Comprehenive Problems Week 3

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Week 3 individual assignment Comprehensive problem 67 Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, understock.com. Though Ken is retired, he is still very active. Ken reported the following financial information this year. Assume Ken’s modified adjusted gross income for purposes of the bond interest exclusion and for determining the taxability of his Social Security benefits is $70,000 and that Ken files as a single taxpayer. Determine Ken’s 2009 gross income. a. Ken won $1,200 in an illegal game of poker (the game was played in Utah, where gambling is illegal). b. Ken sold 1,000 shares of stock for $32 a share. He inherited the stock two years ago. His tax basis (or investment) in the…show more content…
Joe operates a business that locates and purchases specialized assets for clients, among other activities. Joe uses the accrual method of accounting but he doesn’t keep any significant inventories of the specialized assets that he sells. Joe reported the following financial information for his business activities during year 0. Determine the effect of each of the following transactions on the taxable business income a. Joe has signed a contract to sell gadgets to the city. The contract provides that sales of gadgets are dependent upon a test sample of gadgets operating successfully. In December, Joe delivers $12,000 worth of gadgets to the city that will be tested in March. Joe purchased the gadgets especially for this contract and paid $8,500 Joe is not required to show any income in the first year which began the contract with the city because the proceeds are based on the sale taking place in the future. There is nothing in writing that says Joe will receive the income. b. Joe paid $180 for entertaining a visiting out-of-town client. The client didn’t discuss business with Joe during this visit, but Joe wants to maintain good relations to encourage additional business next year $0 deduction because unless there is a significant discussion of business of that particular day then the payment can’t be deductible! c. On November 1, Joe paid $600 for

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