1. Explain the difference between realized and recognized income. (3 POINTS) 2. ABC Company provided the following income items to its outside accountant. This is the first time the accountant has worked with ABC, and during the initial meeting she failed to ask if ABC is an accrual basis taxpayer or a cash basis taxpayer. Calculate ABC's income using both methods so the accountant is ready for her next meeting with them. You are calculating ABC's income as of December 31, 2018. Include explanations in your calculation. (4 POINTS) $10,000 received December 31, 2018 for advertising services to be rendered in January 2019 $3,500 for a pending lawsuit which should be settled in March 2019 - ABC is the plaintiff and is expected to win the suit and receive the proceeds March of 2019. $13,500 received December 15, 2018 for advertising services rendered in October 2018 $15,000 for advertising services rendered in November 2018; however, the check was left with the brother of the CEO of ABC. Both the brother and the CEO saw each other at a Christmas party on December 30, 2018 and the brother offered to go to his car to get the check for the CEO. The CEO declined because he didn't want the party to turn into a business party. Check was not received and cashed by the CEO January 15, 2019. 3. The Internal Revenue Code provides several income items that are excluded from gross income for tax. Please list and explain three exclusions. Provide specific examples and include in your answer how the exclusion works and the reason the exclusion was created. (4 POINTS) 4. Using the tax formula calculate the taxpayer's AGI. (5 POINTS) Wages Self-employed business income Real estate taxes paid (residence) Parking ticket paid for business % self-employment tax Gambling income Scratch off lotto ticket winning Cash option taken from cafeteria plan Gambling losses Hobby income Supplies for self-employed business Office expense for self-employed business Sub-contractors for self-employed business. $10,000 $80,000 $ 25,000 $ 6,500 $ 200 $ 1,300 $ 5,000 $ 100 $1,000 $ 7,000 $ 2,500 $ 700 $ 8,000