WAR (We Are Rich) has been in business since 1981. WAR is an accrual method sole proprietorship that deals in the manufacturing and wholesaling of various types of golf equipment. Hack & Hack CPAs have 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 2014, 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 2014 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. Wood'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 2009-2013 numbers do not reflect capital loss carryovers.

In 2014, Mr. Woods had taxable income in the amount of $460,000 before considering the following events and transactions that transpired in 2014:
a. On January 1, 2014, 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, 2014, for $40,000.
b. On August 17, 2014, 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, 2010. 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 2014, 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:

d. Finally, on May 7, 2014, WAR decided to sell the building where they tested their plutonium shaft, lignite head drivers. WAR purchased the building on January 5, 2002, 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.
Part 1: Compute Mr. Woods's taxable income after taking into account the transactions described above.
Part 2: Compute Mr. Woods's tax liability for the year. (Ignore any net investment income tax for the year.)
Part 3: Complete Mr. Woods's Form 8949, Schedule D, and Form 4797 (use the most current version of these schedules) to be attached to his Form 1040. Assume that asset bases are not reported to the IRS.

Transcribed Image Text:

2009 2010 2011 2012 2013 7000 $94,000 OrdinaryS4,000 taxable income Other items not included in ordinary taxable income S2,000 S94,000 $170,000 S250,000 Net gain (loss) S3,000 10,000 (S6,000) on disposition of 81231 assets Net long-term ($15,000) $1.000 ($7,000) ($7,000) capital gain (loss) on disposition of capital assets Placed in Service (oir purchased) Sold Initial Accumulated Selling BasisDepreciationPrice Asset Someday's black 4/4/13 leather sofa (used in office) Someday'soffice 3/1/12 chair Marketable securities Land held for 10/16/14$3,000 11/8/14$8,000 12/1/14S12,000 11/29/14 $45,000 S540 S2,900 $3,000S4,000 S0 $20,000 S0 S48,000 SO S8,000 nvestment Other investment11/30/12 10/15/14 S10,000 ro