week 3 solutions

week 3 solutions - Chapter6 7. a....

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Chapter 6 7. a. Polly can deduct the following expenses: IRA contribution $5,000 Student loan interest   2,000 Charitable contribution   2,200 Mortgage interest   3,800 b. The IRA contribution and the student loan interest are deductions  for  AGI. The  charitable contribution and mortgage interest are deductions  from  AGI. pp. 6-4 and 6-5 8. The free airline flight valued at $750 is excludible from Mabel’s gross income as a no- additional-cost service. See Chapter 5. The $1,500 of travel expenses is not deductible  as a § 212 deduction because the 100-share investment is insignificant in value in  relation to the travel expenses incurred. Example 5 21. Carmine   may   not   deduct   any   of   the   political   contribution   (i.e.,   $6,000).   Generally,  lobbying expenditures cannot be deducted, but an exception applies for influencing local  legislation. Therefore, Carmine may deduct the $5,000 payment to the Lexington law  firm to lobby members of the Lexington City Council. pp. 6-14 and 6-15 26. For a rental loss on a vacation home to be deductible, the property must be classified as  primarily   rental.   Consequently,   the   following   requirements   must   be   satisfied:   the  residence is rented for 15 days or more during the year and is not used for personal  purposes for more than the greater of (1) 14 days or (2) 10% of the rental days. Even  here, however, the expenses must be allocated between the rental and the personal  days. p. 6-21  38. a. and b. Accrual Cash method method Sales revenue     $ 95,000       $ 76,000 Less:  Wage expense   (29,000) (26,000) Office expense  (2,000) (2,000) Bad debt expense  (500) (–0–) Utilities and telephone expense  (5,400) (5,400) Insurance expense  (4,000) (4,000)
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Rent expense    (9,000)      (9,750)     AGI    $ 45,100 $ 28,850       pp. 6-9 to 6-11 46. Even though Judy decides not to pursue the expansion of her restaurant chain into  another city, the investigation expenses of $38,000 are deductible in the current year.  Because Judy is in the restaurant business, all investigation expenses associated with  the restaurant business are deductible in the year paid or incurred. Since Judy was not  in the hotel business, she can deduct only part of these investigation expenses. Of the  $54,000, an amount of $1,000 [$5,000 – $4,000 (reduction for excess over $50,000)] 
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This note was uploaded on 07/27/2011 for the course ACCT 307 taught by Professor 1 during the Fall '10 term at Strayer.

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week 3 solutions - Chapter6 7. a....

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