Computational Exercises
Chapter 5
20. LO.2 Valentino is a patient in a nursing home for 45 days of 2016. While in the nursing home, he incurs total costs of $13,500. Medicare pays $8,000 of the costs. Valentino receives $15,000 from his long-term care insurance policy, which pays while he is in the facility. Assume that the daily federal statutory amount for
Valentino is $340.
Of the $15,000, what amount may Valentino exclude from his gross income?
21. LO.2 Mio was transferred from New York to Germany. He lived and worked in
Germany for 340 days in 2016. Mio’s salary for 2016 is $190,000. In your computation, round any division to four decimal places before converting to a percentage.
For example, .473938 would be rounded to 47.39%.
What is Mio’s foreign earned income exclusion?
22. LO.2 Ellie purchases an insurance policy on her life and names her brother, Jason, as the beneficiary. Ellie pays $32,000 in premiums for the policy during her life. When she dies, Jason collects the insurance proceeds of $500,000.
As a result, how much gross income does Jason report?
23. LO.2 Alfred owned a term life insurance policy at the time he was diagnosed with a terminal illness. After paying $18,300 in premiums, he sold the policy to a company that is authorized by the state of South Carolina to purchase such policies.
The company paid Alfred $125,000. When Alfred died 18 months later, the company collected the face amount of the policy, $150,000.
As a result of the sale of the policy, how much is Alfred required to include in his gross income?
24. LO.2 Leland pays premiums of $5,000 for an insurance policy in the face amount of $25,000 upon the life of Caleb and subsequently transfers the policy to
Tyler for $7,500. Over the years, Tyler pays subsequent premiums of $1,500 on the policy. Upon Caleb’s death, Tyler receives the proceeds of $25,000.
As a result, what amount is Tyler required to include in his gross income?
25. LO.2 Jarrod receives a scholarship of $18,500 from Riggers University to be used to pursue a bachelor’s degree. He spends $12,000 on tuition, $1,500 on books and supplies, $4,000 for room and board, and $1,000 for personal expenses.
How much may Jarrod exclude from his gross income?
26. LO.3 Myrna and Geoffrey filed a joint tax return in 2015. Their AGI was $85,000, and itemized deductions were $13,700, which included $4,000 in state income tax. In 2016, they received a $1,800 refund of the state income taxes they paid in 2015. The standard deduction for married filing jointly in 2015 was $12,600.
Under the tax benefit rule, what amount of the state income tax refund is included in gross income in 2016?
Chapter 6
26. LO.2 Glenda, a calendar year and cash basis taxpayer, rents property from Janice.
As part of the rental agreement, Glenda pays $8,400 rent on April 1, 2016, for the 12 months ending March 31, 2017.
a. How much is Glenda’s deduction for rent expense in 2016?
b. Assume the same facts, except that the $8,400 is for 24 months’ rent ending
March 31, 2018. How much is Glenda’s deduction for rent expense in 2016?
27. LO.2 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.
28. LO.2 Maud, a calendar year taxpayer, is the owner of a sole proprietorship that uses the cash method. On February 1, 2016, 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 2016 tax return?
29. LO.3 Vella owns and operates an illegal gambling establishment. In connection with this activity, he has the following expenses during the year:
Rent $ 24,000
Bribes 40,000
Travel expenses 4,000
Utilities 18,000
Wages 230,000
Payroll taxes 13,800
Property insurance 1,600
Illegal kickbacks 22,000
What are Vella’s total deductible expenses for tax purposes?
30. LO.3 Printer Company pays a $25,000 annual membership fee to a trade association for paper wholesalers. The trade association estimates that 60% of its dues are allocated to lobbying activities.
a. What are Printer’s total deductible expenses for tax purposes?
b. Assume the same facts as above, except that the $25,000 was incurred for in-house lobbying expenses. What are Printer’s total deductible expenses for tax purposes?
31. LO.3 Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New
York to discuss acquiring a bakery. Stanford does not acquire the restaurant but does purchase the bakery on November 1, 2016.
Stanford incurred the following expenses:
Total investigation costs related to the restaurant $28,000
Total investigation costs related to the bakery 51,000
What is the maximum amount Stanford can deduct in 2016 for investigation expenses?
32. LO.3 Murphy has a brokerage account and buys on the margin, which resulted in an interest expense of $20,000 during the year. Income generated through the brokerage account was as follows:
Municipal interest $ 50,000
Taxable dividends and interest 350,000
How much investment interest can Murphy deduct?