Whittenburg Gerald E., Altus-Buller Martha. Income Tax Fundamentals
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Questions and Problems 4-49
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4-50 Chapter 4
Business Income and Expenses, Part II
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Insurance reimbursement for repairs
from an auto accident
500
Gift from Uncle George 2,000
Interest income from Lodge State Bank 640
Federal income taxes withheld:
From Ken’s salary 1,200
From Amy’s wages 650
The Booths incurred the following expens es during their move from California to
Maine in January of 2010:
Cost of moving furniture $4,300
Transportation (4,509 miles at $.165) 744
Lodging en route 150
Meals en route 90
House-hunting trip before the move 750
Ken’s previous job, as a manager in a carrot-processing plant in California, was only
5 miles from his home. Amy was unemployed prior to the move.
The Booths support Ken’s parents, Rod (Social Security number 124-80-905 0) and
Mary (Social Security number 489-37-6676) Booth, who live in their own home. Ken
and Amy live at 2345 Park Ave, Bellview, ME 04104, and their Social Security numbers
are 343-75-3456 (Ken) and 123-45-7890 (Amy).
Required: Complete the Booths’ federal income tax return for 2010. Use Form
1040, Form 3903, and Schedule M, on pages 4-55 to 4-58, and any other appropriate
schedule(s) you need to complete this tax return.
2A. Russell (age 50) and Linda (age 45) Long have brought you the following information
regarding their income and expenses for the current year. Russell owns and operates a
landscaping business called Lawns and Landscap es U nlimited. The business is oper-
ated out of their home, located at 1234 Katy Rd., Katy, TX 77493. Russell Long
had the following income and expenses from the landscaping business:
Income: $132,400
Expenses:
Business insurance 3,800
Office supplies 2,600
Payroll 83,000
Payroll taxes 8,100
Meals and entertainment 2,350
Contract labor 7,290
Maintenance 8,300
Equipment rent 12,300
Telephone 2,300
Business gifts (no gift over $22) 770
Special clothing and safety shoes 600
Subscription to Green Lawns magazine 120
Educational seminar on bug control 350
Other expenses 1,830
The business uses the cash method of accounting and has no accounts receivable or
inventory held for resale.
Questions and Problems 4-51
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In addition to the above expenses, the Longs have set aside one room of their house
as a home office. The room is 150 square feet and their house has a total of 1,500
square feet. They pay $12,000 per year rental on their house, and the utilities amount
to $3,000 for the year.
The Longs also have the following interest income for the year:
Interest from Morgan Bank bond portfolio $42,520
The Longs have two dependent children, Bill (Social Security number 123-23-
7654) and Martha (Social Security number 345-67-8654). Both Bill and Martha are
full-time high school students, ages 17 and 18, respectively, so they do not qualify
for the child credit. Russell’s Social Security number is 664-98-5678 and Linda’s is
554-98-3946. They made an estimated tax payment to the IRS of $4,500 on April
15, 2010.
Required: Complete the Longs’ federal tax return for 2010. Use Form 1040, Schedule B,
Schedule C, Form 8829, and Schedule M on pages 4-59 to 4-66, and any other appro-
priate schedule(s) to complete this tax return. Do not complete a Form 4562 (depreci-
ation). Make realist ic assumptions about any missing data.
2B. Frederick (Freddy) Freeweights (age 42) owns and operates a h ealth club called
‘‘Treadmills West.’’ The business is located at 4321 Arnold Street, Alpine, CA
91901. Freddy had the following income and expenses from the health club:
Income: $214,900
Expenses:
Business insurance 3,800
Office supplies 3,335
Payroll 97,200
Payroll taxes 9,180
Travel 2,420
Equipment & club maintenance 10,666
Cleaning service 8,500
Equipment rent 22,820
Telephone 2,780
Utilities (electric, water, gas) 13,975
Rent 30,000
Advertising 4,750
Special workout clothing and boxing gloves 750
Subscription to Biceps Monthly magazine 120
Educational seminar on weight training 775
Other expenses 1,830
The business uses the cash method of accounting and has no accounts receivable or
inventory held for resale.
Freddy has the following interest income for the year:
Cuyamaca Bank savings account $12,831
Morgan Bank bond portfolio interest 10,825
Freddy has been a widower for 10 years with a dependent son, Arnold (Social Secu-
rity number 276-23-3954), and he files his tax return as head-of-household. Arnold is
an 18-year-old high school student; he does not qualify for the child credit. They live
4-52 Chapter 4
Business Income and Expenses, Part II
Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
next door to the health club at 4323 Arnold Street. Freddy does all the administrative
work for the health club out of an office in his home. The room is 150 square feet and
the house has a total of 1,800 square feet. Freddy pays $20,000 per year in rent and
$4,000 in utilities.
Freddy’s Social Security number is 565-12-6789. He made an estimated tax pay-
ment to the IRS of $1,000 on April 15, 2010.
Required: Complete Freddy’s federal tax return for 2010. Use Form 1040, Schedule B,
Schedule C, Form 8829, and Schedule M on pages 4-59 to 4-66, and any other appro-
priate schedule(s) to complete this tax return. Do not complete a Form 4562 (depre-
ciation). Make realistic assumptions about any missing data.
GROUP 4:
CUMULATIVE SOFTWARE PROBLEM
.............................................. .............................................. .
The following additional information is available for the Dr. Ivan and Irene Incisor family
from Chapters 1–3.
On Sept ember 1, Irene opened a retail store that specializes in sports car accessories.
Thenameofthestoreis‘‘PlusTwoCones.’’Thestoreislocatedat617MainStreet,
Spokan e, WA. The store uses the cash method of accoun ting. Her in come and expenses
for the year are as follows:
Sales of merchandise $62,300
Inventory, September 1 (purchased in August) 62,500
Inventory, December 31 58,700
Purchases during the year 35,300
Sales returns and allowances 525
Store rental 7,500
Office expense 1,400
Insurance 1,000
Advertising 3,000
Employee wages 3,350
Payroll and other business taxes 505
Interest on bank loan to open store 2,740
Accounting fees 300
Utilities 1,000
Telephone 800
Maintenance 480
Miscellaneous 175
In addition to the above items, Irene incurred travel expenses to attend a seminar on
sports car accessories. She sp ent $300 on airfare, $400 on lodging, $100 on a rental car,
and $150 on meals. Irene has proper receipts for these amounts.
Irene drove her 2004 Ford Explorer 1,634 miles for business, driven after September 1, 2010,
related to Plus Two Cones. The Explorer was driven a total of 17,000 business and personal
miles for the year. Included in the 17,000 is 5,000 miles spent commuting to the store. Irene
has the required substantiation for this business mileage. She uses the standard mileage method.
Required: Combi ne this new infor mation about the Incisor family with the information
from Chapters 1–3 and complete a revised 20 10 tax return for Ivan and Irene. Be sure
to save your data input files since this case will be expanded with more tax information
in later chapters.
Questions and Problems 4-53
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4-54 Chapter 4
Business Income and Expenses, Part II
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Questions and Problems 4-55
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
4-56 Chapter 4
Business Income and Expenses, Part II
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Questions and Problems 4-57
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
4-58 Chapter 4
Business Income and Expenses, Part II
Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.