SOLUTIONS MANUAL WITH TEST BANK
INCOME TAX FUNDAMENTALS 2013 EDITION
Gerald E. Whittenburg San Diego State University
Martha Altus-Buller San Diego, California
Steve Gill San Diego State University
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CONTENTS ............................................................................................................................................................
iv
CHAPTER OUTLINES AND SUGGESTED MINIMUM ASSIGNMENTS .......................................................
1
SOLUTIONS FOR QUESTIONS AND PROBLEMS ............................................................................................
25
Chapter 1:
The Individual Income Tax Return .....................................................................................................
27
Chapter 2:
Gross Income and Exclusions .............................................................................................................
37
Chapter 3:
Business Income and Expenses, Part I ................................................................................................
51
Chapter 4:
Business Income and Expenses, Part II...............................................................................................
81
Chapter 5:
Itemized Deductions and Other Incentives .........................................................................................
99
Chapter 6:
Credits and Special Taxes ...................................................................................................................
119
Chapter 7:
Accounting Periods and Methods and Depreciation ...........................................................................
145
Chapter 8:
Capital Gains and Losses ....................................................................................................................
163
Chapter 9:
Withholding, Estimated Payments, and Payroll Taxes .......................................................................
195
Chapter 10:
Partnership Taxation ...........................................................................................................................
221
Chapter 11:
The Corporate Income Tax .................................................................................................................
233
Chapter 12:
Tax Administration and Tax Planning ................................................................................................
247
SOLUTIONS FOR ADDITIONAL COMPREHENSIVE TAX RETURN PROBLEMS ....................................
249
TEST BANK ................................................................................................................................................................
283
Chapter 1:
The Individual Income Tax Return .....................................................................................................
283
Chapter 2:
Gross Income and Exclusions .............................................................................................................
311
Chapter 3:
Business Income and Expenses, Part I ................................................................................................
341
Chapter 4:
Business Income and Expenses, Part II...............................................................................................
375
Chapter 5:
Itemized Deductions and Other Incentives .........................................................................................
401
Chapter 6:
Credits and Special Taxes ...................................................................................................................
433
Chapter 7:
Accounting Periods and Methods and Depreciation ...........................................................................
459
Chapter 8:
Capital Gains and Losses ....................................................................................................................
485
Chapter 9:
Withholding, Estimated Payments, and Payroll Taxes .......................................................................
511
Chapter 10:
Partnership Taxation ...........................................................................................................................
529
Chapter 11:
The Corporate Income Tax .................................................................................................................
551
Chapter 12:
Tax Administration and Tax Planning ................................................................................................
573
PREFACE
iii
PREFACE This manual contains the solutions to the multiple choice questions, writing assignments, problems, and comprehensive problems in the text and also provides a source of exam questions for your class. Some of the test bank questions require additional tables or schedules. The tax calculations and phase-outs have become so complex that professors may prefer open book tests in some circumstances. If you wish to make the manual available for student review, the pages in the manual are perforated so that test materials may be removed from the manual to retain their integrity. The test bank is also available for use on personal computers through ExamView®. If you would like a copy of this computerized test generator, please contact your Cengage Learning representative. The manual also contains a brief topical outline for each chapter designed to assist you in presenting the course material. Suggested minimum case and problem assignments, selected to provide a representative sample of the text’s problem material, follow each chapter outline. Gerald E. Whittenburg Martha Altus-Buller Steve Gill
iv
Chapter Outlines CHAPTER OUTLINES AND SUGGESTED MINIMUM ASSIGNMENTS
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1
2
Chapter Outlines
Chapter Outlines CHAPTER 1 THE INDIVIDUAL INCOME TAX RETURN BRIEF TOPICAL OUTLINE A. B.
C.
D.
E. F.
G.
Learning Objectives and Overview History and Objectives of the Tax System 1. Social objectives 2. Economic objectives Reporting and Taxable Entities 1. The individual 2. The corporation 3. The partnership The Tax Formula for Individuals 1. Gross income 2. Deductions for adjusted gross income 3. Adjusted gross income 4. Standard deduction or itemized deductions 5. Exemptions 6. Taxable income 7. Gross tax liability Who Must File 1. Who must file (see Figures 1.1, 1.2 and 1.3) Filing Status and Tax Computation 1. Filing Status - Single taxpayers - Married filing jointly - Married filing separately - Head of household - Surviving spouse/Qualifying widow(er)s 2. Tax Computation 3. Qualifying dividends Personal and Dependency Exemptions 1. Personal exemptions 2. Dependency exemptions - Relationship test for qualifying children - Domicile test - Age test - Joint return test - Citizenship test - Self-support test 3. Dependency exemptions for qualifying relatives - Relationship or member of household test - Gross income test - Support test - Joint return test - Citizenship test
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3
4 H.
I.
J.
K.
Chapter Outlines The Standard Deduction 1. Amounts 2. Additional amounts for old age and blindness 3. Individuals not eligible for the standard deduction 4. Special limitations for dependents A Brief Overview of Capital Gains and Losses 1. Adjusted basis 2. Amount realized 3. Ordinary versus capital gains and losses Tax and the Internet 1. IRS Web site - Forms & Pubs 2. Other useful tax information sites Electronic Filing (e-Filing) 1. Individual tax preparation software 2. Tax professionals
SUGGESTED MINIMUM ASSIGNMENT: Problems 2, 4, 7, 9, 10, 12, 13, 15, and 16 Optional: Writing assignment Comprehensive problems 1 and 2A or 2B Optional: Cumulative Software Problem
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter Outlines CHAPTER 2 GROSS INCOME AND EXCLUSIONS BRIEF TOPICAL OUTLINE A. B.
C.
D.
E.
F.
G.
H.
I.
J. K.
Learning Objectives and Overview The Nature of Gross Income 1. Internal Revenue Code definition 2. Inclusions (see Table 2.1) 3. Exclusions (see Table 2.2) Interest and Dividend Income 1. Schedule B not always required 2. U.S. Savings Bonds 3. Qualifying dividends (special zero or 15% tax rate) Alimony 1. Definition of alimony 2. Divorces before 1985 3. Divorces after 1984 4. Alimony recapture 5. Property transfers 6. Child support Prizes and Awards 1. General rule 2. Exception for certain employee awards Annuities 1. The General Rule 2. The Simplified Method 3. Employee annuities Life Insurance 1. General rule 2. Policies transferred for valuable consideration Gifts and Inheritances 1. Property received 2. Subsequent income from property Scholarships 1. Amounts received for tuition, books and course-required supplies 2. Amounts received for room and board Accident and Health Insurance Meals and Lodging 1. Test for exclusion of meals - Convenience of the employer - On the business premises 2. Test for exclusion of lodging - On the business premises - Condition of employment
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
5
6 L.
M. N.
O.
Chapter Outlines Municipal Bond Interest 1. Exclusion of interest 2. After-tax return Unemployment Compensation Employee Fringe Benefits 1. Employer-provided spending accounts - Dependent care accounts - Medical flexible spending accounts - Public transportation and parking at work 2. Group term life insurance 3. No-additional-cost services 4. Qualified employee discounts 5. Working condition fringe benefits 6. De minimis fringe benefits 7. Tuition reduction 8. Athletic facilities 9. Retirement planning fringe benefit Social Security Benefits 1. Partial inclusion in income 2. Consequences of receiving tax-exempt interest income
SUGGESTED MINIMUM ASSIGNMENT: Problems 1, 2, 3, 6, 8, 9, 10, 14, 15, and 18 Optional: Writing assignment Comprehensive problems 1 and 2A or 2B Optional: Cumulative Software Problem
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
