Ch 4 Homework Solutions

Ch 4 Homework Solutions - Ch 4 Homework Solutions 7 The...

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Ch 4 Homework Solutions 7.The cash method taxpayer is subject to the constructive receipt doctrine. Generally, the cash basis taxpayer does not recognize income until it is collected. Under the constructive receipt concept, when the taxpayer has earned the income and the customer has offered to pay, the taxpayer cannot defer its recognition by postponing the date when the income is collected. The constructive receipt doctrine is not relevant to accrual basis taxpayers, who must recognize income when the taxpayer has a right to receive it even though the income has not been collected. pp. 4-9 to 4-11 11. The taxpayer can defer income by using the cash method of accounting when the customers or clients pay subsequent to the taxpayer delivering the goods or performing the services (i.e., avoid paying taxes on receivables). p. 4-9 12. If Rex sells the car, he must pay the tax on the gain of $3,800 ($9,000 – $5,200). If Rex gives the automobile to his daughter and she sells it, she will be taxed on the gain of $3,800. Thus, the increase in value that is economically attributable to Rex will become his daughter’s income. If Rex is in a higher marginal tax bracket (probably the case), the family unit will generate tax savings by Rex’s daughter selling the car. Thus, gifts of appreciated property can be a useful tax planning concept. pp. 4-16 to 4-18 and 4-38 14. Tom must include in his gross income his share of the partnership’s income, regardless of whether the profits are actually distributed. Therefore, Tom must recognize as gross income from the partnership $120,000 ($300,000 × 40%) in 2010 and $320,000 ($800,000 × 40%) in 2011. pp. 4-18 and 4-19 16. The purpose of the alimony recapture rules is to prevent disguising a nondeductible property settlement as alimony. pp. 4-23 and 4-24 23. Betty’s tax return for 2010 will reflect a loss on the annuity contract in 2010 because she collected on the policy for only 12 years when she was expected to collect for 20 years. The deductible loss is computed as follows:
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This note was uploaded on 05/30/2011 for the course ACCT 421 taught by Professor May during the Spring '11 term at IPR.

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Ch 4 Homework Solutions - Ch 4 Homework Solutions 7 The...

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