SMITH FAMILY'S 2018 TAX SCENARIO

Joseph L. Smith (age 45, Social Security number 145-26-9210) and Rita M. Smith (age 43, Social Security number 142-46-5108) are husband and wife. They live at 1650 Belmont Avenue, Chicago, IL 60615. David is a self-employed CPA and Rita is a third grade teacher. They have two children: Blake (age 5, Social Security number 310-51-2108) and Amelia (age 3, Social Security number 314-62-8924).

In 2018, Joseph earned $182,000 and Rita earned $46,000. The Smith family has medical coverage through the school system for which Rita works. As an employee, Rita had $9,500 of federal tax withheld, $2,300 of IL state tax withheld, and the required Social Security and Medicare taxes.

Joseph has an office with business expenses for 2018 as follows:

The advertising expenses included local newspaper advertisements, digital marketing, and direct marketing flyers. The business gifts were $40 gift certificates given to his 10 largest clients in appreciation for their business.

Joseph purchased a 2017 Honda Civic in 2017. In 2018, he drove 24,000 business miles and 6,000 personal miles, and uses the standard mileage method for tax purposes.

In 2018, Joseph made estimated quarterly federal tax payments of $18,000/quarter and estimated quarterly IL state tax payments of $3,000. All the payments were made within calendar 2018. Joseph also contributed $8,000 to his SEP account.

Rita bought various supplies for her classroom, but did not closely track expenditures and thus only wants to take the allowed educator expenses deduction. Her teacher's license was also renewed in 2018 for $125.

Blake and Amelia are both in day care at the Riley Day Care Center at 1325 Lake Street, Chicago, IL 60612 (EIN 36-2875647). They are only in day care for 9 months of the year (weekly charge of $240.00/week), because Rita does not work during the summer.

In addition to the wages and expenses as detailed, the Smiths have the following documented income and expenses:

The Smiths itemized deductions in 2017. The federal tax refund was $3,500 and the IL state tax refund was $600.

In addition, the Smiths own rental property (a "two flat" in Chicago) which they have rented out for the entire year. Total rental income was $30,000. Rental property related expenses were as follows:

Compute the family's federal income tax for 2018 which includes completing the appropriate 2018 forms and schedules.

Presented below are ten independent scenarios describing possible errors. In each, the time is early 2020
and fiscal year 2019 adjusting entries have already been recorded before the described facts come to light.
However, the fiscal year 2019 books have not yet been closed.

5. At the fiscal 2018 year-end, Five Co. owned equipment with a $15,000 book value and an original cost
of $70,000. Due to technological advances, Five had judged it to be obsolete at that date but had
overlooked this fact when preparing the fiscal 2018 financial statements. In early 2019. Five was able
to sell the machine as scrap for $1,000, recording a $14,000 loss.

6. Near the end of fiscal 2018, Six Co. had swapped a car having a $6,000 book value and an original
cost of $20,000 for a similar car determined to have a fair value of $7,000, recording a $1,000 gain on
the exchange. However, the car acquired is not expected to have any significant impact on the
company’s financial position, Six having made the swap mainly because Six’s owner liked the car’s
styling and more comfortable seating. Six began depreciating the acquired car in fiscal 2019 using the
straight-line method with an estimated five-year life and an expected $500 salvage value.

7. Seven Co. uses the double-declining balance method for all depreciable assets. At the start of fiscal
2018, Seven Co. paid $45,000 for a truck having an estimated useful life of five years and an expected
salvage value of $5,000. Seven has been deducting this salvage in calculating the truck’s depreciation.

8. Eight Co. had received $51,600 in loan proceeds on January 1, 2018 by issuing a 3-year, $65,000
non-interest-bearing note reflecting implicit interest (return to the lender) of 8%. Eight recorded the loan
at the net proceeds amount but has not made any note-related journal entries since obtaining it.

9. On January 2, 2013, Nine Co. issued $100,000 of 5%, 10-year bonds at 95. Interest is payable
semiannually, and the bonds are callable at 101 on any interest payment date. In addition, each $1,000
bond is convertible into 20 shares of Nine’s $10 par value common stock. Nine called all the bonds on
December 31, 2018 and recorded the difference between the bonds’ call price and their book value at
that date as a reduction of additional paid-in capital. Nine had been using straight-line amortization,
having judged its results as not differing materially from those under the effective-interest method.

