chapter22probsetc - PROBLEM SET C PROBLEM 22-1C Your...

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PROBLEM SET C PROBLEM 22-1C Your accounting professor is a CPA and happens to own a very large house. This house is zoned for residential and light commercial use. The house has four bedrooms on the second floor. One of these bedrooms is considered the master bedroom. The master bedroom has its own bathroom. The other three bedrooms on the second floor are served by one common bathroom. The common hallways on the second floor are split equally between rental and personal use. The first floor contains a kitchen, dining room and very large family room. The student renters do not use any of the space on the first floor. The common hallways on the first floor are split equally between personal and business use. Your professor is unmarried and has no other family members living with him. He rents the three upstairs bedrooms to college students and uses the entire first floor, except for the kitchen and dining room, as a home business where he meets with accounting clients. Essentially, there are three activities going on in this one building. For federal income tax purposes, the rental income collected from the students is considered gross income. The deductions allocated to this activity are deductible for tax purposes. The accounting business also generates income that must be included in gross income. Deductions pertaining to the business are also deductible for tax purposes. The following table has information pertaining to the house. a. Square footage: Master bedroom and bath 416 Three student bedrooms and bath 600 Common hallways on second floor 200 Kitchen and dining room 416 Large first-floor family room 500 Common hallways on first floor 100 b. Depreciation expense on entire second floor: $2,500 Depreciation expense on entire first floor: $2,500 Annual real estate taxes $1,400 Annual fire insurance premiums $1,200 Annual cost of general repairs benefitting the entire house: $900 Specific repairs to the student quarters $700 Specific repairs to the first floor business area $500 c. The pro-rata share of all of the above-listed expenses are deductible for tax purposes for the rented area and the area used for the accounting firm. The cost of general repairs, depreciation expense, and fire insurance premiums that apply to the professor’s personal use of the house are not tax deductible. However, the real estate taxes that apply to the professor’s personal use of the house are tax deductible. 1
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Required: 1. Prepare a table which allocates the various costs listed above to: (a) the rental activities, (b) the business activities, and, (c) the personal activities. PROBLEM 22-2C The diagram below represents the entire top view of the Forrester Corporation, a company which manufactures yo-yos. RAW MATERIALS
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chapter22probsetc - PROBLEM SET C PROBLEM 22-1C Your...

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