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Accounting Assignment - Tax Return Assignment



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Using 2018 IRS Forms and the information below, prepare the federal income tax return for
William and Joyce Jones. You are welcome to use any tax return preparation software. But
you must include with the completed forms statements for explaining your reasoning for the
treatment of each entry on the return.
The taxpayers live at 4400 Massachusetts Avenue in Washington, D.C. 20016. William is
53 and Joyce is 51. William is a manager for ABC Corporation, a firm that manufactures and
distributes widgets. Joyce is a self-employed author of children's books. The Jones have
two children, Will, 21 and Tom, 16. The children have no income. The Jones are on the
cash method of accounting and their return is due October 15. They wish to minimize their
tax by deferring income and accelerating deductions when possible.
Joyce's social security number is 471-42-5207.
William's social security number is 150-52-0546.
Will Jr.'s social security number is 372-46-2611.
Tom's social security number is 375-49-6511.
The taxpayers do not have any foreign bank accounts or foreign trusts and do not wish
to contribute to the presidential election campaign fund.
The taxpayers have health insurance coverage from William's employer.
1.
Williams' W-2 consists of the following:
Box 1 - Wages
$145,000
2 - Withholding
4,500
12d - Pension contribution (401k)
7,000

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2.
The taxpayers received the following interest payments:
XYZ Bank
$ 50
New York State Bonds
600
New York City Bonds
1,300
Puerto Rico Bonds
500
Ford Motor Co. Bonds
1,000
3.
Joyce and her brother are co-owners of and active participants in a furniture-
restoration business. Joyce owns 30 percent and her brother owns 70 percent of the
business. The business was formed as an S corporation. The basis of Joyce's stock
is $31,000. Joyce's share of the corporation's income for the year is $5,000.
4.
The Jones's received a federal income tax refund of $1,200 on May 12, 2018. On
May 15 they received a refund from the District of Columbia for $900 which they had
deducted on the preceding year's return.
5.
Joyce is the lucky caller to a local radio station and wins a tablet. She has not
received a 1099-MISC, but in announcing the prize, the radio station host said that the
manufacturer's suggested retail price for the tablet is $500. However, Joyce has a
catalog from Best Buy that advertises the table for $400.
6.
The Jones's receive a Form W-2G for their winnings at a local casino showing gross
winnings of $5,000 and $1,200 of withholding tax. Joyce lost $6,000 at the casino
during the year.
7.
On June 26, William receives a check for $17,000 (face value of $16,500 plus $500
interest) from the United Insurance Corporation, as a result of being the designated
beneficiary of an insurance policy on the life of his uncle. His uncle had paid a
premium on the policy of $4,000.
8.
Joyce is active in the local school PTA. During the year, she receives an award (a
plaque and a $100 gift certificate that were donated to the PTA by local merchants)
for outstanding service to the organization.

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9. 10. 11. Joyce makes 4 business trips, each 3 days long, to meet with various publishers. For
shorter trips that are closer to home she either drives or takes the train and returns on
the same day. In December 201 8, Joyce receives an advance on her next book. Under
the contract, Joyce is scheduled to begin work on the book the following February,
and must have it completed by November. The taxpayers have 2 telephone lines in
their home, one of which is used for her business. The information on Joyce’s
business is listed below. Royalty: West Publishing $14,000
Publishers Advance $ 5,000
Office Supplies $ 200
Train Tickets $ J00
Airfare $ 2,000
Lodging $ 2,500
Meals $ 1,000
Telephone $ 800 [of which $30tmonth is for extra
phone line) In January, Joyce purchases a new car for $15,000 to use in her business. Joyce pays
$5,000 in cash and finances the balance through the dealer, paying $200 of interest
on the loan for the year. During the year she drives 4,000 miles for business and
0,000 for other purposes. Total expenses for the 10,000 miles driven are: repairs and
mairttenance, $100, insurance, $200 and gasoline, $1,000. At the beginning of the year Joyce set aside a separate room of the house which she
uses exclusively for business. The room is 100 square feet of the total 5,000 square
feet of the house. The taxpayers purchased the home several years ago for $710,000
with approximately 20 percent of the purchase price attributable to the land. The total
household expenses for the year are as follows: Heat $2,000
Insurance $1 ,000
Electricity $1,600
Repairs to kitchen $3,000 Cleaning $ 1,000

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12. William began work on his MST at American University. He enrolled in two courses
and paid $3,000 in tuition and $300 for books. 13. William and Joyce each contribute the maximum to their respective IRA accounts for
the year. The IRA account is Joyce’s only retirement vehicle. In addition, William
and Joyce contributed $2,000 to a Coverdell Education Savings Account for Tom. 14. In June the taxpayers’ 2012 station wagon is totaled during a hurricane. The car was
purchased for $28,200. The taxpayers received a check for $21,200 from Insurance
Company that represents the fair market value of the car minus a $750 deductible and
they replaced the car with a new car costing $31,401]. 15. The taxpayers incurred the following medical expenses before receiving $100
reimbursement from their health insurance policy: Medical Premiums $4,001]
Doctors $1,000
Chiropractor $ 13110
Dentist $1,000
Vet Fees (family dog} $ 301}
Prescription Drugs $ 300 Uver—the-counter drugs (aspirin, cough syrup) $ 200
16. The taxpayers pay the following property taxes: House $12,000 lCar {ad valomm} $ 501} 1?. The taxpayers paid the following amounts of interest. Bank of America (4401] Mass Ave.) $9,000
(Mortgage of $200,000)
Sun Trust
(Home Equity Loan of $ 100,000) $4,000
Nordstrom’s $ 100
Bank of America Mastercard $ 200 The proceeds fi'oni the home equity loan were used to build an additional room on the
house.

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18. The taxpayers made a cash contribution to American University of $10,000. They
also donated property to the Salvation Army at High Street in Washington, DC. on July 15: Property Fi'l'l‘irr [self-appraised} Original Cost Date Acquired
Antique Table $400 $225 11’41'02
Dishwasher $100 $00 5f6f0ti 19. The taxpayers incur the following expenses: Type Amount
Prior year tax preparation fee (paid in current year) $340
Safety deposit box $55
Investment advice $1,120
Business publication {William} $6'i'5 20. In January, William inherited his father’s summer home that has a fair market value
of $500,000 at the date of his father‘s death. His parents had purchased the house
many years ago for $100,000, 20% of which was attributable to the land and made
$75,000 worth of capital improvements to it. Wiliiam decides to rent the property and
actively participates in finding a tenant and managing the property. The property is
first advertised for rent on March 1, but is not rented until June 1. William provides
the following income and expense information for the property: Rent $2 1 ,000
Repairs $5 ,000
Property taxes $10,000 Insurance $2,000

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21. The taxpayers sold the following securities during the year. The selling price listed
is net of brokerage commissions and represents the amount the taxpayers receive from the sale.
Date Sold Date (all sales in Sale Purchase
Stock Acquired current year) Price Price
150 shares Pfizer Corporation 502010 0:“ 15 $6,000 $?,500
50 shares Alcoa 6f 1WD? l0f23 $500 $2,000
25 shares Luminertt LIIZSICY 92"! $3,000 $1,000
60 shares Textron 9! l lfCY 1032? $10,000 $9,000 22. On July 1, Joyce purchased a computer, used exclusively for business for $2,000. 23. On June 1, Joyce sold her old computer system for $400. She had acquired the
computer in 2010, for $2,000. When the taxpayers prepared their 20 l 0 tax return they
elected to expense the computer using Section 109, The computer was used
exclusively in her business.

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