AFM362 Lecture Notes - Lecture 26: Life Insurance, Negative Number
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Problem 17-37 (LO. 2)
During 2017, Gorilla Corporation has net short-term capitalgains of $15,000, net long-term capital losses of $105,000, andtaxable income from other sources of $460,000. Prior years'transactions included the following:
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If an amount is zero, enter "0".
a. How much is Gorilla's net capital loss for2017?
$
What is the amount of the capital loss deduction on Gorilla's2017 tax return?
$
Any excess net capital loss is carried back or forward as a.
b. Of the excess 2017 net capital loss, howmuch is carried back to the previous years?
$
c. Compute the amount of capital loss carryoverto 2018 and future years.
$
Indicate the years to which the loss may be carried. Select"Yes" or "No", which ever is appropriate.
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d. If Gorilla is a sole proprietorship, ratherthan a corporation, how would the owner report these transactionson her 2017 tax return?
Gorilla offsets $ of capital gains against her losses and anadditional $ in capital . The remaining $ is .
e. Assume that Gorilla Corporationâs capitalloss carryfoward in part (c) is $27,000 and that Gorilla will beable to use $11,000 of the carryover to offset capital gains in2018 and the remaining $16,000 to offset capital gains in 2019.
Assume the following:
A discount rate of 5%.
Present value factors - 1.000 for 2014-2016; 0.952 for 2018 and0.907 for 2020.
Gorilla Corporationâs marginal income tax rate is 34% for alltax years.
Round your computations to the nearest dollar.
In present value terms, determine the tax savings of the$105,000 long-term capital loss recognized in 2017.
$
Multiple Choice:
_____For purposes of calculating depreciation on the taxpayersbusiness usage of his home, the depreciable basis of the officeis:
The allocable share (example - square footage) of the adjustedbasis of the home when he converted the room from personal space toan office for business use.
The allocable share of the fair market value of the home at thetime he converted the room to an office space for business.
The lesser of a. or b.
The greater of a. or b.
____ Which of the following is not included inthe taxpayerâs basis of business property?
Sales taxes paid with the purchase
Title insurance paid with the purchase
Amounts paid to have the property installed
Amounts paid to have the property delivered
All of the above are included in the taxpayerâs basis.
____ A taxpayer has a net short term capital lossof $2,000 and a net long term capital loss of $3,000 for the taxyear. If there are no other gains or losses, what, if anything,carries over to the next year?
$2,000 short term capital loss
$2,000 long term capital loss
$2,000 short term capital loss; $3,000 long term capitalloss
$500 short term capital loss; $1,500 long term capital loss
The taxpayer has no capital loss carryover.
_____ A taxpayer purchased a capital asset on March 22, 2015.What is the earliest date that he can dispose of the asset wherethe sale qualifies for long term capital gains/loss treatment?
September 22, 2015
September 23, 2015
March 22, 2016
March 23, 2016
_____ A married couple sells the following capital assets duringthe year:
Date Acquired | Date Sold | Sales Price | Adjusted Basis | |
The coupleâs net capital gain is:
$4,000
$12,000
$5,000
$11,000
None of the above
_____ Land purchased for $80,000 in 2000 and used in thetaxpayers business is sold in 2015 for $87,000. The sale of theland results in:
$7,000 short term capital gain
$7,000 long term capital gain
$7,000 ordinary income
$7,000 section 1231 gain
None of the above
_____ Taxpayer purchased office equipment for $9,000. Theequipment had been depreciated $5,000. It was sold for $7,500. Whatis the amount and nature of the gain/loss from the sale?
$1,500 ordinary loss
$1,500 capital loss
$3,500 ordinary income
$3,500 long term capital gain.
_____ Taxpayer has a plant where she acquired a machine for$14,000. Over time depreciation of $6,000 was claimed. In thecurrent year taxpayer sells the asset for $19,000. What is theamount and nature of the gain/loss from the sale?
