1. Review of Ace’s financial reports and information revealed the following:

Sales 2.4 million

Opening inventory                 650,000

Purchase                                    1.1million

Closing inventory                    585,000

Heat, light utilities                   300,000

Employee payroll                    245,000

Executive salary and pension 350,000

EPA fines                                    85,000

Life insurance premiums paid               47,000

Life insurance collected on death of vice-president   500,000

Depreciation expense: GAAP Double declining balance   total for year 85,000

                                          MACRS, including section 179 and special first year, 692,000

Income tax paid    Federal Regular 62,000, AMT 16,000, New York State/City 27,000

Compute income reported for GAAP purposes and taxable income, if different.

Categorize as favorable/unfavorable a differences. Are they timing or permanent differences?

2. Betta Inc. has 100 shares outstanding. As of January 1, 2016 Betta had 200,000 earnings and profits from prior years. On June 30, 2016 Betta paid a dividend of 35 per share to all shareholders. Bob and his three brothers each owned 25 shares of Betta. Each invested $10,000 to start the company and made no further investment in Betta. In November 2016 Bob and his wife got divorced and he needed money to pay her settlement. To raise the cash needed bob sold 10 shares of Betta back to Betta as treasury stock. Betta gave Bob $65,000 in cash and the car he was driving, cost 62,000, fair market value, 38,000, basis $20,000.

On December 31, 2016 when Betta closed its books for the year there was a profit of $10,000.

Compute Bob’s treatment of the money he received and his basis in the remaining shares he owned.

3. Carl and Dan agree to form a partnership on January 2, 2016. Each will get a 50% share of profit. Carl will invest $50,000 ($25,000 in cash and a parcel of land, value today $75,000, cost in 2002 25,000) and Dan will do the necessary accounting and legal work to form the partnership. If Dan did that amount of work for a regular client he would have charged $50,000.

The partnership sold the land for $80,000[JF1] on December 10, 2016.

Profit for 2016 was $10,000. What will each report on their federal tax return?

4. Sales Inc. was a regular C corporation with only 100 shares issued for many years. In 2015 they filed the necessary forms to become an S corporation as of January 1, 2016. At the time they had $500,000 of retained earnings. They had no cash because they had been using all the profit to pay down the mortgages. All shareholders meet the at-risk and active tests for all transactions. Tom bought his 50 shares for 50,000 when Sales was formed in 1996. Vic bought his 25 shares in 2011 for $200,000. Wes bought his 25 shares in 2014 for $350,000. In 2016 Sales made a profit of $900,000. They used the profit to purchase real estate. There were no distributions to shareholders.

What will Tom, Vic and Wes report on their income tax returns for 2016?

[JF1]

Southeast Bank invests in trading securities and prepares quarterly financial statements. At the beginning of the fourth quarter of 2016, the bank held as trading securities 280 shares of Eglan Company common stock that originally cost $7,560. At that time, these securities had a fair value of $7,280. During the fourth quarter, the bank engaged in the following trading securities transactions:

On December 31, 2016, the quoted market prices of the shares were as follows: Eglan Company, $53 per share; Farrell Company, $39 per share; and Gray Company, $41 per share.

Required:

Amount DescriptionsGain on Sale of Trading SecuritiesInvestment in Available-for-Sale SecuritiesInvestment in Trading Securities (at fair value)Investment in Trading Securities (at cost)Loss on Sale of Trading SecuritiesUnrealized Loss on Increase in Value of Trading Securities

Prepare journal entries to record the 2016 transactions for the fourth quarter.

PAGE 1

GENERAL JOURNAL

Show what the bank reports on its fourth quarter 2016 income statement for these trading securities. Additional Instructions

Show how the bank reports these trading securities on its balance sheet at the end of the fourth quarter of 2016. Additional Instructions

Daniel B Butler and Freida C. Butler, husband and wife, file a joint return. The butlers live at 625 Oak Street in Corbin, KY 40701. Dan’s Social Security number is 111‐11‐1112, and Freida’s is 123‐45‐6789. Dan was born on January 15, 1965, and Freida was born on August 20, 1966. During 2016, Dan and Freida furnished over half of the total support of each of the following individuals, all of whom still live at home.

a) Gina, their daughter, age 22, a full‐time student, has no income of her own. Gina’s Social Security number is 123‐45‐6788.

b) Sam, their son, age 20, who had gross income of $6,300 in 2016. He graduated from high school in May 2016, Started College in August 2016, then dropped out of college in September 2016. Sam’s Social Security number is 123‐45‐6787.

c) Ben, their oldest son, age 26, is a full‐time graduate student with a gross income of $5,200. Ben’s Social Security number is 123‐45‐6786.

Dan was employed as a manager by WJJJ, Inc. (employer identification number 11‐ 1111111, 604 Franklin Street, Corbin, KY 40702), and Freida was employed as a salesperson for Corbin Realty, Inc. (employer identification number 98‐7654321, 899 Central Street, Corbin, KY 40701). Selected information from the W‐2 Forms provided by the employers is presented below. Dan and Freida use the cash method.

Line Description Dan Freida 1. Wages, tips, other compensation Dan$74,000 Freida $86,000

2. Federal income tax withheld Dan11,000 Freida 12,400 17

3. State income tax withheld Dan 2,960 Freida 3,440

Freida sold a house on December 30, 2016, and will be paid a commission of $3,100 (not included in the $86,000 reported on the W‐2) on the January 10, 2017 closing date.

Before marrying Freida, Dan was married and divorced to Sarah. Under the divorce agreement, Dan is to pay Sarah $500 per month. Dan paid Sarah $5,500 in 2016, his December alimony payment was not made until January of 2017. Sarah’s Social Security number is 123‐45‐6785 The Butlers also had (1) $1,600 in interest income from their savings account, (2) they sold ABC stock on 8/15/2016 for $10,000 (originally purchased for $4,000 on 1/15/2013), and (3) they sold XYZ stock on 10/15/2016 for $3,000 (originally purchased for $4,000 on 12/15/2015). Prepare the 2016 Federal income tax return for the Butlers’. You may work in groups no larger than 3 (i.e. 1, 2, or 3). Submit one tax return per group. Please submit (1) a cover page with a list of students who participated in the group project, (2) Form 1040, (3) calculation of Capital gain (including LT or ST), and (4) calculation of tax.

Does anybody know a good program for making diagrams like P,V and P,T etc. ?

1.

v. What is the meaning of Material Control in Cost Accounting ?

vi. Explain Cost Unit with an Example ?

Construct expansions in a two-individual universe of discourse for the following sentence:

(x) [Fx --> (Gx v Hx)]