Camelia Company is a large commercial real estate contractor that reports its income by the percentage of completion method. In 2016, the company entered into a contract to construct a building for $900,000. Camelia estimated that the cost of constructing the building would be $600,000. In 2016, the company incurred $150,000 in costs under the contract. In 2017, the company incurred an additional $500,000 in costs to complete the contract. The company’s marginal tax rate in all years was 35%.
[removed]a.Camelia must report $300,000 of income in 2016.
[removed]b.Camelia should amend its 2016 tax return to decrease the profit on the contract for that year.
[removed]c.Camelia is not required to report any income from the contract until 2017 when the contract is completed.
[removed]d.Camelia must recognize $75,000 of income in 2016.
[removed]e.None of these choices are correct.
Problem 14-32 (LO. 1, 2)
Pam owns a personal use boat that has a fair market value of $35,000 and an adjusted basis of $45,000. Pam’s AGI is $100,000. Calculate the realized and recognized gain or loss assuming the boat is disposed of under the following independent scenarios:
If an amount is zero, enter “0”.
a. Pam sells the boat for $35,000.
The realized is $____________and the recognized is $_____________
b. Pam exchanges the boat for another boat worth $35,000.
The realized is $__________and the recognized is $_____________
c. The boat is stolen and Pam receives insurance proceeds of $35,000.
Pam’s realized loss is __________ and her recognized is $_____________
d. The fair market value and the selling price of the boat were $48,000.
Pam’s realized is $__________and her recognized is $ __________
Problem 16-41 (LO. 2, 4, 5)
Bridgette is known as the “doll lady.” She started collecting dolls as a child, always received one or more dolls as gifts on her birthday, never sold any dolls, and eventually owned 600 dolls. She is retiring and moving to a small apartment and has decided to sell her collection. She lists the dolls on an Internet auction site and, to her great surprise, receives an offer from another doll collector of $45,000 for the entire collection. Bridgette sells the entire collection, except for five dolls she purchased during the last year. She had owned all of the dolls sold for more than a year.
Indicate whether the following are “Yes, a tax issue” or “Not a tax issue” that Bridgette should consider in deciding how to report the sale.
| a. |
Whether the dolls are considered a capital asset. |
|
| b. |
The tax basis for the dolls. |
|
| c. |
The holding period for the dolls. |
|
| d. |
Whether the collector will resell the dolls. |
|
| e. |
Whether the dolls are collectibles. |
|
|
Problem 19-42 (LO. 6)
For the following scenarios, compute the maximum total deductible contribution to the the traditional IRA contributions for 2016.
| |
|
Traditional IRA
Contribution |
| a. |
Juan, age 41, earns a salary of $28,000 and is not an active participant in any other qualified plan. His wife, Agnes, has no earned income. Juan wishes to contribute as much as possible to his own IRA. |
$[removed] |
| |
|
|
| b. |
Abby, age 29, has earned income of $25,000, and her husband, Sam, has earned income of $2,600. They are not active participants in any other qualified plan. |
$[removed] |
| |
|
|
| c. |
Leo’s employer makes a contribution of $3,500 to Leo’s simplified employee pension plan. Leo is single, has earned income of $32,000, and has AGI of $29,000. |
$[removed]
|
|
Problem 19-30 (LO. 2)
Mauve, Inc., uses a two- to six-year graded vesting approach in its retirement plan.
Click here to access the vesting table.
Calculate the nonforfeitable percentage for each of the following participants based upon the years of service completed:
Participant |
Years of Service |
Nonforfeitable
Percentage |
| Caleb |
3 |
[removed]% |
| Daniel |
4 |
[removed]% |
| Sloane |
5 |
[removed]% |
| Ryan |
7 |
[removed]% |
|
Problem 19-47 (LO. 6)
Gene, age 34, and Beth, age 32, have been married for nine years. Gene, who is a college student, works part-time and earns $1,500. Beth is a high school teacher and earns a salary of $34,000. Their AGI is $37,000.
a. The maximum amount Gene can contribute to an IRA in 2016 is $______________
b. The maximum amount Beth can contribute to an IRA in 2016 is $________________
Problem 19-44 (LO. 6)
Dana, age 54, has a traditional deductible IRA with an account balance of $107,600, of which $77,300 represents contributions and $30,300 represents earnings. In 2016, she converts her traditional IRA into a Roth IRA.
What amount must Dana include in her gross income for 2016?$__________________
Problem 19-40 (LO. 4, 6)
Janet, age 29, is unmarried and is an active participant in a qualified retirement plan. Her modified AGI is $63,000 in 2016.
Click here to access Exhibit 19.3. Do not round intermediate computations.
a. Janet can contribute $________to her traditional IRA, but she can deduct $________
b. Assume instead that Janet is a participant in a SIMPLE IRA and that she elects to contribute 4% of her compensation to the account, while her employer contributes 3%.
Janet will contribute $____________ to her SIMPLE IRA account. Her employer will contribute __________. The amount that will vest immediately is $___________
