INDIVIDUAL TAX RETURN PROBLEM 5 Required: ∙

Use the following information to complete Armando and Lourdes Gonzales’s 2018 federal income tax return. If any information is missing, use reasonable assumptions to fill in the gaps. ∙ You may need the following forms and schedules to complete the project: Form 1040, Schedule A, Schedule B, Schedule C, Schedule D, Schedule E, Schedule SE, Form 4562 (for the dental practice), Form 4562 (for the rental property), Form 4797, Form 8863, and Form 8949. The forms, schedules, and instructions can be found at the IRS website (www.irs.gov). The instructions can be helpful in completing the forms.

Facts:

1. Armando Z. and Lourdes K. Gonzales are married and file a joint return. Armando is self-employed as a dentist, and Lourdes is a college professor. Armando and Lourdes have three children. The oldest is Ricardo, who lives at home. Ricardo is a law student at the University of Cincinnati and worked part time during the year, earning $1,500, which he spent for his own support. Armando and Lourdes provided $6,000 toward Ricardo’s support (including $4,000 for Ricardo’s fall tuition). They also provided over half the support of their daughter, Selena, who is a full-time student at Edgecliff College in Cincinnati. Selena worked part time as an independent contractor during the year, earning $3,200. Selena lived at home until she was married in December 2018. She filed a joint return with her husband, Tony, who earned $20,000 during the year. Felipe is the youngest and lived in the Gonzales’s home for the entire year. The Gonzaleses provide you with the following additional information:

Armando and Lourdes would like to take advantage on their return of any educational expenses paid for their children.

>The Gonzaleses do not want to contribute to the presidential election campaign.

>∙ The Gonzaleses live at 621 Franklin Avenue, Cincinnati, Ohio 45211.

>∙ Armando’s birthday is 3/5/1960 and his Social Security number is 333-45-6666.

>∙ Lourdes’s birthday is 4/24/1963 and her Social Security number is 566-77-8888.

>Ricardo’s birthday is 11/6/1995 and his Social Security number is 576-18-7928.

>∙ Selena’s birthday is 2/1/1999 and her Social Security number is 575-92-4321.

>∙ Felipe’s birthday is 12/12/2006 and his Social Security number is 613-97-8465.

>∙ The Gonzaleses do not have any foreign bank accounts or trusts.

2. Lourdes is a lecturer at Xavier University in Cincinnati, where she earned $30,000. The university withheld federal income tax of $3,375, state income tax of $900, Cincinnati city income tax of $375, $1,860 of Social Security tax, and $435 of Medicare tax. She also worked part of the year for Delta Airlines. Delta paid her $10,000 in salary, and withheld federal income tax of $1,125, state income tax of $300, Cincinnati city income tax of $125, Social Security tax of $620, and Medicare tax of $145.

3.The Gonzaleses received $800 of interest from State Savings Bank on a joint account. They received interest of $1,000 on City of Cincinnati bonds they bought in January with the proceeds of a loan from Third National Bank of Cincinnati. They paid interest of $1,100 on the loan. Armando received a dividend of $540 on General Bicycle Corporation stock he owns. Lourdes received a dividend of $390 on Acme Clothing Corporation stock she owns. Armando and Lourdes received a dividend of $865 on jointly owned stock in Maple Company. All of the dividends received in 2018 are qualified dividends.

4.Armando practices under the name “Armando Z. Gonzales, DDS.” His business is located at 645 West Avenue, Cincinnati, Ohio 45211, and his employer identification number is 01-2222222. Armando’s gross receipts during the year were $111,000. Armando uses the cash method of accounting for his business. Armando’s business expenses are as follows:

Advertising $ 1,200

Professional dues          490

Professional journals           360

Contributions to employee benefit plans 2,000

Malpractice insurance        3,200

Fine for overbilling State of Ohio for work 5,000

performed on welfare patient Insurance on office contents        720

Interest on money borrowed to refurbish office 600

Accounting services        2,100

Miscellaneous office expense 388

Office rent 12,000

Dental supplies            7,672

Utilities and telephone         3,360

Wages     30,000

Payroll taxes        2,400

In June, Armando decided to refurbish his office. This project was completed and the assets placed in service on July 1. Armando’s expenditures included $8,000 for new office furniture, $6,000 for new dental equipment (seven-year recovery period), and $2,000 for a new computer. Armando elected to compute his cost recovery allowance using MACRS. He did not elect to use §179 immediate expensing, and he chose to not claim any bonus depreciation.

