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    Taxable Income Rules

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    1. In 2012, Warren sold his personal use automobile for a loss of $9,000. He also sold a personal coin collection for a gain of $10,000. As result of these sales, $1,000 is subject to income tax.

    2. The realization requirement give to own assets that have increased in value and to sell assets whose value has decreased

    3. The financial accounting principle of conservatism is not well-suited to the task of taxable income.

    4. When a business is operated as an S corporation, a disadvantage is that the shareholder must pay the tax on his or her share.

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    Solution Preview

    17. The loss on sale of a personal automobile is a non-deductible loss because there was no intent to make money (as one expects with investments). The coin collection, however, does qualify as a reportable gain. Therefore, the full gain of $10,000 will be claimed on a capital gain on sale of collectibles.

    18. Realization is an action that provides a trigger for a taxable event. It may sound very simple but in truth it has been and can be manipulated to provide certain tax return effects. There are other principles that can define income: being relieved of a debt, for ...

    Solution Summary

    The expert examines taxable income rules. The financial accounting principles of conservatism are determined.