Paul and Patty Black (Both Are Age 66) Are Married

question 40

Essay

Paul and Patty Black (both are age 66) are married and together have AGI of $105,000 in 2017. They have two dependents and file a joint return. During the year, they paid $8,000 for medical insurance, $15,000 in doctor bills and hospital expenses, and $1,000 for prescribed medicine and drugs.
a.In December 2017, the Blacks received an insurance reimbursement of $3,500 for hospitalization expenses. Determine the deduction allowable for medical expenses paid during the year.
b.Assume instead that the Blacks received the $3,500 insurance reimbursement in February 2018. Determine the deduction allowable for medical expenses incurred in 2017.
c.Assume that the Blacks received the $3,500 insurance reimbursement in February 2018. Discuss whether the reimbursement will be included in their gross income for 2018.

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Definitions:

Perpetual Inventory System

A method of accounting for inventory that records the sale or purchase of inventory immediately through computer systems, without the need for a physical count.

Perpetual Inventory System

An accounting technique that instantly records the sale or purchase of inventory using computerized point-of-sale systems and enterprise asset management software.

FIFO

"First In, First Out," an inventory valuation method where goods first added to inventory are the first ones to be sold.

Ending Inventory

The worth of items ready for sale at the conclusion of an accounting cycle, determined by adding the initial inventory to acquisitions and subtracting the cost of goods sold.