Computational Exercises
Chapter 9
17. LO.2 Michael holds a full-time job with Brown Company and a part-time job with
Tan Corporation. During a workday, he drives 20 miles to Brown, returns home, has a meal, and then drives 15 miles to Tan. Tan is located 12 miles from
Brown. What is Michael’s deductible mileage?
18. LO.2 Lara uses the standard mileage method for determining auto expenses. During
2016, she used her car as follows: 9,000 miles for business, 2,000 miles for personal use, 2,500 miles for a move to a new job, 1,000 miles for charitable purposes, and 500 miles for medical visits. Presuming that all the mileage expenses are allowable (i.e., not subject to percentage limitations), what is Lara’s deduction for:
a. Business?
b. Moving?
c. Charitable?
d. Medical?
19. LO.3 Fred travels from Denver to Miami primarily on business. He spends five days conducting business and two days sightseeing. His expenses are $400 (airfare), $150 per day (meals), and $300 per night (lodging). What are Fred’s deductible expenses?
20. LO.3 Brenda travels from Chicago to Barcelona (Spain) on business. She is gone ten days (including two days of travel) during which time she spends five days conducting business and three days sightseeing. Her expenses are $1,500 (airfare), $200 per day (meals), and $400 per night (lodging). Because Brenda stayed with relatives while sightseeing, she only paid for five nights of lodging. What is
Brenda’s deduction for:
a. Airfare?
b. Meals?
c. Lodging?
21. LO.4 After accepting his first job upon graduating from college, Christian has the following moving expenses:
Rental of moving van $450
Meals 200
Lodging 250
Presuming no reimbursement, what is Christian’s moving expense deduction?
22. LO.5 Samantha was recently employed by an accounting firm. During the year, she spends $2,500 for a CPA exam review course and begins working on a law degree in night school. Her law school expenses were $4,200 for tuition and $450 for books (which are not a requirement for enrollment in the course). Assuming no reimbursement, how much can Samantha deduct for the:
a. CPA exam review course?
b. Law school expenses?
23. LO.6 Robert entertains four key clients and their spouses at a nightclub. Substantive business discussions occurred over dinner and prior to the entertainment beginning. Expenses were $200 (limo charge), $120 (cover charge), $700 (drinks and dinner), and $140 (tips to servers). If Robert is self-employed, how much can he deduct for this event?
24. LO.6 The CEO of Crimson, Inc., entertains seven clients at a skybox in Memorial
Stadium for an athletic event. Substantive business discussions occurred at various times during the event. The box costs $2,000 per event and seats
10 people. (The cost of a regular seat at Memorial ranges from $55 to $100.) Refreshments served during the event cost $700. How much of these costs may Crimson deduct?
25. LO.6 Andrew sends Godiva chocolates to 10 of his key clients at Christmas. The chocolates cost $50 a box not including $4 for gift wrapping and shipping.
How much can Andrew deduct?
26. LO.7 Cindy maintains an office in her home that comprises 8% (200 square feet) of total floor space. Gross income for her business is $42,000, and her residence expenses are as follows:
Real property taxes $2,400
Interest on mortgage 4,000
Operating expenses 2,200
Depreciation (based on 8% business use) 450
What is Cindy’s office in the home deduction based on:
a. The regular method?
b. The simplified method?
27. LO.4, 7 Mason, a licensed pharmacist, has always lived and worked in Boston.
When he retires from a national drugstore chain, he conducts an extensive job search for any kind of employment in Florida. He finally moves to Tampa where he is able to obtain a position as a night manager of a motel. In connection with the relocation, he incurs job search expenses of $7,000 and qualified moving expenses of $12,000. How much can Mason deduct?
28. LO.10 Ava has AGI of $58,000 and the following miscellaneous itemized deductions:
Home office expenses $1,200
Union dues and work uniforms 350
Unreimbursed employee expenses 415
Gambling losses to the extent of gambling winnings 890
What is Ava’s total itemized deduction (after any percentage limit)?
