There are 10 questions for you to address. For each question you are asked to do two things:

1. Identify the tax issue(s) posed by the facts presented.

2. Determine the possible tax consequences of each issue that you identify.

Your solution must be word-processed but can be presented in any manner that is clear. You may have

to do some research in your textbook (not on Checkpoint) for a couple of items.

1.

Milton is an inventor who has also written several successful mystery novels. Because he didnt really need the income from the novels, Milton wrote them under an assumed name and had the royalties paid to Hammer Corporation. When Milton incorporated Hammer, he gave all the stock to his three sons. The sons are employed by the corporation, with salaries approximately equal to the royalties earned each year from the novels.

2.

Ayah signs a contract to write a book for East Publishing Company in the current year. Under its terms, she receives a $5,000 advance against future royalty payments upon signing the contract. The contract provides that if Ayah does not write a suitable book or if the books royalties are insufficient to cover the advance, she must repay any portion not earned.

3.

Aretha is an executive vice president of Franklin, Inc. On December 18, 2020, the Franklin, Inc., board of directors awards her a $20,000 bonus. Aretha asks Franklins controller to delay processing the bonus check until January. The controller agrees to her request, and she receives the $20,000 bonus check on January 10, 2021.

4.

During her vacation, Janita found a gold bar from a sunken ship while she was scuba diving off Texas.

5.

Merlene owns a bookstore. The store needs repainting, but she is short of cash to hire a painter. Fred is a painter who enjoys fine mystery novels. Merlene makes a deal with Fred to have him paint the bookstore for any 30 mystery novels Merlene has in stock. Fred paints the store and selects novels that cost Merlene $250 and had a retail selling price of $480.