10. In fiscal 2018, Ten Co. began selling a product with a three-year warranty. Sales in fiscal 2018 totaled
$500,000 and in fiscal 2019 grew to $800,000. Ten had estimated that its total warranty costs over
every three-year warranty period would approximate 2% of each year’s sales, and its actual warranty
costs amounted to $3,000 in fiscal 2018 and $14,000 in fiscal 2019. Ten has not been accruing warranty
costs but has instead been expensing the actual warranty costs incurred.

Required—For each of the ten independent scenarios above, identify any errors indicated by the facts and
prepare, if needed, the fiscal 2019 journal entry(s) to correct those errors, assuming that any corrections
related to income taxes will be calculated and recorded separately (i.e., prepare correcting entries ignoring
income tax effects).

1. Compliance with the IFRS is enforced by:

a. FASB, b. government regulators, c. IAS, or d. IASB

2. Under IFRS unrealized holding gains and losses on held-for-trading equity investments of less than 20 percent are recorded in _____, and unrealized holding gains and losses on non-trading equity investments of less than 20 percent are recorded in _______.

a. net income; net income. b. net income; other comprehensive income. c. other comprehensive income; net income. d. other comprehensive income; other comprehensive income

3. ABC co. purchases XYZ Co. for less than the fair value of XYZ Co.'s net assets (ie. a bargain purchase). How should ABC co. record the difference between the fair value of XYZ Co's net assets and the purchase price?

a. amortization expense. b. gain. c. goodwill. d. loss

4. On December, 31 2018, Buthainah Corp. owned a patent. The carrying amount of the patent (following the amortization journal entry on December 31, 2018) is 100,000/ The recoverable amount of the patent is determined to be $70,000. Which of the following is true regarding the journal entry that Buthainah Corp. should record on December 31, 2018.

a. Debit to loss on impairment of $30,000. b. credit to patent of $30,000. c. debit to goodwill of $30,000. d. both A and B are correct

5. Danah Corp. has three intangible assets (two patents and goodwill) on December 31, 2018. There is no impairment of any of the three intangible assets/ One patent has a carrying value of $20,000, one patent has a carrying value of $30,000, and the goodwill amount is $10,000. How should the three intangible assets be presented on the statement of financial position?

a. each intangible asset should be listed separately. b. all intangible assets should be grouped together in one intangible assets account. c. the two patents should be grouped together in one intangible assets account and goodwill should be listed separately. d. the threee intangible assets do NOT belong on the statement of financial position.

Question:

Question 9

Cluster analysis is defined as _______.

-analyzing management techniques and administrative policies simultaneously

-the process of discovering groups (termed clusters in data science) of similar items in a set of data; items in the same group are similar, while items in different groups are not as similar.

-determining which package of audit services can be sold to a client at the best possible price

-the process of discovering individual pieces of similar items in a set of data; items in the same group are similar, while items in different groups are not as similar.

Question 10

Matching information in key data fields _______.

-is a process where the auditor uses audit data analytics to search for key characteristics that may exist in the same database

-is a process where the auditor uses audit data analytics to search for key characteristics that may exist in several different databases

-is typically a task assigned to the internal audit function

-is a process where the auditor uses his or her understanding of inherent risk to search for key characteristics that may exist in several different databases

Question 11

If the auditor is performing substantive tests at an interim date, _______.

-the auditor must perform steps to update their conclusion to the date of the financial statements

-the auditor should plan to conduct more tests once the audit report has been issued

-the auditor should perform no further steps to update their conclusion through the date of the financial statements

-then this testing will suffice and no further testing needs to be done

Question 12

If a confirmation of an accounts receivable balance is not returned by the customer, the auditor might validate the receivable by _______.

-looking at evidence of subsequent cash receipt in the amount of the billing for a different customer

-looking at evidence of subsequent cash receipt in the amount of the billing to the customer

-confirming the receivable with senior management

-confirming a different receivable with a different customer instead

Question 13

Attribute sampling is a technique used to reach a conclusion about a sample in terms of a rate of occurrence.

Group of answer choices

True

False

Question 14

A material weakness is a deficiency where there is more than a remote possibility that a misstatement that is less than material, but still significant enough that it should be reported to those charged with governance.

