ACTG 6710 Lecture Notes - Lecture 5: Td Waterhouse, Wound Healing
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Multiple Choice:
_____For purposes of calculating depreciation on the taxpayersbusiness usage of his home, the depreciable basis of the officeis:
The allocable share (example - square footage) of the adjustedbasis of the home when he converted the room from personal space toan office for business use.
The allocable share of the fair market value of the home at thetime he converted the room to an office space for business.
The lesser of a. or b.
The greater of a. or b.
____ Which of the following is not included inthe taxpayerâs basis of business property?
Sales taxes paid with the purchase
Title insurance paid with the purchase
Amounts paid to have the property installed
Amounts paid to have the property delivered
All of the above are included in the taxpayerâs basis.
____ A taxpayer has a net short term capital lossof $2,000 and a net long term capital loss of $3,000 for the taxyear. If there are no other gains or losses, what, if anything,carries over to the next year?
$2,000 short term capital loss
$2,000 long term capital loss
$2,000 short term capital loss; $3,000 long term capitalloss
$500 short term capital loss; $1,500 long term capital loss
The taxpayer has no capital loss carryover.
_____ A taxpayer purchased a capital asset on March 22, 2015.What is the earliest date that he can dispose of the asset wherethe sale qualifies for long term capital gains/loss treatment?
September 22, 2015
September 23, 2015
March 22, 2016
March 23, 2016
_____ A married couple sells the following capital assets duringthe year:
Date Acquired | Date Sold | Sales Price | Adjusted Basis | |
The coupleâs net capital gain is:
$4,000
$12,000
$5,000
$11,000
None of the above
_____ Land purchased for $80,000 in 2000 and used in thetaxpayers business is sold in 2015 for $87,000. The sale of theland results in:
$7,000 short term capital gain
$7,000 long term capital gain
$7,000 ordinary income
$7,000 section 1231 gain
None of the above
_____ Taxpayer purchased office equipment for $9,000. Theequipment had been depreciated $5,000. It was sold for $7,500. Whatis the amount and nature of the gain/loss from the sale?
$1,500 ordinary loss
$1,500 capital loss
$3,500 ordinary income
$3,500 long term capital gain.
_____ Taxpayer has a plant where she acquired a machine for$14,000. Over time depreciation of $6,000 was claimed. In thecurrent year taxpayer sells the asset for $19,000. What is theamount and nature of the gain/loss from the sale?
$6,000 of ordinary income, $5,000 long term capital gain
$5,000 of long term capital gain, $5,000 of ordinary income
$11,000 ordinary income.
$11,000 long term capital gain
______ Equipment used in the business is purchased in 2012 for$50,000. It was sold in 2015 for $22,000.
Depreciation information is as follows:
Accelerated depreciation claimed $23,758
Straight line Depreciation would have been$21,500
What is the gain or loss on the sale of the equipment, and howwill it be treated for tax purposes?
$4,242 Section 1231 loss
$1,758 Section 1231 loss
$2,258 ordinary loss; $1,984 Section 1231 loss
$4,242 ordinary loss
$6,500 ordinary loss
_____ In Malat v Riddell, 383 U.S. 569, 86 S.Ct. 1030,which of the following statements is accurate:
The Supreme Court sustained the governmentâs position, holdingthat the property was held by the taxpayer primarily for sale tocustomers in the ordinary course of his trade or business.
The Supreme Court held that the sale of âproperty held by thetaxpayer primarily for sale to customers in the ordinary course ofa trade or business is synonymous with the wordâsubstantiallyâ.
Words of the statutes should be interpreted where possible intheir ordinary, everyday senses. The Supreme Court concluded thatas used in Section 122191), âprimarilyâ means âof first importanceâor âprincipallyâ.
In so concluding as it did, the Supreme Court found itunnecessary to remand the case back to the lower court.
