Accounting 553 Week 2 Homework

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Exercise 4-25 January 2012 -- $5,000 December 2012 -- $4,000 $9,000 of rental income should be reported on the income tax return for 2012. The security deposit is excluded from the calculation. Exercise 4-32 a) Since the title of ownership was transferred to Barbara, she reports this on her tax return. The 1998 basis for the house, $400,000, is still the basis for the home. b) For Arnold, the $18,000 is tax deductible since the title of ownership was transferred to Barbara. c) For Arnold, the $18,000 (6 x $3,000) are tax deductible since alimony payments will cease upon the death of the spouse. The alimony payments should be listed on Barbara’s return. The child support payments made by Arnold would not be deductible and they would not be taxable for Barbara. Exercise 5-26 The bonds for the industrial development of mass transit would be a better investment for the investor. These bonds would be considered state or local bonds. The interest on these bonds is not taxable on a federal level. Thus, you would have a lower tax liability. The interest on the EE bonds is taxable. Exercise 6-29 Salaries and Wages to Employees -- $400,000; tax deductible(ordinary and necessary and reasonable in amount) Purchase of a New Office Building -- $250,000; not tax deductible. This would be considered a capital expenditure. This is a long term asset. Illegal Parking Fines -- $1,400; not tax deductible. By law, fines and penalties are not considered tax deductible. They violate the law or disrupt public trust. Wedding Expenses -- $16,000; not tax deductible. This would not be considered a necessary expense. Entertainment expenses related to company business -- $25,000; tax deductible. Interest on money borrowed to buy up tax-exempt securities -- $9,000; not tax deductible. This involves the generation

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