THE-WFT08-06-1001-ch_04_V4-SM

THE-WFT08-06-1001-ch_04_V4-SM - CHAPTER 4 GROSS INCOME...

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CHAPTER 4 GROSS INCOME SOLUTIONS TO PROBLEM MATERIALS Status: Q/P in Question/ Present Prior Problem Topic Edition Edition 1 Recovery of capital Unchanged 1 2 Economic versus taxable income Unchanged 2 3 Ethics Unchanged 3 4 Realization rationale Unchanged 4 5 Cash method Unchanged 5 6 Gross income Unchanged 6 7 Gross income: investments New 8 Gross income Unchanged 8 9 Accrual basis versus cash basis Unchanged 9 10 Accrual basis versus cash basis Unchanged 10 11 Accrual method and disputed income Unchanged 11 12 Accrual basis versus cash basis Modified 12 13 Constructive receipt Unchanged 13 14 Advance payments Modified 14 15 Ethics Unchanged 15 16 Accrual basis versus cash basis Unchanged 16 17 Dividend income Unchanged 17 18 Original issue discount Unchanged 18 19 Issue recognition Unchanged 19 20 Below-market loans Unchanged 20 21 Below-market loans Modified 21 22 Below-market loans Unchanged 22 23 Tax benefit rule New 24 Tax-exempt income Modified 25 25 Taxable versus tax-exempt bonds Unchanged 24 26 Taxable versus tax-exempt bonds Unchanged 26 27 Life insurance Unchanged 27 28 Life insurance Unchanged 28 29 Life insurance: use of proceeds Modified 29 30 Issue recognition Unchanged 30 4-1
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4-2 2008 Entities Volume/Solutions Manual Status: Q/P in Question/ Present Prior Problem Topic Edition Edition 31 Capital transactions: determination of tax Unchanged 31 32 Capital transactions: determination of tax Unchanged 32 33 Accrual basis versus cash basis Unchanged 33 34 Realization principle Unchanged 34 35 Ethics Unchanged 35 Bridge Discipline Problem 1 Accounting policies and effect on earnings Unchanged 1 2 Tax accounting policies of public company New Research Problem 1 Gross income: prepaid income Unchanged 1 2 Imputed interest Unchanged 2 3 Gross income New 4 Internet activity Unchanged 4 5 Internet activity Unchanged 5 6 Internet activity Unchanged 6 7 Internet activity Unchanged 7
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Gross Income 4-3 PROBLEMS 1. Because Cecil does not know how much he will receive from the sale of automobile parts, and it is impractical to determine the cost of individual automobile parts, he could reason that all sales proceeds are a recovery of capital until he has received his cost of $250, and all subsequent proceeds are included in gross income. The IRS may argue that Cecil should allocate his cost of the car among the various parts, which may be impractical. pp. 4-4 to 4-9 2. a. The overcharge to the customer created a liability equal to the amount of the overcharge. Therefore, the taxpayer did not experience an increase in wealth from an economic point of view. For tax purposes, the taxpayer would report gross income in 2007 and a deduction in 2008. b. From an economist’s point of view, the taxpayer suffered a $1,000 loss from the decline in value in the year of purchase, and then experienced a $3,500 ($6,500 – $3,000) gain in the year the stock was sold. For tax purposes, the taxpayer realized a $2,500 ($6,500 – $4,000) gain in the year the stock was sold. The loss was not recognized in the year of purchase for
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THE-WFT08-06-1001-ch_04_V4-SM - CHAPTER 4 GROSS INCOME...

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