Homework Wk 2 Solutions

Homework Wk 2 Solutions - Chapter4

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Chapter 4 21. Interest income must be imputed on the loan made by Rose Corporation to John Rose.  If  the loan is characterized as being made to an employee (i.e., a compensation-related  loan), the corporation must recognize imputed interest income, but the corporation will  also be allowed to deduct imputed compensation for the same amount as the imputed  income.   Thus,   the   imputed   interest   income   and   the   related   imputed   compensation  expense for Rose Corporation will not affect the amount of the corporation’s taxable  income. On the other hand, imputed interest income on a loan to a shareholder (i.e., a  corporation-shareholder loan) results in taxable interest income for the corporation and  an imputed, non-deductible, dividend paid to the shareholder. pp. 4-25 to 4-28 24. The employee’s income is the cost of the insurance protection for the year that was  paid by the employer. Congress has provided an exclusion in calculating gross income  for   the   premium   payments   made   by   the   employer   for   insurance   protection   for   an  employee   of   $50,000   or   less.   If   the   coverage   exceeds   the   $50,000   amount,   the  employee must include in gross income the deemed premiums paid (determined by  using a table provided by the IRS) on the protection in excess of $50,000.  p. 4-33 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 35. a. The check is a cash equivalent and therefore the $800 must be included in the  taxpayer’s 2010 gross income when it was actually received. b. The fact that the bank was closed is not relevant. The check is a cash equivalent and therefore the $800 must be included in 2010 gross income.
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c. The check is not a cash equivalent because of the restrictive conditions placed upon it. Therefore, a cash basis taxpayer does not include the $800 in gross income until 2011. p. 4-9  37. a. The $1,200 is included in the 2010 gross income. The advance payment received in 2009 for goods delivered in 2010 qualifies for deferral because the company satisfied the tax and financial accounting conformity requirement. b.
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Homework Wk 2 Solutions - Chapter4

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