expenses (LO 3.4, 3.5, 3.6)

Bob is a self-employed lawyer and is required to take a week of continuing legal education every year to maintain his license. This year he paid $1,295 in course fees for his continuing legal education in a different city. He also paid $467 for airfare and a hotel room and paid $250 for meals, all of which were provided by the hotel's restaurant. Bob also purchased a $6 bag of snacks from a newsstand while waiting for his plane in the airport because he missed lunch.

What is the total amount he can deduct on his Schedule C related to these expenses? $fill in the blank 1

Q6.Problem 3-12 Meals and Entertainment (LO 3.5)

Grace is a self-employed sales consultant who spends significant time entertaining potential customers. She keeps all the appropriate records to substantiate her entertainment. She has the following expenses in the current year:

Restaurant meals where business was conducted	$5,000
Greens fees (all business)	500
Tickets to baseball games (all business)	500
Country Club dues (all business use)	6,000

What are the tax-deductible meals and entertainment expenses Grace may claim in the current year? $fill in the blank 1

Q7.Problem 3-17 Business Gifts (LO 3.9)

Sam owns an insurance agency and makes the following business gifts during the year.

Calculate Sam's deduction for business gifts.

If an amount is zero, enter "0".

	Donee	Amount	Amount Allowed
1.	Ms. Sears (a client)	$35, plus $4 shipping		$fill in the blank 1
2.	Mr. Williams (a tennis partner, not a business prospect or client)	55		fill in the blank 2
3.	Mr. Sample (a client) received $22 and Mrs. Sample (nonclient spouse of Mr. Sample) received a gift valued at $20	42		fill in the blank 3
4.	Various customers (calendars costing $3 each with the company name on them)	300		fill in the blank 4
5.	Mr. Shiver (an employee gift, a watch, for 25 years of continuous service)	175		fill in the blank 5
			Total business gift deduction			$fill in the blank 6

Q8.Problem 3-18 Bad Debts (LO 3.10)

Steinar loaned a friend $9,500 to buy some stock 3 years ago. In the current year the debt became worthless.

Question Content Area

a. How much is Steinar's deduction for the bad debt for this year? (Assume he has no other capital gains or losses.) $fill in the blank 42e091fddfcc040_1 as a

businessnonbusiness

bad debt.

b. What can Steinar do with the deduction not used this year?

The remaining $fill in the blank 473b87fd702707d_1 can be carried forward as a

Q9. Problem 3-21 Office in the Home (LO 3.11)

Cindy operates a computerized engineering drawing business from her home. Cindy maintains a home office and properly allocates the following expenses to her office:

Depreciation	$1,500
Utilities	500
Real estate taxes	325
Mortgage interest (100 percent deductible)	500

Question Content Area

a. Assume that Cindy earns income of $4,400 from her business for the year before deducting home office expenses. She has no other expenses associated with the business.

Calculate Cindy's deduction for home office expenses. $fill in the blank fb1ec2fac013fed_1

Question Content Area

b. Assume that Cindy earns income of $2,600 from her business during the year before deducting home office expenses.

Calculate Cindy's deduction for home office expenses. $fill in the blank a78575fb6fbf03a_1

Q10.Problem 3-22 Office in the Home (LO 3.11)

Pete qualifies for a home office deduction. The amount of space devoted to business use is 300 square feet of the total 1,200 square feet in his apartment. Pete's total rent for the year is $9,600, and he pays utilities (other than telephone) of $2,500 for the year.

Calculate Pete's deduction for home office expenses before the gross income limitation.

Q11.Problem 3-24 Office in the Home (LO 3.11)

Ann is a self-employed restaurant critic who does her work exclusively from a home office. Ann's income is $25,000 before the home office deduction this year. Her office takes up 200 square feet of her 1,000-square-foot apartment. The total expenses for her apartment are $6,000 for rent, $1,000 for utilities, $200 for renter's insurance, and $800 for pest control and other maintenance.