$6,000 of ordinary income, $5,000 long term capital gain
$5,000 of long term capital gain, $5,000 of ordinary income
$11,000 ordinary income.
$11,000 long term capital gain
______ Equipment used in the business is purchased in 2012 for$50,000. It was sold in 2015 for $22,000.
Depreciation information is as follows:
Accelerated depreciation claimed $23,758
Straight line Depreciation would have been$21,500
What is the gain or loss on the sale of the equipment, and howwill it be treated for tax purposes?
$4,242 Section 1231 loss
$1,758 Section 1231 loss
$2,258 ordinary loss; $1,984 Section 1231 loss
$4,242 ordinary loss
$6,500 ordinary loss
_____ In Malat v Riddell, 383 U.S. 569, 86 S.Ct. 1030,which of the following statements is accurate:
The Supreme Court sustained the governmentâs position, holdingthat the property was held by the taxpayer primarily for sale tocustomers in the ordinary course of his trade or business.
The Supreme Court held that the sale of âproperty held by thetaxpayer primarily for sale to customers in the ordinary course ofa trade or business is synonymous with the wordâsubstantiallyâ.
Words of the statutes should be interpreted where possible intheir ordinary, everyday senses. The Supreme Court concluded thatas used in Section 122191), âprimarilyâ means âof first importanceâor âprincipallyâ.
In so concluding as it did, the Supreme Court found itunnecessary to remand the case back to the lower court.
Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California, to be operated as a partnership. Gray and Stone will serve as the senior partners because of their years of experience. To establish the business, Gray, Stone, and Lawson contribute cash and other properties valued at $240,000, $210,000, and $105,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations:
Personal drawings are allowed annually up to an amount equal to 10 percent of the beginning capital balance for the year.
Profits and losses are allocated according to the following plan:
A salary allowance is credited to each partner in an amount equal to $8 per billable hour worked by that individual during the year.
Interest is credited to the partnersâ capital accounts at the rate of 12 percent of the average monthly balance for the year (computed without regard for current income or drawings).
An annual bonus is to be credited to Gray and Stone. Each bonus is to be 10 percent of net income after subtracting the bonus, the salary allowance, and the interest. Also included in the agreement is the provision that there will be no bonus if there is a net loss or if salary and interest result in a negative remainder of net income to be distributed.
Any remaining partnership profit or loss is to be divided evenly among all partners.
Because of financial shortfalls encountered in getting the business started, Gray invests an additional $9,500 on May 1, 2016. On January 1, 2017, the partners allow Monet to buy into the partnership. Monet contributes cash directly to the business in an amount equal to a 20 percent interest in the book value of the partnership property subsequent to this contribution. The partnership agreement as to splitting profits and losses is not altered upon Monetâs entrance into the firm; the general provisions continue to be applicable.
The billable hours for the partners during the first three years of operation follow:
| 2016 | 2017 | 2018 | |
| Gray | 1,740 | 2,100 | 1,910 |
| Stone | 1,470 | 1,200 | 1,650 |
| Lawson | 1,600 | 1,410 | 1,340 |
| Monet | 0 | 1,220 | 1,610 |
The partnership reports net income for 2016 through 2018 as follows:
| 2016 | $ | 69,000 |
| 2017 | (23,400) | |
| 2018 | 160,000 | |
Each partner withdraws the maximum allowable amount each year.
Determine the allocation of income for each of these three years.
Prepare in appropriate form a statement of partnersâ capital for the year ending December 31, 2018.
Determine the allocation of income for 2016. (Loss amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar amounts.)
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Determine the allocation of income for 2017. (Loss amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar amounts.)
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Determine the allocation of income for 2018. (Do not round intermediate calculations. Round your answers to the nearest dollar amounts.)
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Prepare in appropriate form a statement of partnersâ capital for the year ending December 31, 2018. (Amounts to be deducted should be indicated with minus sign. Do not round intermediate calculations. Round your answers to nearest dollar amounts.)
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