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Taxation Assignment

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Unit 2 Assignment

Chapter 2

Problem 38:

There is no deadline for the IRS to collect the related tax, interest, and penalties. What Kevin committed was fraud and tax evasion and the government can collect at any time.

Problem 42:

There are both advantages and disadvantages to treating the investment as a purchase of stock. Keith would be able to collect dividends and it would be taxed at a lower rate. The disadvantage would be that Keith’s corporation would not be able to deduct the dividends that are paid out from its gross income.

Problem 59:

Based on the information from the text, I believe the expenses would be deductible. According the text, Fred had a business training individuals to dive for the purpose of recreational treasure hunting. Fred opened a second business where is hunted for treasures and spent a lot of resources conducting research for the business. Fred stated this business to make a profit with intensions on paying taxes on the money earned. There for the expenses should be considered business expenses and should be deductible. Fred is just fortunate enough to have a business do something that others would do just for fun.

Problem 69:

The Standards for Tax Services (SSTSs) were revised due to changes in federal and state tax laws. Changes were also made for clarification purposes. One need for change was to the language that was used. They wanted to SSTSs to cover a broader scope, which would not limit it to only federal income tax practices.

Chapter 3

Problem 22:

a. $3,000 x 2 months rent = $6,000

b. $3,000 (Mar.) + $3,000 (Apr.) + $2,500 (From Security Deposit) = $8,500 (Tax Accounting)

$14,500 (Financial Accounting)

Problem 37:

Yes, Markum has a gross income of $15,000 ($60,000 - $45,000) as a result of this transaction.

Problem 48

(1) Completed contract method

Highrise Company would recognize its income and expenses in Year 2, as it will be when the project is completed.

(2) Percentage-of-completion method

Year 1 Income – ($121,000 / $220,000 x $250,000) = $137,500
Year 1 Expenses - $121,000

Year 2 Income – ($250,000 - $137,000) = $112,500
Year 2 Expenses - $105,000

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