Chapter 10
15. LO.2 Barbara incurred the following expenses during the year: $840 dues at a health club she joined at the suggestion of her physician to improve her general physical condition, $240 for multiple vitamins and antioxidant vitamins, $500 for a smoking cessation program, $250 for nonprescription nicotine gum, $600 for insulin, and $7,200 for funeral expenses for her mother who passed away in June.
Before considering the AGI limitation, what amount may Barbara include in computing her medical expense deduction?
16. LO.3 Tabitha sells real estate on March 2 for $260,000. The buyer, Ramona, pays the real estate taxes of $5,200 for the calendar year, which is the real estate property tax year. Assume that this is not a leap year.
a. Determine the real estate taxes apportioned to and deductible by the seller,
Tabitha, and the amount of taxes deductible by Ramona.
b. Calculate Ramona’s basis in the property and the amount realized by Tabitha from the sale.
17. LO.4 Pierre, a cash basis, unmarried taxpayer, had $1,400 of state income tax withheld during 2016. Also in 2016, Pierre paid $455 that was due when he filed his 2015 state income tax return and made estimated payments of $975 toward his
2016 state income tax liability. When Pierre files his 2016 Federal income tax return in April 2017, he elects to itemize deductions, which amount to $10,650, including the state income tax payments and withholdings, all of which reduce his taxable income.
a. What is Pierre’s 2016 state income tax deduction?
b. As a result of overpaying his 2016 state income tax, Pierre receives a refund of $630 early in 2017. The standard deduction for single taxpayers for 2016 was $6,300. How much of the $630 will Pierre include in his 2017 gross income?
18. LO.4 Derek, a cash basis, unmarried taxpayer, had $610 of state income tax withheld during 2016. Also in 2016, Derek paid $50 that was due when he filed his 2015 state income tax return and made estimated payments of $100 toward his
2016 state income tax liability. When Derek files his 2016 Federal income tax return in April 2017, he elects to take the standard deduction, which reduced his taxable income. As a result of overpaying his 2016 state income tax, Derek receives a refund of $435 early in 2017. How much of the $435 will Derek include in his 2017 gross income?
19. LO.5 Miller owns a personal residence with a fair market value of $195,000 and an outstanding first mortgage of $157,500. Miller gets a second mortgage on the residence and in return borrows $10,000 to purchase new jet skis. How much of the first and second mortgage debt is treated as qualified residence indebtedness?
20. LO.6 Donna donates stock in Chipper Corporation to the American Red Cross on
September 10, 2016. She purchased the stock for $18,100 on December 28, 2015, and it had a fair market value of $27,000 when she made the donation.
a. What is Donna’s charitable contribution deduction?
b. Assume instead that the stock had a fair market value of $15,000 (rather than $27,000) when it was donated to the American Red Cross. What is Donna’s charitable contribution deduction?
21. LO.7 Issac has AGI of $73,400 and incurred the following expenses. How much of the business and personal expenditures are deductible (after any limitation) either as miscellaneous itemized deductions or as other itemized deductions?
Cost of uniforms $ 535
Tax return preparation fees 600
Fee paid for a safe deposit box used to store papers and documents relating to taxable income-producing investments 65
Job-hunting costs 1,100
22. LO.8 Pedro, who is a single taxpayer, had AGI of $328,000 for 2016. He incurred the following expenses during the year:
Medical expenses before 10%-of-AGI limitation $12,000
State and local income taxes 8,900
Real estate taxes 1,600
Home mortgage interest 16,000
Charitable contributions 2,200
Deductible investment interest expense 1,700
Compute the amount of Pedro’s itemized deductions after any applicable reductions.
23. LO.9 The Wilmoths plan to purchase a house but want to determine the after-tax cost of financing its purchase. Given their projected taxable income, the Wilmoths are in the 28% Federal income tax bracket and the 8% state income tax bracket (i.e., an aggregate marginal tax bracket of 36%). The total cash outlay during the first year of ownership will be $23,400 ($1,200 principal payments, $22,200 qualified residence interest payments). Determine the initial year after-tax cost of financing the purchase of the home.