Week 3 Problem Set

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Week 3 Problem Set Marlana Sisson Heber Howard December 22, 2012 University of Phoenix Problem 67 Chapter 5 Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, Understock.com. Though Ken is retired, he is still very active. Ken reported the following financial information this year. Assume Ken’s modified adjusted gross income for purposes of the bond interest exclusion and for determining the taxability of his Social Security benefits is $70,000 and that Ken files as a single taxpayer. Determine Ken’s 2009 gross income. Solution: Ken’s Gross Income for 2009 is $58,000 Description | Amount | a. Rare gambling winnings | $1,200 | b. Income from sale of stock | $1,000 | c. Income gain from annuity | $14,500 | d. Social Security | $11,050 | f. Scholarship | $200 | h. State taxes refund | $50 | i. Interest Income | $30,000 | Gross Income for 2009 | $58,000 | Provide Financial Information; a.) Ken won $1,200 in an illegal game of poker (the game was played in Utah, where gambling is illegal). Ken must declare his winnings in his gross income $1,200. b.) Ken sold 1,000 share of stock for $32 a share. He inherited the share two year ago. His tax basis (or investment) in the stock was $31 per share. He must declare the sales proceeds. $1,000 gain on sale. Ken's stock sale proceeds | Amount | Sale Proceeds ($32 x 1,000 shares) | $32,000 | Less Selling Expenses | $0 | Amount Realized | $32,000 | Less Tax basis ($31 x 1,000 shares) | $31,000 | Gain on sale | $1,000 | c.) Ken received $25,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 20 years for $210,000. Gain of $14,500 Ken's Annuity | Amount | Total investment into annuity | $210,000 | Number of payments | 20 | Return on capital for the payments | $10,500 | Ken's

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