Determine whether the taxpayer in each of the following situations has real- ized income. Explain why there has or has not been a realization, and determine the amount of income to be reported.
Determine whether the taxpayer in each of the following situations has real-
ized income. Explain why there has or has not been a realization, and determine
the amount of income to be reported.
a. Alfredo owns a one-third interest in Bayou
year, Bayou’s taxable income is $45,000.
b. Janet owns a pest-control service. She charges customers $50 per month for
basic pest control. Alternatively, customers can pay a lump sum of $500 for
one year of basic monthly pest control. During the current year, Janet receives
$13,000 in monthly payments and $26,000 in one-year prepayments.
c. Monte owns 1,000 shares of Ali, Inc., common stock. During the current year,
Ali declares and distributes a 20 percent stock dividend. As a result, Monte
receives an additional 200 shares of stock.
d. Rogers Trucking Company owes Big Truck Sales, Inc., $200,000 for the pur-
chase of 3 trucks. Rogers is having a bad year and is unable to make full pay-
ment on the debt to Big Truck. Rather than foreclose on Rogers, Big Truck
reduces the debt to $170,000 so that Rogers can stay in business
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