Tax Problems

Tax Problems


Don't use plagiarized sources. Get Your Custom Essay on
Tax Problems
Just from $15/Page
Order Essay

Question24. LO.5, 6 The profit and loss statement of Kitsch Ltd., an S corporation, shows $100,000 of book income. Kitsch is owned equally by four shareholders. From supplemental data, you obtain the following information about items that are included in book income.
Selling expenses $ 21,200
Tax-exempt interest income 3,000
Dividends received 9,000 §1231 gain 7,000
Depreciation recapture income 11,000
Recovery of bad debts previously deducted 5,000
Long-term capital loss (6,000)
Salary paid to owners (each) (12,000)
Cost of goods sold (91,000)
a. Compute Kitsch’s nonseparately stated income or loss for the tax year.
b. What would be the share of this year’s income or loss items for James Billings, one of the Kitsch shareholders?

25. LO.5, 6 Maul, Inc., a calendar year S corporation, incurred the following items.
Tax-exempt bond interest income $ 7,000
Sales 140,000
Depreciation recapture income 12,000
Long-term capital gain 20,000 §1231 gain 7,000
Cost of goods sold (42,000)
Administrative expenses (15,000)
Depreciation expense (MACRS) (17,000)
Charitable contributions (7,000)
a. Calculate Maul’s nonseparately computed income or loss.
b. If Carl is a 40% owner of Maul, Inc., what is his share of the long-term capital gain?

26. LO.5, 6 Zebra, Inc., a calendar year S corporation, incurred the following items this year.
Operating income $100,000
Cost of goods sold (40,000)
Depreciation expense (MACRS) (10,000)
Administrative expenses (5,000) §1231 gain 21,000
Depreciation recapture income 25,000
Short-term capital loss from stock sale (6,000)
Long-term capital loss from stock sale (4,000)
Long-term capital gain from stock sale 15,000
Charitable contributions (4,500)
Sammy is a 40% Zebra shareholder throughout the year.
a. Calculate Sammy’s share of Zebra’s nonseparately computed income or loss.
b. Calculate Sammy’s share of any Zebra long-term capital gain.

27. LO.6, 8, 9 Mary is a shareholder in a calendar year S corporation. At the beginning of the year, her stock basis is $10,000, her share of the AAA is $2,000, and her share of corporate
AEP is $6,000. She receives a $6,000 distribution, and her share of S corporation items includes a $2,000 long-term capital gain and a $10,000 ordinary loss. Determine the effects of these events on the AAA, stock basis, and AEP.

28. LO.6 On January 1, 2013, Kinney, Inc., an S corporation, reports $4,000 of accumulated
E & P and a balance of $10,000 in AAA. Kinney has two shareholders, Erin and

Frank, each of whom owns 500 shares of Kinney’s stock. Kinney’s nonseparately stated ordinary income for the year is $5,000.
Kinney distributes $6,000 to each shareholder on July 1, and it distributes another $3,000 to each shareholder on December 21. How are the shareholders taxed on the distributions?

29. LO.5, 6 McLin, Inc., is a calendar year S corporation. Its AAA balance is zero.
a. McLin holds $90,000 of AEP. Tobias, the sole shareholder, has an adjusted basis of $80,000 in his stock. Determine the tax aspects if a $90,000 salary is paid to Tobias.
b. Same as part (a), except that McLin pays Tobias a $90,000 dividend from AEP.

30. LO.6, 7, 8 Tiger, Inc., a calendar year S corporation, is owned equally by four shareholders:
Ann, Becky, Chris, and David. Tiger owns investment land that was purchased for $160,000 four years ago. On September 14, when the land is worth $240,000, it is distributed to David. Assuming that David’s basis in his S corporation stock is $270,000 on the distribution date, discuss any Federal income tax ramifications.

31. LO.6, 8, 9, 11 Spence, Inc., a calendar year S corporation, generates an ordinary loss of $110,000 and makes a distribution of $140,000 to its sole shareholder, Storm Nelson.
Nelson’s stock basis at the beginning of the year is $200,000. Write a memo to your senior manager, Aaron McMullin, discussing the tax treatment of Spence’s activities.

32. LO.6 Lonergan, Inc., a calendar year S corporation in Athens, Georgia, had a balance in AAA of $200,000 and AEP of $110,000 on December 31, 2013. During 2014, Lonergan,
Inc., distributes $140,000 to its shareholders, while sustaining an ordinary loss of $120,000. Calculate the balance in Lonergan’s AAA and AEP accounts at the end of 2014.

33. LO.6 If the beginning balance in Swan, Inc.’s OAA is $6,700 and the following transactions occur, what is Swan’s ending OAA balance?
Depreciation recapture income $ 21,600
Payroll tax penalty (4,200)
Tax exempt interest income 4,012
Nontaxable life insurance proceeds 100,000
Life insurance premiums paid (nondeductible) (3,007)

34. LO.6, 8 Cougar, Inc., is a calendar year S corporation. Cougar’s Form 1120S shows nonseparately stated ordinary income of $80,000 for the year. Johnny owns 40% of the Cougar stock throughout the year. The following information is obtained from the corporate records.
Tax-exempt interest income $ 3,000
Salary paid to Johnny (52,000)
Charitable contributions (6,000)
Dividends received from a foreign corporation 5,000
Short-term capital loss (6,000)
Depreciation recapture income 11,000
Refund of prior state income taxes 5,000
Cost of goods sold (72,000)
Long-term capital loss (7,000)
Administrative expenses (18,000)
Long-term capital gain 14,000
Selling expenses (11,000)
Johnny’s beginning stock basis 32,000
Johnny’s additional stock purchases 9,000
Beginning AAA 31,000
Johnny’s loan to corporation 20,000
a. Compute Cougar’s book income or loss.
b. Compute Johnny’s ending stock basis.
c. Calculate Cougar’s ending AAA balance.

35. LO.6, 7, 8 Money, Inc., a calendar year S corporation in Denton, Texas, has two unrelated shareholders, each owning 50% of the stock. Both shareholders have a $400,000 stock basis as of January 1, 2013. At the beginning of 2013, Money has an AAA of $300,000 and AEP of $600,000. During 2013, Money has operating income of $100,000.
At the end of the year, Money distributes securities worth $1 million, with an adjusted basis of $800,000. Determine the tax effects of these transactions.

36. LO.6, 7, 8 Assume the same facts as in Problem 35, except that the two shareholders consent to an AAA bypass election.