Question

In: Accounting

1) On July 25 of this year, Taylor sold land with a cost of $15,000 for...

1) On July 25 of this year, Taylor sold land with a cost of $15,000 for $40,000. Taylor collected $20,000 this year and is scheduled to receive $5,000 each year for four years starting next year plus an acceptable rate of interest. Taylor's gain recognized this year is

$7,500.

$12,500.

$20,000.

$25,000.

2) Tom and Kristi are married and file a joint return for 2019 with taxable income of $100,000 and tax preferences and adjustments of $65,000 for AMT purposes. Their regular tax liability is $13,792. What is the amount of their total tax liability?

$13,858

$42,900

$25,575

$13,717

Solutions

Expert Solution

Solution

(1)
Answer: Option (b) $ 12,500
Workings:

Land sold on July 25th for $ 40,000 having a book value of $ 15,000
Therefore, recorded gain = $ (40,000 - 15,000) = $ 25,000
Now, Collection this year = $ (20,000 + 5,000) = $ 25,000
For 6-month period (i.e. July to December) = $ 25,000 X 6/12 = $ 12,500
Therefore, recognized gain this year = $ (25,000 - 12,500) = $ 12,500

(2)
Answer: Option (a) $ 13,858
Workings:

Taxable income (Joint return filed) = $ 100,000
Tax Preference and adjustments for AMT purposes = $ 65,000
AMT Income = $ (100,000 + 65,000) = $ 165,000
As AMT Income of $165,000 is under the 2019 exemption phaseout of $1,020,600 for married jointly filing taxpayers, so they are entitled to the full exemption amount of $111,700.
Therefore, Applicable Income = $ (165,000 - 111,700) = $ 53,300
Tax under AMT = $ 53,300 X 26% = $ 13,858
Because the AMT tax burden of $ 13,858 is greater than the ordinary tax burden of $13,792, tax payable will be
= $ 13,858.


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