Acc 5170 7120 - Winter 2018 Accounting Exam

Samantha Abroo

ACC 5170 7120

TAKE HOME EXAM 2

WINTER 2018

This document includes the questions for your second take home exam.  This exam is due before 11pm on Monday April 2, 2018 and must be submitted to the assignment submission link on the class Canvas site.  You must answer the exam IN this document and may either complete the exam by hand or by typing.  If you complete by hand you will need to scan the exam into 1 document to upload it to the assignment link.  Regardless of how you complete the exam be sure to show your work for any potential partial credit.  If your answer is incorrect and you don’t show any work you will receive 0 points for that part of the exam.  If you complete the exam by hand please be sure your writing is dark enough it will be visible when you scan and submit the assignment.  Unless stated differently use 2017 rate schedules and rules.

Feel free to add space and rows to any tables that you feel you need.  

Any questions please reach out to me.  Good luck.

QUESTION 1 (25 points)

Jeremy and Alyssa Johnson have been married for five years and do not have any children.  Jeremy was married previously and has a son from the prior marriage (he is NOT entitled to the dependency exemption for his son).  He is self-employed and operates his own computer repair store.  For the first two months of this year, Alyssa worked for Office Depot as an employee.  In March, Alyssa accepted a new job with Super Toys, Inc. (ST) where she worked for the remainder of the year.  This year the Johnsons received $255,000 of gross income.  Determine the Johnson’s AGI and Taxable Income given the following information (assume that the 2016 rules apply for purposes of the qualified education and that 2017 rules apply for all other information):

a.        Expenses associated with Jeremy’s store include $40,000 in salary (and employment taxes) to employees, $45,000 of supplies, and $18,000 in rent and other administrative expenses.

b.        As a salesperson, Alyssa incurred $2,000 in travel expenses related to her employment that were not reimbursed by her employer.

c.        The Johnsons own a piece of raw land held as an investment.  They paid $500 of real property taxes on the property and they incurred $200 of expenses in travel costs to see the property and to evaluate other similar potential investment properties.

d.        The Johnsons own a rental home.  They incurred $8,500 of expenses associated with the property.

e.        The Johnson’s home was only five miles from the Office Depot store where Alyssa worked in January and February.  The ST store was 60 miles from their home, so the Johnsons decided to move to make the commute easier for Alyssa.  The Johnson’s new home was only ten miles from the ST store.  However, their new home was 50 miles from their former residence.  The Johnsons paid a moving company $2,002 to move their possessions to the new location.  They also drove the 50 miles to their new residence.  They stopped along the way for lunch and spent $60 eating at Denny’s.  None of the moving expenses were reimbursed by ST.

f.        Jeremy paid $4,500 for health insurance coverage for himself (not through an exchange).  Alyssa was covered by health plans provided by her employer, but Jeremy is not eligible for the plan until next year.  Jeremy paid $4,680 for medical expenses for care from a broken ankle for his son.  Also, he drove a total of 115 miles total to the doctor’s offices so he could receive care for his broken ankle.  Also, Alyssa had Lasik eye surgery last year and she paid $3,000 for the surgery (she received no insurance reimbursement)

g.        Jeremy paid $2,500 in self-employment taxes ($1,250 represents the employer portion of the self-employment taxes).

h.        Jeremy paid $5,000 in alimony and $3,000 in child support from his prior marriage.

i.        Alyssa paid $3,100 of tuition and fees to attend night classes at a local university.  The Johnsons would like to deduct as much of this expenditure as possible rather than claim a credit.

j.        The Johnsons donated $2,000 to their favorite charity.

k.        Alyssa’s employer’s withheld $1,800 of state income tax, $7,495 of Social Security tax, and $14,500 of federal income tax from her paychecks throughout the year.

l.        Alyssa’s employer’s withheld $1,800 of state income tax, $7,495 of Social Security tax, and $14,500 of federal income tax from her paychecks throughout the year.

m.        The Johnsons paid $3,200 of property taxes on their personal residences.  They also paid $500 to the developer of their new subdivision, because he had to replace the sidewalk in certain areas of the subdivision.  

n.        They Johnsons had a home mortgage loan in the amount of $220,000 that was secured when they purchased their new home.  The home is worth about $400,000.  They paid interest of $12,300 in interest on the loan this year.

o.        The Johnsons made several charitable contributions throughout the year.  They contributed stock in ZYX Corp. to the Red Cross.  On the date of the contribution, the FMV of the donated shares was $1,000 and her basis in the shares was $400.  The Johnsons originally bought the ZYX Corp. stock in 2008. The Johnsons also contributed $300 cash to State University and religious artifacts they had held for several years to the church.  The artifacts were valued at $500 and their basis in the items was $300.  The Johnsons had every reason to believe the church would keep them on display indefinitely.  Alyssa also drove 200 miles doing church-related errands for her minister.  Finally, Alyssa also contributed $1,200 of services to her church last year.

p.        The family car was totaled in a wreck in January. The car was worth $14,000 and had a cost basis of $16,000.  The car was a complete loss.  They received $2,000 in insurance reimbursements for the loss.

q.        The Johnsons paid $1,250 in investment advisory fees and another $1,950 to have their tax return prepared.

r.        Jeremy is involved in horse racing as a hobby.  During the year, he won $4,500 in prize money and incurred $10,000 in expenses.  He has never had a profitable year with the horse racing activities, so acknowledges that this is a hobby for federal income tax purposes.

s.        Jeremy also had $2,500 in gambling losses from a “boy’s” weekend trip” to Las Vegas and only had $1,000 in winnings.

QUESTION 2 (15 points)

Joe and Jessie are married and have one dependent child, Lizzie.  Lizzie is 22 years old and currently in college at State University.  Joe works as a design engineer for a manufacturing firm while Jessie runs a craft business from their home.  Jessie’s craft business consists of making craft items for sale at craft shows that are held periodically at various locations.  Jessie spends considerable time and effort on her craft business and it has been consistently profitable over the years.  Joe and Jessie own a home and pay interest on their home loan (balance of $220,000) and a personal loan to pay for Lizzie’s college expenses (balance of $35,000).