Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

WAR (We Are Rich) has been in business since 1987. WAR is an accrual-method sole proprietorship that deals in the manufacturing and wholesaling of various

image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
WAR (We Are Rich) has been in business since 1987. WAR is an accrual-method sole proprietorship that deals in the manufacturing and wholesaling of various types of golf equipment. Hack & Hack CPAs has filed accurate tax returns for WAR's owner since WAR opened its doors. The managing partner of Hack & Hack (Jack) has gotten along very well with the owner of WAR-Mr . Someday Woods (single). However, in early 2020, Jack Hack and Someday Woods played a round of golf, and Jack, for the first time ever, actually beat Mr. Woods Mr. Woods was so upset that he fired Hack & Hack and has hired you to compute his 2020 taxable income Mr. Woods was able to provide you with the following information from prior tax returns. The taxable income numbers reflect the results from all of Mr. Woods's activities except for the items separately stated. You will need to consider how to handle the separately stated Items for tax purposes. Also note that the 2015-2019 numbers do not reflect capital loss carryovers. 2015 2016 2017 2018 2019 Ordinary taxable income $ 4,000 $ 2,000 $94,000 $170,000 $250,000 other items not included in ordinary taxable income: Net gain (loss) on disposition of 51231 assets $ 3,000 10,000 $ (6,000) Net long-term capital gain (loss) on disposition of capital assets $(15,000) $1,000 $(7.000) $ (7.600) In 2020, Mr. Woods had taxable income in the amount of $480,000 before considering the following events and transactions that transpired in 2020: a. On January 1, 2020, WAR purchased a plot of land for $100,000 with the intention of creating a driving range where patrons could test their new golf equipment. WAR never got around to building the driving range: Instead, WAR sold the land on October 1, 2020, for $40,000. b. On August 17, 2020, WAR sold its golf testing machine, "Iron Byron," and replaced it with a new machine, "Iron Tiger." "Iron Byron" was purchased and installed for a total cost of $22,000 on February 5, 2016. At the time of sale. "Iron Byron" had an adjusted tax basis of $4,000. WAR sold "Iron Byron" for $25,000. c. In the months October through December 2020, WAR sold various assets to come up with the funds necessary to invest in WAR's latest and greatest invention-the three-dimple golf ball. Data on these assets are provided below: Placed in Service (or Initial Accumulated selling Asset purchased) Sold Basis Depreciation Price Someday's black leather sofa (used in office) 4/4/19 10/16/20 $ 3,000 $ 540 $ 2,900 Someday's office chair 3/1/18 11/8/20 8,000 3,000 4.000 Marketable securities 2/1/17 12/1/20 12,eee 20,000 Land held for investment 7/1/19 11/29/20 45,000 48,000 Other investment property 11/30/18 10/15/20 10,000 8,000 e d. Finally, on May 72020, WAR decided to sell the building where it tested its plutonium shaft, lignite head drivers WAR purchased the building on January 5, 2008, for $190,000 ($170,000 for the building, $20,000 for the land). At the time of the sale, the accumulated depreciation on the building was $50,000. WAR sold the building (with the land) for $300,000. The fair market value of the land at the time of sale was $45,000. (Do not round intermediate computations. Round your final answers to the nearest whole dollar amount Loss amounts should be indicated by a minus sign.) Compute Mr. Woods's taxable income after taking into account the transactions described above Description Gain/(Loss) Depreciation Recapture $1231 Ordinary income/(Loss) Short Term Long Term Total LT 28% LT 25% LT 0/15/20% Land Iron Byron Sofa Chair Marketable securities Land - for investment Investment property Building Land 0 0 0 0 0 0 0 0 0 231 netting 1. depreciation recapture rdinary income p 2 - 51231 G/L netting innene er -gains/losses exclusive of $1250 -Unrecap $1250 Step 3 - lookback rule - apply to unrecap $1250 first Ordinary income Remaining unrecap 51250 Remaining gain - 0/15/20 0 0 0 0 0 0 Capital gain netting Long term capital loss carryover Reclassified 0 0 Taxable income: $ 480,000 Before transactions Ordinary income/loss LTCG @ 25% LTCG @ 0/15/20% $ Taxable income 480,000

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions

Question

=+(2,5], P1) such that Fc F, and P, agrees with P on $ .

Answered: 1 week ago