Chapter 4 Solutions - Chapter 4 Solutions PROBLEMS 26. a....

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Chapter 4 Solutions PROBLEMS 26. a. The $950,000 is economic income and gross income for tax purposes. Sue realized $950,000 from the termination of her coaching contract and must include the entire amount in her gross income. Pay for not performing is treated the same as pay for performing. b. The $10,000 is economic income and gross income for tax purposes. However, a portion of the amount may be taxed at the parents’ marginal tax rate. c. The increase in value of $100,000 is economic income but is not gross income for tax purposes because the realization requirement has not been satisfied. For tax purposes, the gross income is $0. The taxpayer is not required to recognize the increased value as income until it is realized (e.g., when the property is sold). d. Winn’s economic income $899,995 (the winnings less the cost of the ticket). For tax purposes, he has $900,000 in gross income. However, the $5 may be deductible as an itemized deduction for tax purposes. e. Larry has economic income of $1,800 from the production in his garden. However, for tax purposes no income is realized. The realization requirement is not satisfied because the vegetables are consumed by Larry and his family, rather than sold to others. pp. 4-4 to 4-6 32. a. Accrual basis gross receipts Cash received $1,500,000 Less: beginning accounts receivable (200,000) Less: bank loan (100,000) Add: ending accounts receivable 400,000 Gross receipts $1,600,000 b. Gross income: Gross receipts $1,600,000 Cost of goods sold: Purchases $1,200,000 Beginning inventory 100,000 Ending inventory (300,000) (1,000,000) Gross income $ 600,000 pp. 4-8 to 4-10 33. Hoffman, Smith, and Willis, CPAs 5191 Natorp Boulevard Mason, OH 45040 October 1, 2010 Ms. Amanda Sims Managing Partner Aspen Associates 100 James Tower Page 1
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Denver, CO 80208 Dear Ms. Sims: I am responding to your suggestion that Aspen Associates should change to the accrual method of accounting for tax purposes as a means of reducing accounting fees. Under the accrual method of
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Chapter 4 Solutions - Chapter 4 Solutions PROBLEMS 26. a....

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