Accounting Assignment

NAME___________________________________

ACC 5170 7120
Assignment 2
WINTER 2020

This document includes the questions for your second assignment. This assignment is due April 9 by 11 pm uploaded to the appropriate link on Canvas. You must answer the assignment IN this document and may either complete the assignment 1 document and upload it to the canvas link. Regardless of how you complete the assignment be sure to show your work for any potential partial credit. If your answer is incorrect and you don’t show any work you will receive 0 points for that part of the assignment. If you complete the assignment by hand, please be sure your writing is legible. Unless stated differently use 2019 rate schedules and rules.

Feel free to add space and rows to any tables that you feel you need.

Any questions please reach out to me. Good luck.

BONUS (2 point each)

If you copy an answer directly from the text you will receive ZERO points. You must answer in your OWN words. (If handwritten, please be sure to write/print legibly – if I can’t read it you won’t get any points)

Spiderman received $20,000 of qualified dividends this year.

Under what circumstances would all $20,000 of the dividends be taxed at the same rate? Be specific in your answer.

Under what circumstances would the $20,000 of dividends NOT be taxed at the same rate? Be specific in your answer.

 

Describe a cafeteria plan and discuss why an employer would provide a cafeteria plan for its employees.

Why is the earned income credit referred to as a negative income tax?

 
QUESTION 1 (10 points)

Star-Lord and Gamora have taxable income of $412,000 (all ordinary) before considering the tax effect of their asset sales (shown below). What is their net capital gain/loss (be sure to show work for potential partial credit)? What is their tax liability for 2019 assuming they file a joint return?

Asset Market Value Tax Basis Gain/loss Held
Loki stock 12,500 3,900 < 1 year Grout Stock 29,000 42,000 > 1 year
Hulk antique collection 185,000 95,000 > 1 year
Thor stock $60,000 $37,000 > 1 year
Wasp stock 39,000 36,000 < 1 year Rogue stock 22,000 34,000 < 1 year Asgard Rental House 370,000 210,000 > 1 year
Storm stock 77,300 63,600 > 1 year

$45,000 of the rental house gain is 25% gain (§1250 subject to recapture)

The couple also had a $18,000 long term capital loss carryforward from prior years.

Tax Liability

Net capital Gain/Loss

Show your work/netting of gains and losses

QUESTION 2 (10 points)

Juggernaut acquired a passive partnership activity in January of 2015. His at-risk basis at the beginning of 2018 was $65,000. Juggernaut also owns a rental property that generated income of $23,000 in 2018 and $19,000 in 2019. Juggernaut’s share of income and loss from the partnership activity is:

2018 <$79,000>
2019 32,000
Complete the following tables.

AT RISK RULES ONLY

FOR 2018

Deductible under at-risk provisions ____________________

Adjusted basis at 12/31/18 ____________________

Suspended under at-risk provisions ___________________

FOR 2019

Deductible under at-risk provisions ____________________

Adjusted basis at 12/31/19 ____________________

Suspended under at-risk provisions ____________________

PASSIVE RULES ONLY

FOR 2018

Deductible under passive loss provisions ____________________

Suspended under passive loss provisions ____________________

FOR 2019

Deductible under passive loss provisions ____________________

Suspended under passive loss provisions ____________________

 
BONUS (apply both at risk and passive rules together) (3 points)

FOR 2018

Deductible under at-risk provisions ____________________

Adjusted basis at 12/31/18 ____________________

Suspended under at-risk provisions ____________________

Deductible under passive loss provisions ____________________

Suspended under passive loss provisions ____________________

FOR 2019

Deductible under at-risk provisions ____________________

Adjusted basis at 12/31/19 ____________________

Suspended under at-risk provisions ____________________

Deductible under passive loss provisions ____________________

Suspended under passive loss provisions ____________________

 
QUESTION 3 (15 points)

Cyclops and Storm Marvel got married 10 years ago and have a 5-year-old son Magneto. Storm’s daughter from a previous relationship, Mystique also lives with them. Mystique is 22 years old, unemployed and currently a full time student at Thanos University. In 2019, Cyclops worked as a computer programmer and analyst earning a salary of $287,600, and Storm worked part-time as a receptionist for a law firm earning a salary of $49,000. Cyclops also does some Web design work on the side and reported revenues of $32,500 and associated expenses of $9,750. Storm runs a craft business from their home. Her craft business consists of making craft items for sale at craft shows that are held periodically at various locations. Storm spends considerable time and effort on her craft business and it has been consistently profitable over the years. Storm also had $7,900 of gambling losses from a girl’s weekend in Asgard City. The Marvels received a $500 refund of their state income taxes. The Marvels have always itemized their deductions and their itemized deductions were well over the standard deduction amount last year (2018).

The Marvels reported the following additional information during the year (2019):
• State income taxes of $4,950 paid. Federal tax withholding of $28,000.
• Alimony payments to Cyclops’s former wife $12,000 (divorced in 2014).
• Child support payments for Cyclops’s child with his former wife $11,100.
• $12,200 of real property taxes.
• $15,500 interest on their home mortgage (acquisition debt of $600,000)
• $5,000 interest on a $90,000 home-equity loan. They used the loan to pay for family vacation and new car.
• $4,350 interest on loans to pay Mystique’s tuition
• $32,550 cash charitable contributions to qualified charities.
• Donation of used furniture to Guardians of the Galaxy. The furniture had a fair market value of $900 and cost $3,000
• Automobile licenses (based on value) $410
• State sales tax paid $3,150
• Interest on Daredevil credit card $2,980
• Penalty for early withdrawal of certificate of deposit $920
• Cost of Storm’s craft supplies $14,270
• Postage for mailing crafts $1,245
• Travel and lodging for craft shows $3,430
• Storm’s craft sales $45,050
• Interest from certificate of deposit $4,650
• Interest from Treasury bond funds $927
• Interest from municipal bond funds $3,920
• Storm’s gambling winnings $4,900

 

Determine the amounts listed below (including any self-employment tax, if applicable – ignore AMT) for Cyclops and Storm for the year.

Gross Income

FOR AGI deductions

AGI

FROM AGI deductions

Standard Deduction

Taxable Income

Tax Liability

Prepayments

Credits

Amount Due or Refund

 

Show work

ITEM TREATMENT

 
QUESTION 4 (10 points)

In 2019 Thor and Jane made the following contributions to the following organizations.

Charity Property Cost FMV

Goodwill Clothes and misc. household items (several years old) $12,700 $6,350
War Museum Coin Collection $16,500 $89,700
Thor and Jane’s best friends whose house was destroyed by tornado
Cash
$6,500
$6,500
Salvation Army Cash $15,500 $15,500
Toys for Tots New toys $2,900 $2,900
Henry Ford Hospital Rigor stock $22,000 $8,000
Wayne State University Exxon Mobil Stock (held 5 years) $27,500 $62,800
Wayne State University Cash 45,000 $45,000

Determine Thor and Jane’s maximum deductible charitable contribution (and any carryover) assuming their AGI is $200,000.

Category Amount
60%
50%
30%

Carryover

Determine Thor and Jane’s maximum deductible charitable contribution (and any carryover) assuming their AGI is $350,000.

Category Amount
60%
50%
30%

Carryover

Show Work for any potential partial credit