problem- Falcon, Inc., paid salaries of $500,000 to its employees during its first year of operations.
38. Falcon, Inc., paid salaries of $500,000 to its employees during its first year of operations.
At the end of the year, Falcon had unpaid salaries of $45,000.
a. Calculate the salary deduction if Falcon is a cash basis taxpayer.
b. Calculate the salary deduction if Falcon is an accrual basis taxpayer.
39. LO.2 Maud, a calendar year taxpayer, is the owner of a sole proprietorship that uses the cash method. On February 1, 2013, she leases an office building to use in her business for $120,000 for an 18-month period. To obtain this favorable lease rate, she pays the $120,000 at the inception of the lease. How much rent expense may Maud deduct on her 2013 tax return?
40. LO.2 Duck, an accrual basis corporation, sponsored a rock concert on December 29,2013. Gross receipts were $300,000. The following expenses were incurred and paid as indicated:
Expense Payment Date
Rental of coliseum $ 25,000 December 21, 2013
Cost of goods sold:
Food 30,000 December 30, 2013
Souvenirs 60,000 December 30, 2013
Performers 100,000 January 5, 2014
Cleaning of coliseum 10,000 February 1, 2014
Because the coliseum was not scheduled to be used again until January 15, the company with which Duck had contracted did not perform the cleanup until January 8â10,2014.
Calculate Duckâs net income from the concert for tax purposes for 2013.
41. LO.3 Doug incurred and paid the following expenses during the year:
⢠$50 for a ticket for running a red light while he was commuting to work.
⢠$100 for a ticket for parking in a handicapped parking space.
⢠$200 to an attorney to represent him in traffic court as to the two tickets.
⢠$500 to an attorney to draft an agreement with a tenant for a one-year lease on an apartment that Doug owns.
⢠$1,000 to an attorney to negotiate a reduction in his child support payments.
⢠$2,500 to an attorney to negotiate a reduction in his qualified alimony payments to a former spouse.
Calculate the amount of Dougâs deductible expenses.
42. LO.3 Trevor, a friend of yours from high school, works as a server at the ST Café. He asks you to help him prepare his Federal income tax return. When you inquire about why his bank deposits substantially exceed his tip income, he confides to you that he is a bookie on the side. Trevor then provides you with the following documented income and expenses for the year:
Tip income $16,000
Gambling income 52,000
Gambling expenses
Payouts to winners 29,000
Employee compensation 8,000
Bribe to police officer who is aware of
Trevorâs bookie activity 7,500
a. How will these items affect Trevorâs AGI?
b. His taxable income?
c. If Trevorâs business was an illegal drug operation and the cost of the illegal drugs sold was $6,200, how would your answers to parts (a) and (b) differ?
43. LO.3 Polly made political contributions to the following:
National Republican Party $1,000
National Democratic Party 1,000
Candidate for mayor 700
Candidate for state senate 200
Candidate for school board 250
How much, if any, can Polly deduct?
At the end of the year, Falcon had unpaid salaries of $45,000.
a. Calculate the salary deduction if Falcon is a cash basis taxpayer.
b. Calculate the salary deduction if Falcon is an accrual basis taxpayer.
39. LO.2 Maud, a calendar year taxpayer, is the owner of a sole proprietorship that uses the cash method. On February 1, 2013, she leases an office building to use in her business for $120,000 for an 18-month period. To obtain this favorable lease rate, she pays the $120,000 at the inception of the lease. How much rent expense may Maud deduct on her 2013 tax return?
40. LO.2 Duck, an accrual basis corporation, sponsored a rock concert on December 29,2013. Gross receipts were $300,000. The following expenses were incurred and paid as indicated:
Expense Payment Date
Rental of coliseum $ 25,000 December 21, 2013
Cost of goods sold:
Food 30,000 December 30, 2013
Souvenirs 60,000 December 30, 2013
Performers 100,000 January 5, 2014
Cleaning of coliseum 10,000 February 1, 2014
Because the coliseum was not scheduled to be used again until January 15, the company with which Duck had contracted did not perform the cleanup until January 8â10,2014.
Calculate Duckâs net income from the concert for tax purposes for 2013.
41. LO.3 Doug incurred and paid the following expenses during the year:
⢠$50 for a ticket for running a red light while he was commuting to work.
⢠$100 for a ticket for parking in a handicapped parking space.
⢠$200 to an attorney to represent him in traffic court as to the two tickets.
⢠$500 to an attorney to draft an agreement with a tenant for a one-year lease on an apartment that Doug owns.
⢠$1,000 to an attorney to negotiate a reduction in his child support payments.
⢠$2,500 to an attorney to negotiate a reduction in his qualified alimony payments to a former spouse.
Calculate the amount of Dougâs deductible expenses.
42. LO.3 Trevor, a friend of yours from high school, works as a server at the ST Café. He asks you to help him prepare his Federal income tax return. When you inquire about why his bank deposits substantially exceed his tip income, he confides to you that he is a bookie on the side. Trevor then provides you with the following documented income and expenses for the year:
Tip income $16,000
Gambling income 52,000
Gambling expenses
Payouts to winners 29,000
Employee compensation 8,000
Bribe to police officer who is aware of
Trevorâs bookie activity 7,500
a. How will these items affect Trevorâs AGI?
b. His taxable income?
c. If Trevorâs business was an illegal drug operation and the cost of the illegal drugs sold was $6,200, how would your answers to parts (a) and (b) differ?
43. LO.3 Polly made political contributions to the following:
National Republican Party $1,000
National Democratic Party 1,000
Candidate for mayor 700
Candidate for state senate 200
Candidate for school board 250
How much, if any, can Polly deduct?
