LO 1 Although Hank is retired he is an excellent handyman and often works part

Lo 1 although hank is retired he is an excellent

This preview shows page 13 - 15 out of 48 pages.

42.[LO 1] Although Hank is retired, he is an excellent handyman and often works part-time on small projects for neighbors and friends. Last week his neighbor, Mike, offered to pay Hank $500 for minor repairs to his house. Hank completed the repairs in December of this year. Hank uses the cash method of accounting and is a calendar-year taxpayer. Compute Hank’s gross income for this year from each of the following alternative transactions:a.Mike paid Hank $200 in cash in December of this year and promised to pay the remaining $300 with interest in three months.b.Mike paid Hank $100 in cash in December of this year and gave him a negotiable promissory note for $400 due in three months with interest. Hank sold the note in January for $350.c.Mike gave Hank tickets in December to the big game in January. The tickets have a face value of $50 but Hank could sell them for $400. Hank went to the game with his son.d.Mike bought Hank a new set of snow tires. The tires typically sell for $500, but Mike bought them on sale for $450.a.$200 this year. b.$500 this year if the value of the note at the time of the exchange was $400. Note the difference between a promise to pay in part a. (not gross income) and a negotiable promissory note which is included in gross income.
Background image
c.$400 this year. The value of the tickets was $400 when Hank received them.d.$450. This is the fair market value of the tires at the time Mike transferred them to Hank.43.[LO 1] Jim recently joined the Austin Barter Club, an organization that facilitates the exchange of services between its members. This year Jim provided lawn-mowing services to other club members. Jim received the following from the barter club. Determine the amount, if any Jim should include in his gross income in each of the following situations: a.Jim received $275 of car repair services from another member of the club.b.Jim received a $150 credit that gave him the option of receiving a season pass at a local ski resort from another member of the club. However, he forgot to request the pass by the end of the ski season and his credit expired.c.Jim received a $450 credit that can only be applied for goods or services from club members next year. a.In an exchange of services, income has been received in the amount of the value of services received (gross income includes the receipt of services as well as money andgoods). Hence, Jim is taxed on the $275 of car repair services. b.The issue is whether the "credit" represents a valuable right. Because the right could be redeemed for property worth $150, then under constructive receipt Jim should recognize income of $150. c.If a barter credit can only be redeemed for future services, then the taxpayer could argue that no realization has yet occurred. But, it would be included in his gross income next year when the credit becomes a valuable right.
Background image
Image of page 15

You've reached the end of your free preview.

Want to read all 48 pages?

  • Spring '08
  • Krull
  • Taxation in the United States, Jim, Clyde

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes