1. Stan and Billie have decided to divorce. As part of the divorce settlement, Billie received stock valued at $200,000 that had a basis of $120,000; Stan received their home that had a basis of $240,000 but a fair market value at the time of the divorce of $400,000. Two years after the divorce, Billie sells the stock for $300,000 and a year later Stan sells the home for $600,000 after the twins leave for college.
a. How much is Billie's realized and recognized gain or loss on the sale of the stock?
b. How much is Stan's realized and recognized gain or loss on the sale of the home.
2. Bamboo Corporation has $130,000 of operating income, a $20,000 long term capital loss, a $10,000 dividend from a corporation in which it owns 5 percent of the shares, and a charitable contribution of $18,000. What is the corporation's taxable income and income tax? Identify any carryovers.
3. Simpco, an S corporation, has gross operating revenue of $450,000, cost of sales of $150,000, salaries and FICA taxes for employees of $40,000, a $25,000 Section 179 expense deduction, $10,000 of other depreciation, interest income of $2,000, a $4,000 capital loss, and a $500 charitable contribution deduction. What are the corporation's net income and its separately stated items?
4.Charles is single but provides the sole support of his elderly parents, paying all their housing, food and clothing costs. During 2006, he had $213,000 of adjusted gross income. How much may he deduct from his AGI for his personal and dependency exemptions?
5. Shoshone sold her home to her son and his wife as joint tenants for $100,000. The home had been appraised at $150,000. She sold her daughter an auto valued at $10,900 for $500 and she took her sister on a vacation and paid all of her sister's expenses that amounted to $7,000. What is the total of Shoshone's taxable gifts? Explain.
1. a. Billie keeps the basis in the stock from the date it was purchased, divorce does not give a step up. Thus 300K sale less 120K basis is a realized and recognized gain of $180K.
b. Stan keeps the 240K basis in the home since divorce does not give a step up. He sells the house for 600K, thus recognizes a gain of 360K. Stan only realizes a 110K gain because he has a lifetime personal residence gain exclusion of $250K.
2. The taxable income is 101K ...
This solution explains the accounting concept application.