Group of answer choices

True

False

Question 15

The first step in assessing control risk is to _______.

-understand entity-level controls

-identify relevant controls to test

-determine preliminary audit strategy

-understand the flow of transactions

Question 16

Prevention controls are those applied _______.

-at the transaction level only

-to each transaction during normal processing and are intended to stop fraud or errors from occurring

-at both the entity and transaction levels

-to each entity during normal processing and are intended to stop fraud or errors from occurring

Question 17

Internal controls can _______.

-only include certain procedures approved by management and the auditor

-include any procedure used and relied upon by the client to prevent errors from occurring when processing transactions, or to detect and correct errors that may occur in these transactions

-never be subject to senior management override

-include any procedure used and relied upon by the auditor to prevent errors from occurring when processing transactions, or to detect and correct errors that may occur in these transactions

1.. Suppose $2000 is invested at 6% annual interest rate for 10 years and the interest is compounded monthly. How much will the investment be worth at the end of the 10 years?

2. Suppose John invests his tax refund of $1666 in an account that earns interest compounded continuously at the rate of 3.5%. How much will John have in 7.5 years? Show your work details.

3. What is the present value of an account that will be worth $10,000 in 5 years if the annual interest rate is 10% and the interest is compounded continuously? Show your work details.

4.A company shows the following profit figures for the years 2000, 2004, and 2008. In 2000 the profit was $250 million; in 2004, the profit was $400 million; and, in 2008, the profit was $550 million. If x is the number of years after 2000, write a linear function representing this profit. Using this linear model determine what the projected profit will be in the year 2020. Show work details.

5. The table shows the year and the number of people unemployed in a particular city for several years. Determine whether the trend appears to be approximately linear. If so, and assuming the trend continues, in what year will the number of unemployed reach 15 people?

Year                          1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Number Unemployed 750   670   650   605   550   510   460   420   380   320

6. Wilbur and Cody are selling pies for a school fundraiser. Customers can buy cherry pies and blackberry pies. Wilbur sold 8 cherry pies and 2 blackberry pies for a total of $110. Cody sold 7 cherry pies and 6 blackberry pies for a total of $177. What is the cost each of one cherry pie and one blackberry pie? Show work details.

Using the Internet to Obtain Information about Estate Planning, visit the Prudential Insurance Company of America (Links to an external site.)Website. Gather information on various estate planning topics such as an estate planning worksheet; whether you need an estate plan; when to update your plan; estate taxes, wills, executors, trusts, etc. Then prepare a report to help you develop your personal estate plan.

For this week’s portfolio activity, please advise the instructor of the following:

• Utilizing the information provided in your course textbook(s) or other valid sources, briefly compare the coupon rate and the interest rate regarding bonds. What is a par value?
• Describe the impact of a tax shield on fixed income yields.
• Please provide a brief update to the instructor on how you feel you are doing so far this term.  

1. A doctor’s office has at least 2 patients but can have up to 30 patients. All patients have names, number of doctor’s visits, and total copayments for the year so far. After each visit, you need to be able to update each patient’s number of doctor’s visits and total copayments for the year.

a. Create the UML for the class diagram for patients.

b. Create the Java implementation for patients.

An airline describes airfare as follows. A normal ticket's base cost is $300. Persons aged 60 or over have a base cost of $290. Children 2 or under have $0 base cost. A carry-on bag costs $10. A first checked bag is free, second is $25, and each additional is $50. Given inputs of age, carry-on (0 or 1), and checked bags (0 or greater), compute the total airfare.

Hints:

• First use an if-else statements to assign airFare with the base cost

• Use another if statement to update airFare for a carryOn

• Finally, use another if-else statement to update airFare for checked bags

• Think carefully about what expression correctly calculates checked bag cost when bags are 3 or more

program code needed to finish (Airfare.java)

import java.util.Scanner;

public class Airfare {
public static void main(String[] args) {
Scanner scnr = new Scanner(System.in);
int passengerAge;
int carryOns;
int checkedBags;
int airFare;
  
passengerAge = scnr.nextInt();
carryOns = scnr.nextInt();
checkedBags = scnr.nextInt();

/* Type your code here. */
  
System.out.println(airFare);
}
}