What is Ann's home office deduction? $fill in the blank 1

Q12.Problem 3-1 Schedule C (LO 3.1, 3.3, 3.5, 3.7)

Scott Butterfield is self-employed as a CPA. He uses the cash method of accounting, and his Social Security number is 644-47-7833. His principal business code is 541211. Scott's CPA practice is located at 678 Third Street, Riverside, CA 92860. Scott's income statement for the year shows the following:

Income Statement
Scott Butterfield, CPA Income Statement 12/31/2021
	Current Period		Prior Period
	1/1/2021 to 12/31/2021	1/1/2020 to 12/31/2020
REVENUES
Tax Services	$76,123		$75,067
Accounting Services	49,001		48,860
Other Consulting Services	10,095		10,115
TOTAL REVENUES	135,219		134,042
COST OF SERVICES
Salaries	32,000		30,100
Payroll Taxes	2,868		2,387
Supplies	1,391		1,548
TOTAL COST OF SERVICES	36,259		34,035
GROSS PROFIT (LOSS)	98,960		100,007
OPERATING EXPENSES
Advertising and Promotion	300		350
Business Licenses and Permits	250		250
Charitable Contributions	425		275
Continuing Education	300		300
Dues and Subscriptions	3,500		3,500
Insurance	875		875
Meals and Entertainment	4,400		5,500
Office Expense	150		150
Postage and Delivery	50		50
Printing and Reproduction	100		100
Office Rent	14,000		14,000
Travel	865		865
Utilities	2,978		2,978
TOTAL OPERATING EXPENSES	28,193		29,193
NET INCOME (LOSS)	$70,767		$70,814

Scott also mentioned the following:

• The expenses for dues and subscriptions were his country club membership dues for the year.
• $425 of the charitable contributions were made to a political action committee.
• Scott does not generate income from the sale of goods and therefore does not record supplies and wages as part of cost of goods sold.
• Scott placed a business auto in service on January 1, 2018 and drove it 3,824 miles for business, 3,250 miles for commuting, and 4,500 miles for nonbusiness purposes. His wife has a car for personal use. He maintains written records for the business use of the car.
• Meals and Entertainment expense includes $2,500 related to golf greens fees for entertaining clients, $1,000 for business meals provided by restaurants, and $900 for the office holiday party for all employees.

Complete Schedule C for Scott showing Scott's net taxable profit from self-employment. Assume Scott has evidence to support his deductions. If required, only use the minus sign to indicate a net loss. When required, round amounts to the nearest dollar.

SCHEDULE C (Form 1040) Department of the Treasury Internal Revenue Service (99)	Profit or Loss From Business (Sole Proprietorship) Go to www.irs.gov/ScheduleC for instructions and the latest information. Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.	OMB No. 1545-0074
2021 Attachment Sequence No. 09

Name of proprietor Scott Butterfield

Social security number (SSN) 644-47-7833

A

Principal business or profession, including product or service (see instructions) Accounting Services

B

Enter code from instructions 541211

C

Business name. If no separate business name, leave blank.

D

Employer ID number (EIN), (see instr.)

E

Business address (including suite or room no.)

678 Third Street

City, town or post office, state, and ZIP code

Riverside, CA 92860

F

Accounting method: (1) Cash (2) Accrual (3) Other (specify)

G	Did you "materially participate" in the operation of this business during 2021? If "No," see instructions for limit on losses	Yes No
H	If you started or acquired this business during 2021, check here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I	Did you make any payments in 2021 that would require you to file Form(s) 1099? (see instructions) . . . . . . . . . . . . . . .	Yes No
J	If "Yes," did you or will you file required Forms 1099? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Yes No

Part I

Income

1	Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the "Statutory employee" box on that form was checked . . . . . . . . . . . . . . . . . . . . .	1	fill in the blank 1
2	Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
3	Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3	fill in the blank 2
4	Cost of goods sold (from line 42) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
5	Gross profit. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5	fill in the blank 3
6	Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) . . . . . . . . .	6
7	Gross income. Add lines 5 and 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7	fill in the blank 4

Part II

Expenses. Enter expenses for business use of your home only on line 30.

8	Advertising . . . . . . . . . . . . . . .	8	fill in the blank 5		18	Office expense (see instructions) . . . . .	18	fill in the blank 6
9	Car and truck expenses (see				19	Pension and profit-sharing plans . . . . . .	19
	instructions) . . . . . . . . . . . . . .	9	fill in the blank 7		20	Rent or lease (see instructions):
10	Commissions and fees . . . . . . .	10			a	Vehicles, machinery, and equipment . . .	20a
11	Contract labor (see instructions)	11			b	Other business property . . . . . . . . . . .	20b	fill in the blank 8
12	Depletion . . . . . . . . . . . . . . . .	12			21	Repairs and maintenance . . . . . . . . . .	21
13	Depreciation and section 179				22	Supplies (not included in Part III) . . . .	22	fill in the blank 9
	expense deduction (not included				23	Taxes and licenses . . . . . . . . . . . . . . .	23	fill in the blank 10
	in Part III) (see instructions)	13			24	Travel and meals:
14	Employee benefit programs				a	Travel . . . . . . . . . . . . . . . . . . . . . . .	24a	fill in the blank 11
	(other than on line 19) . . . . . . .	14			b	Deductible meals
15	Insurance (other than health)	15	fill in the blank 12			(see instructions) . . . . . . . . . . . . . . .	24b	fill in the blank 13
16	Interest (see instructions):				25	Utilities . . . . . . . . . . . . . . . . . . . . . . .	25	fill in the blank 14
a	Mortgage (paid to banks, etc.)	16a			26	Wages (less employment credits) . . . . .	26	fill in the blank 15
b	Other . . . . . . . . . . . . . . . . . . .	16b			27a	Other expenses (from line 48) . . . . . . .	27a	fill in the blank 16
17	Legal and professional services	17			b	Reserved for future use . . . . . . . . . .	27b

28	Total expenses before expenses for business use of home. Add lines 8 through 27a . . . . . . . . . . . . . .	28	fill in the blank 17
29	Tentative profit or (loss). Subtract line 28 from line 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29	fill in the blank 18
30	Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829 unless using the simplified method. See instructions. Simplified method filers only: Enter the total square footage of (a) your home: _____________ and (b) the part of your home used for business: _____________ Use the Simplified Method Worksheet in the instructions to figure the amount to enter on line 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
31	Net profit or (loss). Subtract line 30 from line 29. If a profit, enter on both Schedule 1 (Form 1040), line 3, and on Schedule SE, line 2. (If you checked the box on line 1, see instructions). Estates and trusts, enter on Form 1041, line 3. If a loss, you must go to line 32.	}	31	fill in the blank 19

32	If you have a loss, check the box that describes your investment in this activity. See instructions. If you checked 32a, enter the loss on both Schedule 1 (Form 1040), line 3, and on Schedule SE, line 2. (If you checked the box on line 1, see the line 31 instructions). Estates and trusts, enter on Form 1041, line 3. If you checked 32b, you must attach Form 6198. Your loss may be limited.	}	32aAll investment is at risk.
32bSome investment is not at risk.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

Schedule C (Form 1040) 2021

Schedule C (Form 1040) 2021

Page 2

Part III

Cost of Goods Sold (see instructions)

33	Method(s) used to
	value closing inventory: a Cost b Lower of cost or market c Other (attach explanation)
34	Was there any change in determining quantities, costs, or valuations between opening and closing inventory?
	If "Yes," attach explanation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Yes No
35	Inventory at beginning of year. If different from last year's closing inventory, attach explanation . . . . . . . . .	35
36	Purchases less cost of items withdrawn for personal use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
37	Cost of labor. Do not include any amounts paid to yourself . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
38	Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
39	Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
40	Add lines 35 through 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
41	Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
42	Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 . . . . . . . . . . . . . . . .	42

Part IV	Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 9 and are not required to file Form 4562 for this business. See the instructions for line 13 to find out if you must file Form 4562.

43	When did you place your vehicle in service for business purposes? (month/day/year) 1/3/181/1/181/3/19
44	Of the total number of miles you drove your vehicle during 2021, enter the number of miles you used your vehicle for:
	a Business fill in the blank 21 b Commuting (see instructions) fill in the blank 22 c Other fill in the blank 23
45	Was your vehicle available for personal use during off-duty hours? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	YesNo
46	Do you (or your spouse) have another vehicle available for personal use? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	YesNo
47a	Do you have evidence to support your deduction? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	YesNo
b	If "Yes," is the evidence written? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	YesNo

Part V

Other Expenses. List below business expenses not included on lines 8-26 or line 30.

Not applicableContinuing educationContribution to Political Action CommitteeTax services	fill in the blank 29
Not applicablePrintingNondeductible portion of meals and entertainmentCountry club dues	fill in the blank 31

48	Total other expenses. Enter here and on line 27a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	48	fill in the blank 32
	Schedule C (Form 1040) 2021

Rent	$fill in the blank 1
Utilities	fill in the blank 2
Total home office expenses	$fill in the blank