3-3 - 78. Bonnie opens a computer sales and repair service...

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Unformatted text preview: 78. Bonnie opens a computer sales and repair service during the current year. Her records show the following for the year: Sales Cash Liability Cash Made Received Incurred Paid Repair revenue $ 30,000 $ 22,000 Computer sales 26,000 18,000 Computer purchases $ 55,000 $ 27,500 Employee wages 12,000 10,000 Supplies, utilities, etc. 9,000 6,000 Bonnie has computers on hand on December 31 that cost $40,000 and have a retail selling price of $65,000. Bonnie needs help figuring her taxable income. Is more than one income figure possible? If so, explain why and compute taxable income under the various methods. Because Bonnie has inventories of computers, she must account for sales and purchases using the accrual method. She has the option of using either the accrual method or the cash method for all other revenues and expenses (Hybrid method). Accrual Hybrid Gross income: Repair revenues $ 30,000 $ 22,000 Computer sales 26,000 26,000 Total revenue $ 56,000 $ 48,000 Deductions: Cost of goods sold: Beginning inventory $ -0- Purchases 55,000 Goods available $ 55,000 Ending inventory 40,000 (15,000) (15,000) Employee wages (12,000) (10,000) Supplies, utilities, etc. (9,000 ) (6,000 ) Total deductions $ 36,000 $ 31,000 Taxable income $ 20,000 $ 17,000 79. Arlene is a lawyer. She begins the current year with $12,000 in accounts receivable from customers. During the year, she bills customers $210,000 in fees and receives $180,000 in payments on account. She writes off $8,000 of the receivables as uncollectible, leaving her a year-end receivable balance of $34,000. What is Arlene's gross income if a. She uses the cash basis of accounting? Cash basis taxpayers recognize income as it is received. Therefore, Arlene will recognize the $180,000 of cash receipts as her gross income on the cash basis. Her write-off of uncollectible accounts does not affect her gross income because she is on the cash basis and none of the receivables written off would have been previously included in income. b. She uses the accrual basis of accounting? Accrual basis taxpayers recognize income as it is earned. Arlene must include the $210,000 she billed her customers as her gross income. The write off of the receivables is not a reduction of her gross income. However, she is allowed a bad debt deduction for the $8,000 of bad accounts. Bad debt deductions are discussed in Chapter 6. 80. Determine how much interest income Later Federal Loan Company, a cash basis taxpayer, must recognize on each of the following loans in 2009: a. A $10,000, 8.5%, 6-month loan made on October 1, 2009. The principle and interest are due on April 1, 2010. Later does not have to accrue any interest income from the loan, because it is not an Original Issue Discount (OID) type loan....
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3-3 - 78. Bonnie opens a computer sales and repair service...

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