Reasonable salary and bonus income of a sole shareholder of Camel Corp

Camel is the sole shareholder of Desert, Inc. Desert’s taxable income before the payment of Camel's salary is $175,000. Based on this, Camel has the corporation pay him a salary of $100,000 and a bonus of $75,000. A reasonable salary and bonus would be $125,000. Which of the following is correct? a. The taxable income of Desert, Inc., is $0 ($175,000 - $175,000 salary and bonuses). b. The taxable income of Desert, Inc., is $75,000 ($175,000 - $100,000). c. Camel has salary and bonus income of $125,000. d. Camel has salary and bonus income of $125,000 and dividend income of $50,000. e. None of the above.

Asset basis and Capital basis in a partnership: contribution of property

A taxpayer contributes property with an adjusted basis of $125,000 and a fair market value of $155,000 to her business entity. If the entity is a partnership and the transaction qualifies under § 721, the partnership's basis for the asset and the partner's basis for her partnership interest are: Asset Basis Interest Basis a. $125,000 $155,000 b. $155,000 $125,000 c. $125,000 $125,000 d. $155,000 $155,000 e. None of the above.

Tax return preparation: where are refunded fees for preparation deducted?

Bill and Ann are unrelated taxpayers. Both had their taxes prepared last year by the same tax preparer. Bill paid $300 for his tax return preparation while Ann paid $500 for hers. Bill is an employee (receives a Form W-2) while Ann is self-employed (files Form Schedule C). Two years later, as a result of an agreement with state officials, the tax preparer sends Bill a $25 payment and Ann a $75 payment for excessive charges when preparing each of their tax returns. Where does each taxpayer deduct the tax preparation fees? Is the payment they each receive from the tax preparer taxable to them? Why or why not? Is there any additional information you need for either taxpayer before you can a... click for more

Solutions Corp: accrual entries for remodeling, warranty, trade seminars

Solutions Corporation a computer vendor and consulting company used the accrual method of accounting. Its tax year is the calendar year. The following are three of the corporations transactions during the current year. 1. Solutions Corporation hired a contractor to remodel its sales floor. The contractor completed the remodeling on 11/30. On 12/15 Solutions received a $21000 bill from the contractor. Solutions immediately contracted the contractor to contest the $8000 labor charge included in the total bill, which Solutions claims should only be $7000. Solutions made no payment on the bill. 2. Solutions offers a 2-year warranty on all of its conputer systems. For sales of computers in... click for more

Multiple Choice - Deductions and Losses for tax reporting

Agnes is the sole shareholder of Violet, Inc. For 2007, she receives from Violet a salary of $200,000 and dividends of $100,000. Violet's taxable income fro 2007 is $500,000. On audit, the IRS treats $50,000 of Agnes's salary as unreasonable. Which of the followign statements is correct? a. Agnes's gross income will increase by $50,000 as a result of the IRS adjustment. b. Violet's taxable income will not be affected by the IRS adjustment. c. Agnes's gross income will decrease by $50,000 as a result of the IRS adjustment. d. Violet's taxable income will increase by $50,000 as a result of the IRS adjustment. e. None of the above is correct. John incurred a business expense on... click for more