5. Lourdes’s mother, Maria, died on July 2, 2012, leaving Lourdes her entire estate. Included in the estate was Maria’s residence (325 Oak Street, Cincinnati, Ohio 45211). Maria’s basis in the residence was $30,000. The fair market value of the residence on July 2, 2012, was $155,000. The property was distributed to Lourdes on January 1, 2013. The Gonzaleses have held the property as rental property and have managed it themselves. From 2013 until June 30, 2018, they rented the house to the same tenant. The tenant was transferred to a branch office in California and moved out at the end of June. Since they did not want to bother finding a new tenant, Armando and Lourdes sold the house on June 30, 2018. They received $140,000 for the house and land ($15,000 for the land and $125,000 for the house), less a 6 percent commission charged by the broker. They had depreciated the house using the MACRS rules and conventions applicable to residential real estate. To compute depreciation on the house, the Gonzaleses had allocated $15,000 of the property’s basis to the land on which the house is located. The Gonzaleses collected rent of $1,000 a month during the six months the house was occupied during the year. They incurred the following related expenses during this period:

Property insurance $ 500

Property taxes 800

Maintenance 465

Depreciation (to be computed) ?

6. The Gonzaleses sold 200 shares of Capp Corporation stock on September 3, 2018, for $42 a share (minus a $50 commission). The Gonzaleses received the stock from Armando’s father on June 25, 1982, as a wedding present. Armando’s father originally purchased the stock for $10 per share on January 1, 1969. The stock was valued at $14.50 per share on the date of the gift. No gift tax was paid on the gift.

7. Armando and Lourdes have given you a file containing the following receipts for expenditures during the year:

Prescription medicine and drugs (net of insurance reimbursement) $   376

Doctor and hospital bills (net of insurance reimbursement) 2,468

Penalty for underpayment of last year’s state income tax 15

Real estate taxes on personal residence 4,762

Interest on home mortgage (paid to Home State Savings & Loan ) 8,250

Interest on credit cards (consumer purchases) 595

Cash contribution to St. Matthew’s church 3,080

Payroll deductions for Lourdes’s contributions to the United Way 150

8. The Gonzaleses filed their 2017 federal, state, and local returns on April 12, 2018. They paid the following additional 2017 taxes with their returns: federal income taxes of $630, state income taxes of $250, and city income taxes of $75.

9. The Gonzaleses made timely estimated federal income tax payments of $1,500 each quarter during 2018. They also made estimated state income tax payments of $300 each quarter and estimated city income tax payments of $160 each quarter. The Gonzaleses made all fourth-quarter payments on December 31, 2018. They would like to receive a refund for any overpayments.

10. Armando and Lourdes have qualifying insurance for purposes of the Affordable Care Act (ACA).

Munir is the Vice President for Finance and a Director in his company. Munir finds out that his company will be holding a big conference in a few months and will be needing a caterer to prepare food for the event. The company has set aside a budget of $50,000 for catering. The company plans to call for tenders from qualified caterers in the coming week.

Munir’s brother-in-law happens to be in the food catering business. Munir tells him to organise a bid for the catering job. Munir also tells him to enter a bid at $49,000 because this will increase his chances of winning. He also shares with his brother-in-law some information about the other caterers who have entered bids and what food they are planning to prepare. He tells his brother-in-law to make sure to plan a better menu than the other caterers.

Munir attends the directors’ meeting where they consider who will get the tender for the catering work, but does not disclose his relationship with his brother-in-law, who has put in a bid and actually gets awarded the job.

Does Munir have any potential liability for what he has done or not done? Explain your answer. Cite relevant provisions of the Corporations Act 2001 (Cth).

The voltage in a circuit is 115 volts. A particular technique for measuring the voltage gives readings which are normally distributed with mean μ=115 volts and standard deviation 5 volts. Show that the average of four readings has smaller probability of differing from the true value by 3 volts than an individual reading. Hence show that average of several measurement of the same thing is always more accurate than an individual measurement.

The voltage in a circuit is 115 volts. A particular technique for measuring the voltage gives readings which are normally distributed with mean μ=115 volts and standard deviation 5 volts. Show that the average of four readings has smaller probability of differing from the true value by 3 volts than an individual reading. Hence show that average of several measurement of the same thing is always more accurate than an individual measurement.

Question 1

How would a sale of $400 of inventory on credit affect the balance sheet if the cost of the inventory sold was $160?

How would a purchase of inventory on credit affect the income statement?

Question 4

Which one of the following statement(s) is (are) most likely to be TRUE?

I. When shareholders contribute capital to a company, earned capital increases because the company has earned the shareholders’ investments.
II. Revenues and expenses affect the income statement but not the balance sheet.
III. Retained earnings articulate across time which means that last period’s retained earnings plus current period net income (or loss) is equal to the current period’s retained earnings.
IV. Revenue is typically recorded as earned when cash is received because that is when the company can measure the revenue objectively.

