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Solved by verified expert :730. Amy
incurs and pays the following expenses during the year:

·

Alimony of
\$14,000 to her former spouse, Ted.

·

Child
support of \$12,000 to Ted for the care of their son, Bobby.

·

Medical
expenses of \$8,000 for herself.

·

Charitable
contributions of \$3,000 to her church.

·

Contribution
to her traditional IRA of \$5,000.

·

Mortgage
interest on her residence of \$11,000.

·

Property
taxes on her residence of \$1,200.

·

State income
taxes for herself of \$4,000.

Amy’s only income is a \$100,000 salary. Calculate Amy’s deductions for AGI and from AGI.

731. Arnold
and Beth file a joint return. Use the following data to calculate their
deduction for AGI.

Mortgage
interest on personal residence

\$ 4,000

Property
taxes on personal residence

2,000

Alimony
payments

12,000

Moving
expenses

6,000

Charitable
contributions

1,500

State income
taxes

5,000

Investment
interest (\$8,000 of expenses limited to net investment income of \$6,000)

6,000

Unreimbursed
employee expenses

2,500

Sales taxes

2,600

732. Ruth and
Jeff own an unincorporated hardware store. They determine their salaries at the
end of the year by using the amount required to reduce the net income of the
hardware store to \$0. Based on this policy, Ruth and Jeff each receive a total
salary of \$175,000. This is paid as follows: \$10,000 per month and \$55,000 on
December 31. Determine the amount of the salary deduction.

733. Sandra
owns an insurance agency. The following selected data are taken from the agency
balance sheet and income statement prepared using the accrual method.

Revenue

\$250,000

Salaries and
commissions

100,000

Rent

10,000

Insurance

5,000

Utilities

6,000

Accounts
receivable, 1/1/2011

40,000

Accounts
receivable, 12/31/2011

38,000

Accounts
payable, 1/1/2011

12,000

Accounts
payable, 12/31/2011

11,000

Calculate Sandra’s net profit using the cash method for 2011.

734. Woody
owns a barber shop. The following selected data are taken from the barber shop
balance sheet and income statement prepared for 2010 using the cash method.

Revenue

\$242,000

Salaries and
commissions

97,000

Rent

10,000

Insurance

5,000

Utilities

6,000

The following supplemental data also is provided.

Accounts
receivable, 1/1/2011

\$40,000

Accounts
receivable, 12/31/2011

48,000

Accounts
payable, 1/1/20101

12,000

Accounts
payable, 12/31/2011

15,000

Calculate Woody’s net profit using the accrual method for 2011.

735. Taylor, a
cash basis architect, rents the building in which his office is located for
\$5,000 per month. He commenced his practice on February 1, 2011. In order to
guarantee no rent increases during an 18-month period, he signed an 18-month
lease and prepaid the \$90,000 on February 1, 2011. How much can Taylor deduct
as rent expense for 2011?

736. In order
to protect against rent increases on the building in which she operates a dance
studio, Mella signs an 18-month lease for \$18,000. The lease commences on
November 1, 2011. How much of the \$18,000 payment can she deduct in 2011 and
2012?

a.If Mella is an accrual basis taxpayer?

b.If Mella is a cash basis taxpayer?

737. Rose’s
business sells air conditioners which have a one-year warranty. Based on
historical data, the warranty costs amount to 14% of sales. During 2011, air
conditioner sales are \$300,000. Actual warranty expenses paid in 2011 are
\$37,000.

a.

Determine
the amount of the warranty expense deduction for 2011 if Rose’s business uses
the accrual method.

b.

How would
your answer change if Rose used the cash method for extended warranties and
the purchasers paid \$20,000 for the warranties which covered the second and
third years of ownership?

738. Beige,
Inc., an airline manufacturer, is conducting negotiations for the sale of
military aircraft. One negotiation is with a U.S. assistant secretary of
defense. She can close the deal on the purchase of 50 attack helicopters if she
is paid \$750,000 under the table. Another negotiation is with the minister of
defense of a third world country. To complete the sale of 20 jet fighters to
his government, he demands that he be paid a \$1 million grease payment. Beige
makes the payments and closes the deals. How much of these payments are
deductible by Beige, Inc.?

739. Edward
operates an illegal drug-running business and has the following items of income
and expense. What is Edward’s adjusted gross income from this operation?

Income

\$750,000

Expenses:

Rent

24,000

Utilities

8,000

Bribes to
police

40,000

Medical
expense

5,000

Legal fees

20,000

Depreciation

30,000

Illegal
kickbacks

35,000

Cost of
goods sold

300,000

740. Kitty
runs a brothel (illegal under state law) and has the following items of income
and expense. What is the amount that she must include in taxable income from
her operation?

Income

\$200,000

Expenses:

Rent

8,000

Utilities

2,000

Bribes to
police

10,000

Medical
expense

5,000

Legal fees

20,000

Depreciation

14,000

Illegal
kickbacks

15,000

741. The
salaries of the top eight executives of Lemon, Inc. are as follows:

No. 1

\$9.0 million

No. 2

6.5 million

No. 3

2.0 million

No. 4

1.3 million

No. 5

.7 million

No. 6

.4 million

No. 7

.3 million

No. 8

.25 million

a.

Determine
the amount Lemon may deduct for the salaries if it is a publicly traded
corporation.

b.

Determine
the amount Lemon may deduct for the salaries if it is a closely held
corporation.

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