Accounting Chapter 12

Chapter 12

31. a Not qualified, Thomas has to be at least 25 to be qualified

   b. qualified

   c. Qualified if their job meets related restrictions

   d. Qualified if their job meets related restrictions

36. a. Only the two little children are qualified

     The amount shall be 2*$1000= $2000

   b. 122000 exceeds the 110000 limitation

(122000-110000)/1000=12 , 12*50=600

2000-600=1400

38. For two children, the maximum expense for purposes of the credit for child and dependent care expenses is $6,000. However, since the qualifying expenditures are limited to the earnings of the lesser paid spouse ($5200).

Credit=$5200*31%=$1612

39 a. American opportunity tax credit $2500

Life time learning: 400-[(112000-110000)/20000]*400=$360

2500+360=$2860

chapter 13

4. Option 1 Adjusted basis=150000+100000=$250000

  Option 2 Basis=$250000          

  Both Options lead to the same basis, while the second option requires larger cash flow currently , the first one may lead to additional interest costs for the mortage.

47. a. realized loss=basis-selling price =45000-35000=$10000

     Since it’s an asset for private use, $0 will be recognized as capital loss.

   b. realized loss=FMV for the exchanged boat-basis =45000-35000=$10000

     Since it’s an asset for private use, $0 will be recognized as capital loss.

   c. realized loss=insurance recovery-FMV=35000-35000=$0

   d. realized loss=selling price-basis =48000-45000=$3000

     Even it’s an asset for private use, $3000 will be recognized as gain.

57. There is no gain or loss recognized, the selling price of $110000 is higher than the basis for loss(FMV), and the basis for gain(175000). The gift tax is not considered in the condition.

59.a.The friend’s idea shall not be accepted since it will lead to a realized gain of $5000 while this won’t increase the deduction for charity contribution which is based on FMV of the stock.

   b. In this situation, “I” should follow my friend’s advice cause this can help “me” get a recognized capital loss of $2000.

   c. If the FMV is higher than the basis.

     The friend’s idea shall not be accepted. This will help his niece avoid to pay for the increased value of stock until it is realized, which gives the young man a chance to choose, besides, this can reduce the amount of gift tax by taking off the unrealized gain into calculation.