TAX 9870 Study Guide - Quiz Guide: Tax Deduction, Tax Avoidance, Life Estate

Would it be possible to get an answer to the below questions(with calculations so that I can understand how to get theanswers).

Net Assets and Employees’ Retirement Fund

Complete the following activities and submit your answers toyour instructor in a Word document formatted to proper APAspecifications. Include any relevant supporting computations andexplanations.

Pension Trust Funds:

7-13:

Review the financial information pertaining to the City ofSweetwater in problem 7-13 on pages 220-221 of your text. Reviewthe transactions that occurred during the year ended June 30, 2015and complete the following:

a. Record the transactions on the books of theEmployees’ Retirement Fund.

b. Prepare a Statement of Changes in Fiduciary NetPosition for the Employees’ Retirement Fund for the Year Ended June30, 2015.

c. Prepare a Statement of Fiduciary Net Position for theEmployees’ Retirement Fund as of June 30, 2015.

The City of Sweetwater maintains an Employees’ Retirement Fund,a single-employer defined benefit plan that provides annuity anddisability benefits. The fund is financed by actuarially determinedcontributions from the city’s General Fund and by contributionsfrom employees. Administration of the retirement fund is handled byGeneral Fund employees, and the retirement fund does not bear anyadministrative expenses. The Statement of Fiduciary Net Positionfor the Employees’ Retirement Fund as of July 1, 2014, is shownhere:

During the year ended June 30, 2015, the following transactionsoccurred:

1. The interest receivable on investments was collected incash.

2. Member contributions in the amount of $250,000 were receivedin cash.

The city’s General Fund also contributed $750,000 in cash.

3. Annuity benefits of $700,000 and disability benefits of$150,000 were recorded a liabilities.

4. Accounts payable and accrued expenses in the amount of$900,000 were paid in cash.

5. Interest income of $240,000 and dividends in the amount of$40,000 were received in cash. In addition, bond interest income of$60,000 was accrued at year-end.

6. Refunds of $133,000 were made in cash to terminated,nonvested participants.

7. Common stocks, carried at a fair value of $500,000, were soldfor $480,000. That $480,000, plus an additional $300,000, wasinvested in stocks.

8. At year-end, it was determined that the fair value of stocksheld by the pension plan had decreased by $40,000; the fair valueof bonds had increased by $35,000.

9. Nominal accounts for the year were closed.

a. Record the transactions on the books of theEmployees’ Retirement Fund.

b. Prepare a Statement of Changes in Fiduciary NetPosition for the Employees’ Retirement Fund for the Year Ended June30, 2015.

c. Prepare a Statement of Fiduciary Net Position for theEmployees’’ Retirement Fund as of June 30, 2015.

Tatiana partnership

The Tatiana Partnership is a calendar year, cash basis limitedpartnership which was formed on 1 January 2014. The partnership isin the business of training attack dogs and cats (business code541990). The address for the partnership and both partners is 300Montgomery Street, Suite 1050, San Francisco, CA 94104. Allbusiness is carried on in the San Francisco Bay Area, and thepartnership has no foreign activities of any kind. The partnershipreturn is filed in Ogden, Utah. The partnership’s federal ID numberis 94-0070070.

The partnership agreement follows the provisions of IRC section704 and provides that gains, losses, and depreciation will beallocated in such a manner so as to account for the differencesbetween agreed market values and the tax basis of assetscontributed to the partnership. For example, should the agreedvalue exceed the tax basis of a contributed asset, any gain due tothe difference shall be allocated to the contributing partner uponsale of the asset. Any remaining gain shall be allocated in the“regular” ratio in which partners share income and losses.Furthermore, depreciation expense on contributed assets is to beallocated to the noncontributing partner as if the asset’s FAIRMARKET VALUE were EQUAL to its tax basis; any remainingdepreciation is to be allocated to the contributing partner.

Outside of the special IRC Section 704 allocations discussed inthe preceding paragraph, all other items are allocated in the“normal” profit and loss ratios for the partnership.

Data on the partners, the assets contributed by them, and theprofit and loss ratios agreed upon are as follows:

Tyr Slesnick (SSN; 007-06-1991), the general partner

Arekay Mitchell (SSN: 006-01-1985), the limited partner.

Tyr – 60% profit and loss ratio. Tyr contributed a parcel ofland (acquired on 1/1/1995 as investment property) and its relatedmortgage. The land originally cost $200,000 and had a fair marketvalue of $300,000 as of the date it was contributed to thepartnership. There was a $180,000 balance on the qualifiednonrecourse mortgage assumed by the partnership. The land is knownas “Whitaker Acres”. The capital contribution of the land and itsrelated mortgage was made on the date the partnership was formed.The land was used by the Tatiana Partnership as a location to trainthe dogs.