Question 5

During fiscal year-end 2016, Kohl’s Corporation reports the following (in $ millions): net income of $556, retained earnings at the end of the year of $12,522 and retained earnings at the beginning of the year of $12,329. Assume that there were no other retained earnings transactions during fiscal 2016.

What dividends did the firm pay in fiscal year ended January 28, 2017?

QUESTION 1

1. A Type II error occurs when we ________.

   		reject the null hypothesis when it is actually true
   		reject the null hypothesis when it is actually false
   		do not reject the null hypothesis when it is actually false
   		do not reject the null hypothesis when it is actually true

QUESTION 2

1. A lower level of significance makes it harder to reject the null hypothesis.

   True

   False

QUESTION 3

1. A professional sports organization is going to implement a test for steroids. The test gives a positive reaction in 94% of the people who have taken the steroid. However, it erroneously gives a positive reaction in 4% of the people who have not taken the steroid. What is the probability of Type I and Type II errors giving the null hypothesis "the individual has not taken steroids."

   		Type I: 4%, Type II: 6%
   		Type I: 4%, Type II: 94%
   		Type I: 6%, Type II: 4%
   		Type I: 94%, Type II: 4%

QUESTION 4

1. A situation where both the null and alternative hypotheses are simultaneously true is called Wilson's paradox.

   True

   False

QUESTION 5

1. An independent samples t test has _______ degrees of freedom.

   		n - 2
   		n
   		n - k
   		n - 1

QUESTION 6

1. Assume that a hypothesis test of the given claim will be conducted. Identify the type I or type II error for the test.
   
   A cereal company claims that the mean weight of the cereal in its packets is 14 oz. Identify the type I error for the test.

   		Fail to reject the claim that the mean weight is 14 oz when it is actually different from 14 oz.
   		Reject the claim that the mean weight is 14 oz when it is actually greater than 14 oz.
   		Reject the claim that the mean weight is 14 oz when it is actually 14 oz.
   		Reject the claim that the mean weight is different from 14 oz when it is actually 14 oz.

8.

value:
10.00 points

Required information

Pastina Company sells various types of pasta to grocery chains as private label brands. The company's reporting year-end is December 31. The unadjusted trial balance as of December 31, 2021, appears below.

Information necessary to prepare the year-end adjusting entries appears below.

1. Depreciation on the office equipment for the year is $11,800.
2. Employee salaries are paid twice a month, on the 22nd for salaries earned from the 1st through the 15th, and on the 7th of the following month for salaries earned from the 16th through the end of the month. Salaries earned from December 16 through December 31, 2021, were $1,700.
3. On October 1, 2021, Pastina borrowed $53,600 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years.
4. On March 1, 2021, the company lent a supplier $23,600 and a note was signed requiring principal and interest at 8% to be paid on February 28, 2022.
5. On April 1, 2021, the company paid an insurance company $9,600 for a one-year fire insurance policy. The entire $9,600 was debited to prepaid insurance.
6. $1,010 of supplies remained on hand at December 31, 2021.
7. A customer paid Pastina $3,800 in December for 1,650 pounds of spaghetti to be delivered in January 2022. Pastina credited deferred sales revenue.
8. On December 1, 2021, $2,800 rent was paid to the owner of the building. The payment represented rent for December 2021 and January 2022 at $1,400 per month. The entire amount was debited to prepaid rent.

rev: 09_14_2019_QC_CS-180268, 10_11_2019_QC_CS-184133

Required:

1. & 2. Post the unadjusted balances and adjusting entires into the appropriate t-accounts. (Enter the number of the adjusting entry in the column next to the amount. Do not round intermediate calculations. Round your final answers to nearest whole dollar.)

3. Prepare an adjusted trial balance

4. Prepare an income statement and a statement of shareholders’ equity for the year ended December 31, 2021, and a classified balance sheet as of December 31, 2021. Assume that no common stock was issued during the year and that $7,600 in cash dividends were paid to shareholders during the year.

5. Prepare closing entries

6. Prepare a post-closing trial balance

Solvency and Profitability Trend Analysis

Addai Company has provided the following comparative information:

You have been asked to evaluate the historical performance of the company over the last five years.

Selected industry ratios have remained relatively steady at the following levels for the last five years:

Required:

1. Determine the following for the years 20Y4 through 20Y8. Round to one decimal place:

a. Return on total assets:

b. Return on stockholders’ equity:

c. Times interest earned:

d. Ratio of liabilities to stockholders' equity:

2. Refer to the selected industry ratios provided above.

Both the rate earned on total assets and the rate earned on stockholders' equity have been moving in a positive  direction in the last five years. Both measures have moved above  the industry average over the last two years. The cause of this change is driven by a rapid increase  in earnings.