Question 3. 3. (TCOs 4 and 5) While she was a college student, Juliet worked in a bookstore located

Question 3. 3. (TCOs 4 and 5)  While she was a college student, Juliet worked in a bookstore located near campus. She thinks a bookstore located on the other side of campus would be successful. She incurs expenses of $18,000 (accounting fees, marketing survey, etc.) in exploring its business potential. Her parents have agreed to loan her the money required to start the business. What amount of these investigation costs can Juliet deduct if she

I. opens the business in July 2011 or

II. decides not to open the bookstore. (Points : 20) 2.  (TCOs 1, 2, 3, and 5) If a tax-exempt bond will yield approximately .65 (1 – .35) times the yield on a taxable bond of equal risk, who benefits from the tax exemption: the federal government, the state and local governments who issue the bonds, or the investors? Why? Explain. (Points : 20) 4. (TCOs 4 and 5) Tonya had the following items for last year:

Salary $40,000
Short-term capital gain $12,000
Nonbusiness bad debt ($10,000)
Long-term capital loss ($8,000)

For the current year, Tonya had the following items:
 

Salary $45,000
Collection of last year’s bad debt $12,000

Determine Tonya’s adjusted gross income for the current year. (Points : 20) 5.  (TCO 7)  Rustin bought used, 7-year class property on May 15, 2012, for $500,000. Rustin elects § 179 cost recovery. Rustin’s taxable income would not create a limitation for purposes of the § 179 deduction. Rustin elects not to take additional first-year depreciation. Determine the write-off Rustin can take in 2012. (Points : 20) 6.  (TCOs 6 and 7) Albert is considering two options for selling land for which he has an adjusted basis of $70,000 and on which there is a mortgage of $100,000. Under the first option, Albert will sell the land for $150,000 with a stipulation in the sales contract that he liquidate the mortgage before the sale is complete. Under the second option, Albert will sell the land for $50,000 and the buyer will assume the mortgage. Calculate Albert’s recognized gain under both options. (Points : 20) 7.  (TCOs 3, 4, and 6) Gene is single and for 2011 has AGI of $40,000. He is age 65 and has no dependents. For 2011, he has itemized deductions from AGI of $7,000. Determine Gene’s taxable income for 2011. (Points : 20) 8. (TCOs 3, 4, and 6) George is employed by the Quality Appliance Company. All the full-time employees are allowed to purchase appliances at the company’s cost plus 5%. The employee also is given, at no cost, a 1-year service contract on all the goods purchased from the company. George purchased a refrigerator for $420. The company’s normal selling price for the refrigerator is $800. George also received a service contract, at no charge, that had a value of $120. During the year, George was required to have his refrigerator serviced once. The cost of the call would have been $50 if he had not had the service contract. Is George required to recognize any income from the purchase of the refrigerator and the receipt of the service contract? (Points : 20)

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