Arekay – 40% profit and loss ratio. Arekay contributed a dogtraining machine valued at $80,000. The dog training machine wasacquired on 1/1/2009 at a cost of $120,000. The machine originallyhad a ten year life (5 years left@ 1/1/2014) and is depreciated onthe straight-line method using a 10 year life at the rate of$12,000 of depreciation per year. Accumulated depreciation of$60,000 ($120,000 cost less $60,000 accumulated depreciationthrough 12/31/2013) as of the date it was contributed to thepartnership.

The partnership keeps its books on the tax basis method withappropriate supporting schedules maintained to keep track of fairmarket value where required. Each partner’s ownership of capital isper the books.

A. You need to make a journal entry to record Tyr’s capitalcontribution of the land subject ot the mortgage as of1/1/2014.

B. You need to make a journal entry to record Arekay’s capitalcontribution of the dog training machine as of 1/1/2014.

C. On 12/31/2014 (the last day of the year), the partnershippurchases a new piece of land (Darien Acres) for $4,500,000. The$4,500,000 purchase was 100% financed via a $1,000,000 RECORSE LOANfrom Union Bank and a $3,500,000 QUALIFIED NONRECOURSE FINANCINGfrom Wells Fargo bank. The recourse loan plus one year’s interestat 10% is due in full on 12/31/2014, and no interest is payableuntil maturity. The qualified nonrecourse loan requires quarterlyinterest payments (at an 8% annual rate) with the first quarterlyinterest payment of $70,000 not being due until 3/31/2015 (i.e.,next year). This land will be used as a larger site on which totrain the dogs and cats – i.e., it’ll be used as business land.

D. You need to record the depreciation expense on the dogtraining machine. Please note that the machine is deprecated usinga 10 year life for both regular and “alternative minimum tax”.Depreciation. As noted in the facts, the machine’s tax depreciationis $12,000 ($120,000 original cost divided by 10 years). If themachine’s depreciation had been based on it’s $80,000 FMV, thedepreciation based on FMV would have been $16,000 ($80,000 FMVdivided by the 5 year remaining life). You’re going to have tofigure out what to do and how to allocate the depreciation betweenthe partners.

E. The business purchased $920,000 of additional trainingequipment. This equipment was purchased on the day the partnershipwas formed, and it has been fully paid for as of the end of theyear. The partnership desires to claim the MAXIMUM depreciationallowed under the tax law, so you’ll need to compute this andprepare a journal entry recording the depreciation. The propertywas purchased on 1/2/2013.

F. The property contributed by Tyr was known as “WhitakerAcres”. This property was SOLD on July 4^th of thecurrent year for $600,000 ($420,000 of cash is shown in a separateaccount, but no entry has been made to record the sale, so you’llneed to make the journal entry necessary to record the sale anddecide how to allocate the gain between the two partners.

REQUIRED:

1. Prepare journal entries to record the events listed in “A”through “F” above. Label the entries “A” through “F”>

2. Post the journal entries to the cash activity and prepare a“working trial balance”.

posting for sec times any incomplete work will bereported answer all 2 parts investment 1 to 7 and finacial statmentand valution 1 to 6

You are working for The Wellington Company on temporaryassignment while one of the accountants is on family leave. Youhave been asked to review the company’s investment journal entriesand provide necessary information to the accountant preparing thefinancial statements.

PAGE 8

JOURNAL

ACCOUNTING EQUATION

Investments

Review the journal entries on The Wellington Company panel thenanswer the following questions.

7. Which of the following investments are likely to beavailable-for-sale securities? Check all that apply.

Harding Construction stock

Mays and Co. stock

Cannot be determined

Red Rock Co. stock

Sunset Village bonds

Minions Corp. stock

Financial Statements and Valuation

The accountant preparing the financial statements has asked youto provide the fair value as of the end of the year for theinvestments. Present the information as it would be shown on thefinancial statements. Last year, The Wellington Company reportedcosts of $68,000 in trading investments and $82,000 inavailable-for-sale investments. Refer to the journal entries shownon The Wellington Company panel. Assume that all investments soldduring this year were trading investments and that purchases duringthe year were new investments.

1. Select the correct label for each line and fill in theamount. In classifying the investments, choose a categorizationwhich seems most likely, given the pattern of transactions in thejournal entries. Enter all amounts as positive numbers. If anamount box does not require an entry, leave it blank.

6. Which of the following items does not affect net income?Check all that apply.

only unrealized gains or losses for all investments

realized loss on available-for-sale securities

realized gain on trading securities

none of these answers is correct

both gains and losses of any sort for all investments

unrealized loss on trading securities

unrealized gain on available-for-sale securities