Search This Blog
Computational Exercises 03-04
Computational Exercises
Chapter 3
20. LO.2 Sam and Abby are dependents of their parents, and each earns gross income of $2,100 for the year. Sam’s standard deduction for the year is $1,050, while
Abby’s is $2,450. As their income is the same, what causes the difference in the amount of the standard deduction?
21. LO.2 Compute the 2016 standard deduction for the following taxpayers.
a. Margie is 15 and claimed as a dependent by her parents. She reports $800 in dividends income and $1,400 in wages from a part-time job.
b. Ruby and Woody are married and file a joint tax return. Ruby is age 66, and
Woody is 69. Their taxable retirement income is $10,000.
c. Shonda is age 68 and single. She is claimed by her daughter as a dependent.
Her earned income is $500, and her interest income is $125.
d. Frazier, age 55, is married but is filing a separate return. His wife Emma itemizes her deductions.
22. LO.4 In 2016, Dominique and Felix are married and file a joint Federal income tax return. Their AGI is $314,050, and they claim three dependency exemptions.
Compute the taxpayers’ total deduction for exemptions for the year.
23. LO.5, 9 Paul and Sonja, who are married, reported 2016 itemized deductions of $8,200 and $400, respectively. Paul suggests that they file their Federal income tax returns separately—he will itemize his deductions from AGI, and she will claim the standard deduction.
a. Evaluate Paul’s suggestion.
b. What should they do?
24. LO.6 Compute the 2016 Federal income tax liability and the marginal and effective tax rates in each of the following independent cases. Use the 2016 tax rate schedules in Appendix A for this purpose.
a. Chandler is single and reports taxable income of $93,000.
b. Lazar, a head of household, records taxable income of $56,000.
25. LO.7 Simon, age 12, generates $800 interest income and $4,000 dividend income for 2016. He incurs no investment expenses. His parents report $80,200 taxable income and file a joint tax return. Determine the following.
a. Simon’s net unearned income.
b. Simon’s allocable parental tax.
c. Simon’s total Federal income tax liability.
26. LO.8 Rebecca sells her personal scooter for $550. She purchased the scooter for $700 three years ago. In addition, Rebecca sells a painting for $1,200 that she acquired five years ago for $900. What are the tax implications attributable to these sales?
27. LO.8 Determine the net effect on Tamara’s adjusted gross income with regard to these capital asset transactions that occurred this year.
• Sold ABCCo stock, acquired 2 years ago, for a $1,500 loss.
• Sold collectible coins, held for 17 months, for a $2,000 gain.
• Sold XYZCo shares, acquired 6 months ago, for a $4,100 loss.
• Sold LMNCo stock, acquired 3 years ago, for a $500 gain.
Chapter 4
Computational Exercises
20. LO.2 On January 1, 2016, Kunto, a cash basis taxpayer, pays $46,228 for a 24- month certificate. The certificate is priced to yield 4% (the effective interest rate) with interest compounded annually. No interest is paid until maturity, when
Kunto receives $50,000. In your computations:
a. Compute Kunto’s gross income from the certificate for 2016.
b. Compute Kunto’s gross income from the certificate for 2017.
Round any amounts to the nearest dollar.
21. LO.2 Bigham Corporation, an accrual basis calendar year taxpayer, sells its services under 12-month and 24-month contracts. The corporation provides services to each customer every month. On July 1, 2016, Bigham sold the following customer contracts:
Length of Contract Total Proceeds
12 months $14,000
24 months $24,000
Determine the income to be recognized in taxable income in 2016 and 2017.
Length of Contract 2015 Income 2016 Income
12 months a. _______________ c. ______________
24 months b. _______________ d. ______________
22. LO.3 Simba and Zola are married but file separate returns. Simba received $80,000 of salary and $1,200 of taxable dividends on stock he purchased in his name and paid from the salary that he earned since the marriage. Zola collected $900 in taxable interest on certificate of deposit that she inherited from her aunt. Compute
Zola’s gross income under two assumptions as to the state of residency of the couple. If an amount is zero, enter “$0.”
Idaho (Community
Property State)
South Carolina (Common Law State)
Dividends a. _________________ d. _________________
Interest b. _________________ e. _________________
Salary c. _________________ f. _________________
23. LO.4 Casper and Cecile are divorced this year. As part of the divorce settlement,
Casper transferred stock to Cecile. Casper purchased the stock for $25,000, and it had a market value of $43,000 on the date of the transfer. Cecile sold the stock for $40,000 a month after receiving it. In addition, Casper is required to pay Cecile $1,500 a month in alimony. He made five payments to her during the year.
What are the tax consequences for Casper and Cecile regarding these transactions?
a. How much gain or loss does Casper recognize on the transfer of the stock?
b. Does Casper receive a deduction for the $7,500 alimony paid?
c. How much income does Cecile have from the $7,500 alimony received?
d. When Cecile sells the stock, how much does she report?
24. LO.4 Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is not a principal purpose of any of the loans. Assume that the relevant Federal rate is 5% and that the loans were outstanding for the last six months of the year.
Borrower Amount
Borrower’s Net
Investment Income Purpose of Loan
Richard $ 5,000 $800 Gift
Woody 8,000 600 Purchase stock
Irene 105,000 –0– Purchase residence
What are the effects of the imputed interest rules on these transactions? Compute
Elizabeth’s gross income from each loan:
a. Richard
b. Woody
c. Irene
25. LO.4 A taxpayer, age 64, purchases an annuity from an insurance company for $50,000. She is to receive $300 per month for life. Her life expectancy is 20.8 years from the annuity starting date. Assuming that she receives $3,600 this year, what is the exclusion percentage and how much is included in her gross income?
Round the exclusion percentage to two decimal places. Round the final answer for the income to the nearest dollar.
26. LO.4 Compute the taxable Social Security benefits in each of the following situations:
a. Erwin and Eleanor are married and file a joint tax return. They have adjusted gross income of $46,000, no tax-exempt interest, and $12,400 of Social Security benefits.
b. Erwin and Eleanor have adjusted gross income of $12,000, no tax-exempt interest, and $16,000 of Social Security benefits.
c. Erwin and Eleanor have adjusted gross income of $85,000, no tax-exempt interest, and $15,000 of Social Security benefits.