Explain Why the Taxpayer in Each of the Following Situations

question 119

Essay

Explain why the taxpayer in each of the following situations either does or does not have taxable income and determine the amount, if any, that the taxpayer would have to recognize. Cory is an employee of Simmons, Inc. Several years ago Cory purchased a used bus from Simmons. The bus had an adjusted basis of $30,000. Cory agreed to pay $20,000 the fair
a. market value of the bus) for the bus if Simmons would finance the purchase over four years.
During the current year, when the debt on the bus was $5,000, Simmons told Cory that he didn't
have to make any more payments on the bus because of his perfect safety record over the last five years.
Several years ago Lauren's grandfather gave her $10,000 worth of City of Eau Claire,
b. Wisconsin bonds. After receiving $400 of interest in the current year, she sells the bonds for a gain of $800.
Portal Corporation employs Berry at an annual salary of $40,000. Portal provides a qualified
c. pension plan into which all employees are permitted to contribute up to 6% of their annual salaries. Portal matches contributions dollar-for-dollar. Berry contributes 6%.
Carla, a student at State College, receives a $3,000 scholarship for her grades in previous years.
d. She also earns $6,000 from a part time job. Her annual costs are $6,000 for tuition, books and supplies and $7,000 for room and board. Her parents pay the remaining $4,000 of her college
costs.

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Definitions:

Service Charge

A fee collected by a financial institution, or any other service provider, for the services they provide.

Bank Credit Cards

Bank credit cards are financial tools issued by banks that allow cardholders to borrow funds within a pre-approved credit limit for purchases or cash advances.

Recognition of Expense

The accounting principle that expenses should be recorded in the period in which they are incurred, regardless of when the payment is made.

Sales Tax

A tax on sales or receipts from sales, usually calculated as a percentage of the sale price and collected by the seller from the consumer at the point of sale.