Category: Writing

Cash and Accrual Metho ds. Carmen opens a retail store . Her
sales during the first year are $600,000, of which $30,000 has not been
collected at year-end. Her purchases are $400,000 . She still owes $20,000 to
her suppliers, and at year-end she has $50,000 of inventory on hand. She
incurred operating expenses of $160,000 . At year-end she has not paid $15,000
of the expenses.
a. Compute her net income from the business assuming she
elects the accrual method.
b. Compute her net income from the business assuming she
elects the cash method.
c. Would paying the $15,000 she owes for operating expenses
before year-end change her net income under accrual method of reporting? under
the cash method?

1. George, a wealthy investor, is uncertain whether he
should invest in taxable or tax-exempt bonds. What tax and nontax factors
should he consider?
2. Do you agree or disagree with the following state – ment:
A taxpayer should nor have ro report income when debt is forgiven because the
taxpayer receives nothing. Explain.

Ed provides all the support for his stepdaughter, her
husband, and their child since his wife’s death three years ago. Ed promised
his late wife char he would support her daughter from a former marriage and her
daughter ‘s husband until they both finished college. They live in another
state, and have no gross income. Which of the three individuals can Ed claim as
dependents?
A partial list of research sources is
• Sec. 152
• Reg. Sec. 1.152 -2
• Desio Barbetti, 9 T.C. 1097 (1947 )

Noncash Compensation. For each of the following items,
indicate whether the individual taxpayer must include any amount in gross
income.
a. Employees of Easrside Bookstore are given their birthdays
off with pay.
b. Westside Hardware, Inc., gave each employee 10 shares of
Westside stock worth $100 per share in lieu of a cash bonus.
c. Employees of Northside Manufacturing were allowed to rake
home the company’s old computers when the company purchased new ones.

Bala and Ann purchased as investments three identica l
parcels of land over a several – year period. Two years ago they gave one
parcel to their daughter, Kim, who is now age 16. They have an offer from an
investor who is interested in acquiring all three parcels. The buyer is able to
purchase only two of the parcels now, but wants to purchase the third parce l
tvo or three years from now, when he expects to have available funds to
acquire the property. Because they paid different prices for the parcels, the
sales will result in different amounts of gains and losses. The sale of one
parcel owned by Bala and Ann will result in a $20,000 gain and the sale of the
ocher parcel will result in a $28,000 loss. The sale of the parcel owned by Kim
will result in a $19,000 gain. Kim has no other income and does not expect any
significant income for several years. Bala and Ann, however, are in the 37% tax
bracket. They do nor have any other capital gains chis year. Which two
properties would you recommend that they sell this year? Why?