Log in
Accounting
1
answer
0
watching
198
views

Abel, Baker and Cane decided to form the ABC Corporation. They contributed the following assets on Jan 1, 2005. Abel contributed cash of $37,000 and some land which cost him $32000 and had a fair market value of $50000. The land had a mortgage attached of $12000 which was assumed by the corporation. Baker contributed services which were valued at $30,000 and some equipment which cost $52,000 but had a fair market value of $45000. Cane contributed inventory which had a fair market value of $58000 and had a cost basis of $23000 to Cane. He also contributed tools which had a basis of $28000 and fair market value of $24,000. Each shareholder received 100 shares of stock except Cane who also received $7000 of cash. The corporation started operations on January 1, 2005. The results of the year ended December 31, 2012 were as follows: Book income Sales $750000 Cost of Sales 485000 Salary expense 125000 Rent expense 32000 Utility expense 14250 Depreciation expense 43000 Interest expense 17500 Meal expense 11300 Insurance expense 8400 Capital gains 19700 Capital losses 14800 Charitable contributions 15400 Interest income 33000 Dividend income 47900 Maintenance expense 9400 Fines 6100 Tax depreciation consisted of a $12000 179 expense deduction and $24000 of regular depreciation using the half year convention. The interest expense included $4500 of interest on loans to buy the tax exempt securities. The insurance expense included $1500 of premiums to purchase key man life insurance. Of the $33000 of interest income $18200 was from tax exempt bonds. All of the dividend income came from corporations which ABC had less than a 10% stake. $1400 of dividend income came from a foreign corporation. During 2012 ABC made the following distributions to the shareholders. Abel received cash of $7000 and section 1231 property which had a basis of $4000 and a fair market value of $11000. Baker received a parcel of land which cost $32000 but had a fair market value of $37000. Attached to the land was a mortgage of $19000 assumed by Baker. Cane received cash of $18000. At the beginning of 2012 ABC had accumulated earnings and profits of $13000. How much taxable income did the ABC Corporation have during 2012? 3. How much is ABC’s income tax? 4. How much is the current earnings and profit for ABC for the year 2012? 5. What effect does the distribution have on Abel? Is it a dividend, return of capital or capital gain and how much? 6. What effect does the distribution have on Baker? Is it a dividend, return of capital or capital gain and how much? 7. What effect does the distribution have on Cane? Is it a dividend, return of capital or capital gain and how much? 8. What effect do the distributions have upon ABC’s earnings and profit? What is the amount of earnings and profit at the end of 2012?

Watch
1
answer
0
watching
198
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Hubert Koch
Hubert KochLv2
30 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Comprehensive Problem 3-71 (LO 3-1, LO 3-2, LO 3-3, LO 3-4, LO 3-5, LO 3-6)

[The following information applies to the questions displayed below.]

Moab Inc. manufactures and distributes high-tech biking gadgets. It has decided to streamline some of its operations so that it will be able to be more productive and efficient. Because of this decision, it has entered into several transactions during the year.

  1. Moab Inc. sold a machine used to make computerized gadgets for $29,100 cash. It originally bought the machine for $20,400 three years ago and has taken $8,000 depreciation.
  2. Moab Inc. held stock in ABC Corp., which had a value of $18,000 at the beginning of the year. That same stock had a value of $21,230 at the end of the year.
  3. Moab Inc. sold some of its inventory for $8,200 cash. This inventory had a basis of $5,000.
  4. Moab Inc. disposed of an office building with a fair market value of $81,000 for another office building with a fair market value of $59,800 and $21,200 in cash. It originally bought the office building seven years ago for $68,000 and has taken $15,000 in depreciation.
  5. Moab Inc. sold some land held for investment for $40,000. It originally bought the land for $41,600 two years ago.
  6. Moab Inc. sold another machine for a note payable in four annual installments of $15,000. The first payment was received in the current year. It originally bought the machine two years ago for $44,000 and has claimed $9,600 in depreciation expense against the machine.
  7. Moab Inc. sold stock it held for eight years for $3,350. It originally purchased the stock for $2,400.
  8. Moab Inc. sold another machine for $8,500. It originally purchased this machine six months ago for $9,600 and has claimed $830 in depreciation expense against the asset.

Comprehensive Problem 3-71 Part (1) and (2)

Required:
  1. Determine the gain/loss realized and recognized in the current year for each of these events provided above. Also, determine whether the gain/loss recognized is §1231, capital, or ordinary.
  2. From the recognized gains/losses determined in part 1, determine the net capital gain/loss, the net ordinary gain/loss, and the net capital gain/loss Moab will recognize on its tax return. Moab, Inc. also has $3,200 of non-recaptured §1231 losses from previous years.

Edgar and Molene Moab are married, do not itemize, and Edgar owns a high-tech biking business. Both are under age 65 and have no dependents.