PREPARE THE JOURNAL ENRTRIES FOR THE FOLLOWING (0NLY FROM TRANSACTON 28 TO 45
| During July 2017, the following transactions, prepared by Maddie's Cleaning Service, were completed: | ||
| Transaction | Date | Description |
| 1 | July 1 | Began her business by contributing a computer valued at $500 and rug cleaner at $6,200 and depositing $2X,XXX (XXXX- represents the last 4 digits of your Bronc's identification number) in a checking account in the name of the corporation in exchange for 6,000 shares, $1 par value shares of capital stock. |
| 2 | 1 | Received $10,000 proceeds from an unsecured, 11%, 5 year, interest only bank loan, due July 1, 2017. The proceeds will be used to pay daily operations of the company. Interest will be paid monthly on the fifth of each month; next payment day is June 5th August 5. |
| 1 | Purchased 30 shares of Facebook stock for market rate as of July 1, 2017. MCS paid $12.00 brokerage fee. Use the Short-term Investment (Available For Sale) account. | |
| 3 | 2 | Paid $1,500 for 3 floor waxer/buffer machines. |
| 4 | 2 | Purchased a used truck for $18,000 in exchange for a 3 year zero-interest bearing $25,000 note to Jim's Auto Sales. |
| 5 | 3 | Purchased cleaning supplies for $6,500. These supplies will not be resoldâuse the Cleaning Supplies Inventory account, 2%/15, net 30. The company uses the period inventory method. |
| 6 | 3 | Paid cash for an exclusive 3 yr right to sell cleaning products from Brite Nâ Clean Supply company, $8,900. |
| 7 | 3 | Purchased 350 cans of cleaning product, XB4, on account, for resale purposes only, from Brite Nâ Clean. Each can costs $8.00. Total shipping costs were $15.00, also included in the amount owedâuse the Merchandise Inventory Account. |
| 8 | 4 | Signed a two year lease agreement for storge and office location. Paid 3 months of rent in advance, $3,000, plus security deposit of $1,000, total $4,000 |
| 9 | 5 | Paid $4,800 on a one-year insurance policy, effective July 1. |
| 10 | 7 | Hired 5 workers at $15.50 per hour. |
| 11 | 8 | Jim Bob Grocery Store paid Maddie's $5,900 in advance for cleaning services to be performed monthly. |
| 12 | 12 | Billed customers $22,300 for cleaning services. |
| 13 | 15 | Paid gas and oil for the month on the truck, $600. |
| 14 | 18 | Paid amount owed on cleaning supplies purchased on July 3rd. |
| 15 | 18 | Billed customers $16,500 for cleaning services. |
| 16 | 18 | Purchased 40 cans of cleaning product, XB4, $400, for resale purposes only on account. The costs include total shipping costs of $30.00. |
| 17 | 18 | Paid $5,000 to employees, with withholding of $960 for federal income taxes, $150 for state income taxes, $310 for social security, $725 for Medicare tax, and $100 for city income tax. Use Employee Tax Withheld account for all withholding. |
| 18 | 18 | Accrue employer tax (related to July 18th payroll) of $1,352. These taxes include employer portion of FICA and Medicare tax and state and federal unemployment tax. Use Employer Tax Payable account. |
| 19 | 21 | Collected $25,400 from customers billed on July 12. |
| 20 | 22 | Sold 200 cans of cleaning product, XB4, to T. Jones Cleaning on account for $30.00 each. Maddie'sâs Cleaning Services, Inc. uses a perpetual inventory method for its merchandise inventory sales and determines costs using LIFO in-first out (LIFO) costing method. Shipping costs were 5%. Costs were charged to T. Jones Cleaning. |
| 21 | 24 | Using Ms. Colbertâs credit card, purchased a used cleaning cart used to carry cleaning supplies to each office, $400. |
| 22 | 25 | Purchased a computer to support office activities, $2,000. |
| 23 | 30 | Bank returned a check for $125 from Tang Juice Company for services paid on July 21st. The bank charges Maddie'sâs Cleaning Services $5.00 service fee for the NSF check. |
| 24 | 30 | Paid withholding tax for July 18th payroll, including employer tax. |
| 25 | 30 | Sold one of the floor polisher purchased on July 1 for $850. Record all depreciation related to equipment. |
| 26 | 31 | Declared and paid a $.25 per share cash dividend. |
| After talking with the client, Ms. Ratcher prepared the following information related to July transactions (use July 31 for the date of transactions): | ||
| 28 | 1 | Earned but unbilled fees at July 31 were $4,245. |
| 29 | 2 | All equipment is depreciated over 5 years, using the straight line method. Depreciate all equipment as if purchased on July 1. |
| 30 | 3 | An inventory count shows $1,700 of cleaning supplies (not for resale) on hand at July 31. |
| 31 | 4 | Record the amortization of the franchise. |
| 32 | 5 | Accrued but unpaid employee salaries were $5,000 with withholding of $880 for federal income taxes. Calculate the payroll using 6.2% FICA tax, 3% for state income taxes, 1.45% Medicare tax, and 2% for city income tax. Record the payroll, using Employee Tax Withheld account for all withholding taxes. |
| 33 | 6 | Accrued employer payroll tax of $800.00 |
| 34 | 7 | Record the rent expiration for the month. |
| 35 | 8 | Record the interest incurred on the note for the month. |
| 36 | 9 | Record amortization of the zero-interest bearing note. |
| 37 | 10 | MCS charged Jim Bob's Grocery $2,800 for services rendered during the month. (See earlier transaction). |
| 39 | 11 | Calculate the change in value of Facebook stock based on market prices as of July 31, 2017. |
| 40 | 12 | One-twelfth of the insurance expired. |
| 41 | 13 | Accrue income taxes for the period. The company expects to pay income taxes at a 18% rate. Note: you must calculate income before you can determine the amount for this adjusting entry. |
| 42 | 14 | Based on an aging of the accounts receivables, Ms. Colbert estimates that 5.5% of outstanding accounts receivables will be uncollectible. |
| 43 | Based on the bank reconciliation performed by John, the other new staff member at Daniel and Jacob, LLC, the following adjusting entries should be made: | |
| 44 | --- A check from Elton Inc. was returned for non sufficient funds (NSF) for $1,000. The check was included in the deposit made on July 21st . | |
| 45 | --- The deposit made on July 21st for cash receipts was recorded $24,400, but bank correctly counted the deposit to be $25,400. | |
