ACC 342 Lecture Notes - Lecture 5: Capital Asset, Life Insurance, Progressive Tax
Hugh, a self-employed contractor, is scrambling to re figure his estimated 2016 income because he
needs to mail his fourth quarter estimated tax payment tomorrow (January 15, 2017). What concept is
causing Hugh's scramble?
Pay-as-you-go Concept
David is a partner in the Big Cat Partnership. For the current year, the partnership reported net income
of $150,000. David's share was $15,000. David reports the $15,000 in his gross income. The partnership
pays no income tax on its earnings. What concept applies here?
Conduit Entity (Big Cat Partnership)
Taxable Entity (David)
Jodi "hired" her four-year-old son to be the office manager of her real estate firm. She deducted his
$20,000 annual salary as a business expense. The IRS disallowed the deduction upon examination of
Jodi's tax return. Why?
Substance Over Form
Business Purpose
Susan files her tax return on April 15, 2017 reporting only her 2016 income, gains, deductions, and
losses. She did not include the $2,000 bonus received from her employer on January 10, 2017 relating to
work performed during 2016. What concept indicates that Susan's actions are correct?
Annual Accounting Period Concept
- Constructive Receipt
Kevin receives a $600 tax credit for child care. The credit was earned because of Kevin's expenditures for
day care for his daughter while he worked. What concept helps to explain why Kevin receives this tax
credit?
Ability-to-pay
Administrative Convenience
Generous Company provides its employees with free coffee during working hours. What concept helps
explain why the benefit received is not taxable to the employees?
Administrative Convenience
Dilbert is the sole shareholder of Adams Corporation. During the current year, Dilbert received $3,000 of
cash dividends from Adams. The dividends are included in the gross income of Dilbert for the current
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year. Dilbert has a current-year tax liability of $6,000. Adams Corporation has a current-year tax liability
of $100,000. What concept dictates that both Dilbert and the corporation pay tax on their separate
incomes?
Entity Concept
- Adams (c corp)
- Dilbert (individual)
Fred is a self-employed carpenter. All cash payments he receives from customers are deposited into a
bank account held in the name of his daughter. Because the account is owned by his daughter, Fred
thinks that he does not need to include the cash receipts in his gross income. What concept dictates that
Fred needs to include the receipts in his gross income?
Assignment of Income
Marty had $4,000 of Kansas income taxes withheld from his salary during 2016. On his 2016 income tax
return, Marty properly deducted the $4,000 as "state taxes paid." Upon filing his 2016 Kansas Tax
Return on April 15, 2017, he determined his actual Kansas tax to be $3,300. He received a refund of
$700 on May 13, 2017. What rule dictates that the $700 is included in Marty's 2017 income?
Annual Accounting Period Concept
- Tax Benefit Rule
Manhattan merchants collect sales tax of 8.75% at the point of sale on purchases of most goods. What
concept dictates the point of sale collection?
Pay-as-you-go Concept
Doris sells an auto to a corporation. She is a 40% shareholder in the corporation. She realizes a loss of
$2,500 on the sale. She is not allowed to deduct the loss for tax purposes, because her spouse owns 30%
of the corporation. Which concept is illustrated?
Arm's Length Transaction
- Related Party
Single taxpayers are allowed a standard deduction of $6,300 for 2016 even if they have not incurred any
expenses deductible as itemized deductions. What concept applies?
Ability-to-pay - Standard Deduction
Administrative Convenience - Set amount
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Document Summary
Hugh, a self-employed contractor, is scrambling to re figure his estimated 2016 income because he needs to mail his fourth quarter estimated tax payment tomorrow (january 15, 2017). David is a partner in the big cat partnership. For the current year, the partnership reported net income of ,000. David reports the ,000 in his gross income. The partnership pays no income tax on its earnings. Jodi hired her four-year-old son to be the office manager of her real estate firm. The irs disallowed the deduction upon examination of. Susan files her tax return on april 15, 2017 reporting only her 2016 income, gains, deductions, and losses. She did not include the ,000 bonus received from her employer on january 10, 2017 relating to work performed during 2016. Kevin receives a tax credit for child care. The credit was earned because of kevin"s expenditures for day care for his daughter while he worked.
