Question

In: Accounting

You've been asked to collect information on Dewey Cheatum to see if he is not reporting...

You've been asked to collect information on Dewey Cheatum to see if he is not reporting all his income, use the Net Worth method to determine whether you think Dewey is not being withholding income Information Gathered about Dewey Cheatum Beginning 2019 During 2019 Ending 2019 Cash In Banks 20,000 60,000 Marketable Securities 70,000 120,000 Resdence 400,000 400,000 Mortgage on Residence 190,000 180,000 Automobile 45,000 45,000 Auto Loan 37,000 35,000 Salary 120,000 Gift from Mother 1,000 Gain on Security Transactions 18,000 Living Expenses and Other Expenditures 82,000 Applying the above amounts and the Net Worth Method: (a) Determine the amount of potential unreported income (b) List what other information or clarifications you may need to solidify your answer for (a)

Solutions

Expert Solution

a.

Particulars op 2019 cl 2019 During 2019
Assets
cash 20000 60000 40000
securities 70000 120000 50000
residence 400000 400000 0
Automobile 45000 45000 0
Total Assets - (A) 535000 625000 90000
Liabilities
Mortage 190000 180000 10000
Automobile 37000 35000 2000
Total Liabilities - (B) 227000 215000 12000
Net Worth C = (A - B) 308000 410000 102000
Income
Salary 120000
Gift 1000
Gain on Securities 18000
Total Income - (i) 139000
Expenditure
Living & Other Expenditure 82000
Total Expenditure - (ii) 82000
Net Income iii = (i - ii) 57000
Unreported Income - (C - iii) 45000

b.

1. It is assumed that Marketable Securities to the extent of 50,000 during 2019 have been invested by him.

2. We need more clarity on the total expenditure of 82,000 to identify whether the repayment of 2 loans (10,000 + 2,000) made out of his Net Income/Savings of 57,000.


Related Solutions

You've been asked to do a capital budgeting evaluation of a new factory. The initial cost...
You've been asked to do a capital budgeting evaluation of a new factory. The initial cost to build the factory is $100 million, the factory will be run for 10 years and has an estimated salvage value equal to zero. Accounting tells you to use straight-line depreciation over 10-years to a book value of zero. Sales from the factory are expected to be 50 million each year for the next 10 years (t=1 to 10) and costs (other than depreciation...
Suppose you've been asked to provide a "Top 5" list for families that includes suggestions or...
Suppose you've been asked to provide a "Top 5" list for families that includes suggestions or "things they need to know" to improve/enhance communication in their family. Drawing on the information from this class, create your bullet point list of "Top 5 Tips" - BE SURE TO INCLUDE ALL REQUIRED ELEMENTS: With each recommendation, provide a "rationale" for WHY families should consider this element Please ensure that the recommendations apply concepts and are not "common sense" recommendations that families would...
Graph 1 Presume you are the quality director in a skilled nursing facility. You've been asked...
Graph 1 Presume you are the quality director in a skilled nursing facility. You've been asked to summarize and report the results of a study done by the nursing staff. The purpose is to determine how quickly nurses respond to resident call lights. Data were gathered during the day shift on 10 randomly selected days. Each day an observer noted the response time (in minutes) for 5 call light occurrences. Data is below: Day 1 2 3 4 5 6...
You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two...
You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $111,000 per year for the next two years, or you can have $40,000 per year for the next two years, along with a $25,000 signing bonus today. The bonus is paid immediately, and the salary is paid at the end of each year. Required: (a) If the interest rate is 7 percent compounded monthly, what is the present...
Ted finds out that he has been exposed to measles. He goes to see the doctor....
Ted finds out that he has been exposed to measles. He goes to see the doctor. The physician orders a blood test for antibody titers. The result reveals an elevated IgM titer, but a very low IgG titer. Has Ted contracted the disease?. Explain
Steven is the cost accountant at the Lansing Health Center. He has been asked by the...
Steven is the cost accountant at the Lansing Health Center. He has been asked by the CFO to analyze the center's overhead costs to determine whether nursing hours or the number of patient days would be the best cost driver to use for predicting the center's overhead. He has the following information for the last six months of the most recent year: Month Center Overhead Costs Nursing Hours Number of Patient Days July $476,000 24,000 3,720 August $512,000 26,000 4,320...
You have been asked to see D. V. in the Neurologic Clinic on referral from his...
You have been asked to see D. V. in the Neurologic Clinic on referral from his internist, who thinks his patient is having symptoms of multiple sclerosis (MS). He is a 20-year old man who has experienced increasing urinary frequency and urgency over the past 2 months. Because his female partner was treated for a sexually transmitted disease, D. V. also underwent treatment, but the symptoms did not resolve. D. V. has also recently had 2 brief episodes of eye...
Waste management in Canada. collect information
Waste management in Canada. collect information
You have been asked by a client to determine the maximum price he should be willing...
You have been asked by a client to determine the maximum price he should be willing to pay to purchase a Combred call. The options have an exercise price of $45 and they expire in 156 days. The current price of Combred stock is $44 3/8, the annual risk free rate is 7 percent and the estimated variance of the stock is 0.0961. No dividends are expected to be declared over the next six months. What is maximum price your...
Maria is a Paralegal at Dewey, Cheatham & Howe, a law firm in Arizona. Information about...
Maria is a Paralegal at Dewey, Cheatham & Howe, a law firm in Arizona. Information about her 2018 income and expenses is as follows: Income received Salary                                                                                      $150,000 Taxes withheld from Salary: Federal Income tax                 $30,000 State Income Tax                         9,000 Social Security Tax                      7,961 Medicare Tax 2,175 Interest income from bank                                                            6,000 Dividend income from U.S. Stocks                                                4,000 Short-Term Capital Gain 2,000 Long-Term Capital Gain 3,000 State income tax refund from last year 500 Expenses Paid: Unreimbursed dental and eye-care costs 1,800 Property taxes on her...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT