WAR (We Are Rich) has been in business since 1989. WAR is an accrual-method sole proprietorship that deals in the manufacturing and wholesaling of various types of golf equipment. Hack & Hack CPAS has filed accurate tax returns for WAR's owner since WAR opened its doors. The managing partner of Hack & Hack (Jack) has gotten along very well with the owner of WAR-Mr. Someday Woods (single). However, in early 2022, Jack Hack and Someday Woods played a round of golf, and Jack, for the first time ever, beat Mr. Woods. Mr. Woods was so upset that he fired Hack & Hack and has hired you to compute his 2022 taxable income. Mr. Woods was able to provide you with the following information from prior tax returns. The taxable income numbers reflect the results from all of Mr. Woods's activities except for the items separately stated. You will need to consider how to handle the separately stated items for tax purposes. Also, note that the 2017- 2021 numbers do not reflect capital loss carryovers.
WAR (We Are Rich) has been in business since 1989. WAR is an accrual-method sole proprietorship that deals in the manufacturing and wholesaling of various types of golf equipment. Hack & Hack CPAS has filed accurate tax returns for WAR's owner since WAR opened its doors. The managing partner of Hack & Hack (Jack) has gotten along very well with the owner of WAR-Mr. Someday Woods (single). However, in early 2022, Jack Hack and Someday Woods played a round of golf, and Jack, for the first time ever, beat Mr. Woods. Mr. Woods was so upset that he fired Hack & Hack and has hired you to compute his 2022 taxable income. Mr. Woods was able to provide you with the following information from prior tax returns. The taxable income numbers reflect the results from all of Mr. Woods's activities except for the items separately stated. You will need to consider how to handle the separately stated items for tax purposes. Also, note that the 2017- 2021 numbers do not reflect capital loss carryovers.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please explain proper steps by Step and Do Not Give Solution In Image Format And Fast Answering Please Thanks In Advance ?
Transcribed Image Text:Compute Mr. Woods's taxable income after taking into account the transactions described above.
Description
a. Land
b. Iron Byron
c1. Sofa
c2. Chair
c3. Marketable securities
c4. Land - for investment
c5. Investment property
d1. Building
d2. Land
§1231 netting
Step1 - depreciation recapture
- ordinary income
Step 2 - $1231 Gain or Loss
netting
- gains or losses exclusive of
$1250
- Unrecapture § 1250
Step 3 - lookback rule
- apply to unrecapture 250 first
Ordinary income
Remaining unrecapture §1250
Remaining gain - 0/15/20
Capital gain netting:
Long term capital loss carryover
Reclassified
Taxable Income:
Before transactions
Ordinary income/loss
LTCG @ 25%
LTCG @ 0/15/20%
Taxable income
Gain or
(Loss)
$
(66,000)
27,000
440
(1,200) ✔
7,600
2,000
(4,000)
155,000
25,000
145,840
0x
Answer is complete but not entirely correct.
60,000
0 x
0
Depreciation
Recapture
0x
0x
0
0
18,000
440
0✔
0
oooo
33
0
0♥
0✔
0
18,440
18,440
X
Answer is complete but not entirely correct.
Ordinary
income or
(Loss)
Short
Term
(66,000)
$1231
0✔
9,000
0✔
(1,200) ✔
0
0✔
0✔
155,000✔
25,000
187,800
0X
0X
0x
187,800
0
0♥
0✔
0
0
0♥
0✔
0
(66,000)
18,440
33333
0X
(47,560)
0
0
0♥
0✔
0
0
0✔
0✔
0✔
0
0
S
Long Term
Total
O✔ S
0
0✔
0✔
7.600✔
2,000✔
(4,000) ✔
0
0
5,600
0x
0
5,600
0 x
Long term
28%
5,600
0✔
0✔
0♥
0♥
0✔
0✔
0♥
0✔
>>
0
0
0
0X
XX
0x
0
Long
term
25%
0✔
0
OO
0
0✔
0✔
0✔
0♥
OOO
0
0
0
0x
0
0x
0
Long
term
0/15/20%
0✔
0
0✔
0✔
7,600
2,000 ✓
(4,000) ✔
0
0
5,600
0
5,600
5,600
![Required Information
[The following information applies to the questions displayed below.]
WAR (We Are Rich) has been in business since 1989. WAR is an accrual-method sole proprietorship that deals in the
manufacturing and wholesaling of various types of golf equipment. Hack & Hack CPAS has filed accurate tax returns for
WAR's owner since WAR opened its doors. The managing partner of Hack & Hack (Jack) has gotten along very well with
the owner of WAR-Mr. Someday Woods (single). However, in early 2022, Jack Hack and Someday Woods played a round
of golf, and Jack, for the first time ever, beat Mr. Woods. Mr. Woods was so upset that he fired Hack & Hack and has hired
you to compute his 2022 taxable income. Mr. Woods was able to provide you with the following information from prior tax
returns. The taxable income numbers reflect the results from all of Mr. Woods's activities except for the Items separately
stated. You will need to consider how to handle the separately stated items for tax purposes. Also, note that the 2017-
2021 numbers do not reflect capital loss carryovers.
Ordinary taxable income
Other items not included in
ordinary taxable income:
Net gain (loss) on disposition of
§1231 assets
2017
$ 4,400
$ 3,600
Net long-term capital gain (loss)
on disposition of capital assets $ (16,500) $ 1,200 $ (20,500)
2018
$ 2,200
Asset
Someday's black leather
sofa (used in office)
Someday's office chair
Marketable securities
Land held for investment
Other investment
property
11,000
Placed in
Service (or
purchased)
4/4/21
3/1/20
2/1/19
7/1/21
$ (9,000)
In 2022, Mr. Woods had taxable income in the amount of $520,000 before considering the following events and
transactions that transpired in 2022:
2019
$ 98,700
a. On January 1, 2022, WAR purchased a plot of land for $110,000 with the intention of creating a driving range where
patrons could test their new golf equipment. WAR never got around to building the driving range; Instead, WAR sold the
land on October 1, 2022, for $44,000.
b. On August 17, 2022, WAR sold Its golf testing machine, "Iron Byron," and replaced it with a new machine, "Iron Tiger."
"Iron Byron" was purchased and installed for a total cost of $26,000 on February 5, 2018. At the time of sale, "Iron
Byron" had an adjusted tax basis of $8,000. WAR sold "Iron Byron" for $35,000.
Sold
c. In the months October through December 2022, WAR sold various assets to come up with the funds necessary to
Invest in WAR's latest and greatest invention-the three-dimple golf ball. Data on these assets are provided below:
10/16/22
11/8/22
12/1/22
11/29/22
2020
$ 178,500
10/15/22
$ (7,200)
Initial
Basis
$ 3,800
9,600
14,400
55,000
2021
$ 262,500
Accumulated
Depreciation
$ 740
3,400
8
Selling
Price
$ 3,500
5,000
22,000
57,000
11/30/20
20,000
d. Finally, on May 7, 2022, WAR decided to sell the building where it tested Its plutonium shaft, lignite head drivers. WAR
purchased the building on January 5, 2010, for $240,000 ($210,000 for the building, $30,000 for the land). At the time
of the sale, the accumulated depreciation on the building was $60,000. WAR sold the building (with the land) for
$360,000. The fair market value of the land at the time of sale was $55,000.
Note: Do not round Intermediate computations. Round your final answers to the nearest whole dollar amount. Loss
amounts should be Indicated by a minus sign.
16,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4372ec4d-b133-43db-9782-a231351f841b%2F96ab851e-6f22-4910-8d40-cbccb895dd53%2Flm8b73f_processed.png&w=3840&q=75)
Transcribed Image Text:Required Information
[The following information applies to the questions displayed below.]
WAR (We Are Rich) has been in business since 1989. WAR is an accrual-method sole proprietorship that deals in the
manufacturing and wholesaling of various types of golf equipment. Hack & Hack CPAS has filed accurate tax returns for
WAR's owner since WAR opened its doors. The managing partner of Hack & Hack (Jack) has gotten along very well with
the owner of WAR-Mr. Someday Woods (single). However, in early 2022, Jack Hack and Someday Woods played a round
of golf, and Jack, for the first time ever, beat Mr. Woods. Mr. Woods was so upset that he fired Hack & Hack and has hired
you to compute his 2022 taxable income. Mr. Woods was able to provide you with the following information from prior tax
returns. The taxable income numbers reflect the results from all of Mr. Woods's activities except for the Items separately
stated. You will need to consider how to handle the separately stated items for tax purposes. Also, note that the 2017-
2021 numbers do not reflect capital loss carryovers.
Ordinary taxable income
Other items not included in
ordinary taxable income:
Net gain (loss) on disposition of
§1231 assets
2017
$ 4,400
$ 3,600
Net long-term capital gain (loss)
on disposition of capital assets $ (16,500) $ 1,200 $ (20,500)
2018
$ 2,200
Asset
Someday's black leather
sofa (used in office)
Someday's office chair
Marketable securities
Land held for investment
Other investment
property
11,000
Placed in
Service (or
purchased)
4/4/21
3/1/20
2/1/19
7/1/21
$ (9,000)
In 2022, Mr. Woods had taxable income in the amount of $520,000 before considering the following events and
transactions that transpired in 2022:
2019
$ 98,700
a. On January 1, 2022, WAR purchased a plot of land for $110,000 with the intention of creating a driving range where
patrons could test their new golf equipment. WAR never got around to building the driving range; Instead, WAR sold the
land on October 1, 2022, for $44,000.
b. On August 17, 2022, WAR sold Its golf testing machine, "Iron Byron," and replaced it with a new machine, "Iron Tiger."
"Iron Byron" was purchased and installed for a total cost of $26,000 on February 5, 2018. At the time of sale, "Iron
Byron" had an adjusted tax basis of $8,000. WAR sold "Iron Byron" for $35,000.
Sold
c. In the months October through December 2022, WAR sold various assets to come up with the funds necessary to
Invest in WAR's latest and greatest invention-the three-dimple golf ball. Data on these assets are provided below:
10/16/22
11/8/22
12/1/22
11/29/22
2020
$ 178,500
10/15/22
$ (7,200)
Initial
Basis
$ 3,800
9,600
14,400
55,000
2021
$ 262,500
Accumulated
Depreciation
$ 740
3,400
8
Selling
Price
$ 3,500
5,000
22,000
57,000
11/30/20
20,000
d. Finally, on May 7, 2022, WAR decided to sell the building where it tested Its plutonium shaft, lignite head drivers. WAR
purchased the building on January 5, 2010, for $240,000 ($210,000 for the building, $30,000 for the land). At the time
of the sale, the accumulated depreciation on the building was $60,000. WAR sold the building (with the land) for
$360,000. The fair market value of the land at the time of sale was $55,000.
Note: Do not round Intermediate computations. Round your final answers to the nearest whole dollar amount. Loss
amounts should be Indicated by a minus sign.
16,000
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