Form 4797 is used for the sale of business property. Part III, Form 4797, is used for §1231 assets disposed of at a gain. Part I, Form 4797, is used for non-depreciable §1231 assets [usually land] and §1231 assets disposed of at a loss. Part II, Form 4797, is used for business assets not held for one year. There is an example of Form 4797 and Schedule D on Pages 11-21 to 11-23.

Moab [an unincorporated entity] manufactures and distributes high-tech biking gadgets. It has decided to streamline some of its operations so that it will be able to be more productive and efficient. Because of this decision it has entered into several transactions during the year.

Part (1) Determine the gain/loss realized and recognized in the current year for each of these events. Also determine whether the gain/loss recognized is §1231, capital, or ordinary. Construct a chart to show transactions and gains/loss in good format.

a. Moab sold a machine that it used to make computerized gadgets for $27,300 cash. It originally bought the machine for $19,200 three years ago and has taken $8,000 depreciation.

b. Moab held stock in ABC Corp. which had a value of $12,000 at the beginning of the year. That same stock had a value of $15,230 at the end of the year.

c. Moab sold some of its inventory for $7,000 cash. This inventory had a basis of $5,000.

d. Moab disposed of an office building with a fair market value of $75,000 for another office building with a fair market value of $55,000 and $20,000 in cash. It originally bought the office building seven years ago for $62,000 and has taken $15,000 in depreciation.

e. Moab sold land it held for investment for $28,000. It originally bought the land for $32,000 two years ago.

f. Moab sold another machine for a note, payable in four annual installments of $12,000. The first payment was received in the current year. It originally bought the machine two years ago for $32,000 and had claimed $9,000 in depreciation expense against the machine.

g. Moab sold stock it held for eight years for $2,750. It originally purchased the stock for $2,100.

h. Moab sold another machine for $7,300. It originally purchased this machine six months ago for $9,000 and has claimed $830 in depreciation expense against the asset.

Part (2) From the recognized gains/losses determined in part 1, determine the net §1231 gain/loss and the net ordinary gain/loss Moab will recognize on its tax return. Moab, Inc. also has $2,000 of nonrecaptured §1231 losses from previous years

Prepare the tax return that incorporates Part I and Part II above.

ACCT3201 Tax Return Problem #3

Edgar and Molene Moab are married, do not itemize, and Edgar owns a high-tech biking business. Both are under age 65 and have no dependents. They live at 1234 University Drive, Apt. 13, Lawrenceville, GA 30043. Prepare their 2016 tax return.

Forms required: Form 1040

Form 4797

Schedule D

Schedule D worksheet

Form 8824 for like-kind exchange

Form 6252 for installment sales

Form 4797 is used for the sale of business property. Part III, Form 4797, is used for §1231 assets disposed of at a gain. Part I, Form 4797, is used for non-depreciable §1231 assets [usually land] and §1231 assets disposed of at a loss. Part II, Form 4797, is used for business assets not held for one year. There is an example of Form 4797 and Schedule D on Pages 11-21 to 11-23.

Moab [an unincorporated entity] manufactures and distributes high-tech biking gadgets. It has decided to streamline some of its operations so that it will be able to be more productive and efficient. Because of this decision it has entered into several transactions during the year.

Part (1) Determine the gain/loss realized and recognized in the current year for each of these events. Also determine whether the gain/loss recognized is §1231, capital, or ordinary. Construct a chart to show transactions and gains/loss in good format.

Moab sold a machine that it used to make computerized gadgets for $27,300 cash. It originally bought the machine for $19,200 three years ago and has taken $8,000 depreciation.

Moab held stock in ABC Corp. which had a value of $12,000 at the beginning of the year. That same stock had a value of $15,230 at the end of the year.

Moab sold some of its inventory for $7,000 cash. This inventory had a basis of $5,000.

Moab disposed of an office building with a fair market value of $75,000 for another office building with a fair market value of $55,000 and $20,000 in cash. It originally bought the office building seven years ago for $62,000 and has taken $15,000 in depreciation.

Moab sold land it held for investment for $28,000. It originally bought the land for $32,000 two years ago.

Moab sold another machine for a note, payable in four annual installments of $12,000. The first payment was received in the current year. It originally bought the machine two years ago for $32,000 and had claimed $9,000 in depreciation expense against the machine.

Moab sold stock it held for eight years for $2,750. It originally purchased the stock for $2,100.

Moab sold another machine for $7,300. It originally purchased this machine six months ago for $9,000 and has claimed $830 in depreciation expense against the asset.

Part (2) From the recognized gains/losses determined in part 1, determine the net §1231 gain/loss and the net ordinary gain/loss Moab will recognize on its tax return. Moab, Inc. also has $2,000 of nonrecaptured §1231 losses from previous years.

Weekly leaderboard

Home
Homework Help 3,900,000
Accounting 580,000
Start filling in the gaps now
Log in