M504 Quiz 5 - Name Class Mgmt 504 Quiz 5 Short Answar Date fawWQ/Q Rick Dan and Dennis operate Heritage Hills dry cleaners as an S corporation Rick

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Unformatted text preview: Name: Class: Mgmt 504 - Quiz 5 - February 25, 2010 Short Answar Date: - fawWQ/Q . Rick, Dan, and Dennis operate Heritage Hills dry cleaners as an S corporation. Rick owns 50% of the business, Dan 30%, and Dennis 20%. For the current year, Heritage Hills reports the following: Sales revenues Trade and business expenses Charitable contributions Short-term capital losses Long-term capital gains Taxable income $380,000 (185,000) (5,000) (4,000) 12 000 $193 000 How must Heritage Hills report its results to each of the owners? Because capital gains and losses, and chai‘itabie contributions are subject to special rules, these items cannot be used to calculate ordinary taxable income. Instead, these items must be reported separately by the S ceiporation. The long-term capital gains along with the short-term capital losses are reported separately and _- netted with the individuals other capital gains and losses. The ordinary taxable income of the S ceiporation is $195,000 ($380,000 sales - $185,000 trade and business expenses). The taxable income and the separately reponed information is allocated to Rick, Dan, and Dennis based on their percentage of ownership. Heritage Hills reports the following amounts to each shareholder: Long—term capital gain Short—term capital loss Charitable contributions 100% Total Taxable ordinary income $195,000 12,000 (4,000) 5,000 50% 30% 20% Rick Dan Dennis $97,500 $58,500 $39,000 6,000 3,600 2,400 (2,000) (1,200) (800) 2,500 1,500 1,000 Name: _ 0 Using the tests for deductibility discussed in Chapter 5, explain why the following expenses are not deductible. _ a. Dave is a sprint car racer. He does repair and maintenance on his cars in the garage at his i home. After repairing the cars, he tests them on city streets. He received 15 citations (totaling $2,900) for speeding, rumiing stop signs, and reckless driving. b. Albert, an orthodontist, pays his 10—year-old son $250 a week to empty waste cans in his office. Albert’s son works each evening and two hours on Saturday morning. fled,“ L! var écmrcflfissi— Kwaflfi-gu: PM ’5 flwuir/flaé— c. Sharon comributes $25 to a local organization that is campaigning against a foreign trade bill. The legislation would damage Sharon's business. £344.13" Lpduyuuc- gr Eyv/gw/Jrrmacs 7—. /h_) FL.) r'" r— ’— [augL—IL “Annm- gauan (—561;ng mus— 14°? A (“wde a a; d. Marline borrows $5,000 and pays $500 in interest. The loan is used to purchase bonds issued by the City of Stillwater School District. 7t. 5W3 /NTW fife-W55 /-5 ’N admmm flf-acéwzr/NMH'? ? n5 #007 Java—J l e. Miriam is the wife ofa physician, and she is an experienced horseman. She has raised horses for ten years and occasionally shows them for prize money. She also boards horses for i monthly fees. She enjoys her horse activity but has never made a profit. Her herd is appraised athgoggit I: A}; Wdfllmaro waste—5.59.41”) FILE, irrw . C—fl'J’LIZ—r 55 a»: 774—2: 774%: AfluLMu-f 55 ,2 r ‘ Aim {5 Wf/L’Wrzw #7” fl scd§rmeaL I {1" If 7/2/99! 97:. WINS As, if M -' cu . IQ Name: ‘. Chad owns a condominium in Orlando. During the year, Thad uses the condo a total of 25 days. The condo is also rented to vacationers for a total of 75 days and generates rental income of $8,000. Chad incurs the following expenses: Mortgage interest $4,000 Property taxes 1,800 Utilities 2,000 Insurance 1 ,200 Depreciation 1 1,000 Determine Chad‘s deduction related to the coridominium. Indicate the amount of each expense that can be deducted and how it would be deducted. The rental is a vacation home because Chad's personal use of the condominium is greater than 14 days. Chad's allowable deductions are limited to the $8,000 in rental income. Further, the interest and property taxes must be allocated first and the depreciation last in determining the make—up of the maximum $8,000 deduction. Mortgage interest and property taxes allocated to Chad's personal use of the condominium are deductible as itemized deductions. The costs are allocated based on number of days as rentai to the total days used. Rental income $8,000 Allocated expenses: Interest & taxes $5,800 x 75/100 14,350) Balance of income $3,650 Utilities & Insurance $3,200 x 75/100 £2,400) Balance of income $1,250 Depreciation $11,000 >< 75/100 2 $8,250 Limited to: g 1,250) Income from rental 3 4)— Thad can also deduct the $1 ,450 ($5,800 - $4,350) in interest and taxes not allocated to the rental as an itemized deduction. The $7,000 ($8,250 — $1,250) of depreciation not deducted in the current year can be carried forward to offset rental income in future years. ...
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This note was uploaded on 05/01/2010 for the course MGMT 504 taught by Professor Hatcher during the Spring '08 term at Purdue University-West Lafayette.

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M504 Quiz 5 - Name Class Mgmt 504 Quiz 5 Short Answar Date fawWQ/Q Rick Dan and Dennis operate Heritage Hills dry cleaners as an S corporation Rick

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