During 2023, your clients, Mr. and Mrs. Howell, owned the following investment assets: Investment Assets 300 shares of IBM common (NYSE: IBM) Date Acquired 11/22/2020 Purchase Price $ 10,500 Broker's Commission Paid at Time of Purchase $ 100 200 shares of IBM common (NYSE: IBM) 3,000 shares of Apple preferred (NASDAQ: AAPL) 2,100 shares of Cisco common (NASDAQ: CSCO) 4/3/2021 12/12/2021 8/14/2022 43,400 162,000 54,000 300 1,300 550 420 shares of Vanguard mutual fund 3/2/2023 16,200 No-load fund* *No commissions are charged when no-load mutual funds are bought and sold. Because of the downturn in the stock market, Mr. and Mrs. Howell decided to sell most of their stocks and the mutual fund in 2023 and to reinvest in municipal bonds. The following investment assets were sold in 2023: Investment Assets 300 shares of IBM common 3,000 shares of Apple preferred 2,100 shares of Cisco common 451 shares of Vanguard mutual fund Broker's Commission Paid Date Sold 5/6 10/5 8/15 12/21 Sale Price $ 15,200 222,900 63,400 17,200 at Time of Sale $ 100 2,000 650 No-load fund* *No commissions are charged when no-load mutual funds are bought and sold. The Howells' broker issued them a Form 1099-B showing the sales proceeds net of the commissions paid. For example, the IBM sales proceeds were reported as $15,100 on the Form 1099-B they received. In addition to the sales reflected in the table above, the Howells provided you with the following additional information concerning 2023: • B The Howells received a Form 1099-B from the Vanguard mutual fund reporting a $900 long-term capital gain distribution. This distribution was reinvested in 31 additional Vanguard mutual fund shares on 6/30/2023. In 2017, Mrs. Howell loaned $7,500 to a friend who was starting a new multilevel marketing company called LD3. The friend declared bankruptcy in 2023, and Mrs. Howell has been notified she will not be receiving any repayment of the loan. The Howells have a $3,800 short-term capital loss carryover and a $6,300 long-term capital loss carryover from prior years. The Howells did not instruct their broker to sell any particular lot of IBM stock. The Howells earned $3,750 in municipal bond interest, $3,750 in interest from corporate bonds, and $5,500 in qualified dividends. • Assume the Howells have $167,500 of wage income during the year. Comprehensive Problem 07-63 Part a (Algo) a. Use Form 8949 and page 1 of Schedule D to compute net long-term and short-term capital gains. Then, compute the Howells' tax liability for the year (ignoring the alternative minimum tax and any phase-out provisions) assuming they file a joint return, they have no dependents, they don't make any special tax elections, and their itemized deductions total $30,000. Assume that asset bases are reported to the IRS. (Use the tax rate schedules, Dividends and Capital Gains Tax Rates.)

During 2023, your clients, Mr. and Mrs. Howell, owned the following investment assets: Investment Assets 300 shares of IBM common (NYSE: IBM) Date Acquired 11/22/2020 Purchase Price $ 10,500 Broker's Commission Paid at Time of Purchase $ 100 200 shares of IBM common (NYSE: IBM) 3,000 shares of Apple preferred (NASDAQ: AAPL) 2,100 shares of Cisco common (NASDAQ: CSCO) 4/3/2021 12/12/2021 8/14/2022 43,400 162,000 54,000 300 1,300 550 420 shares of Vanguard mutual fund 3/2/2023 16,200 No-load fund* No commissions are charged when no-load mutual funds are bought and sold. Because of the downturn in the stock market, Mr. and Mrs. Howell decided to sell most of their stocks and the mutual fund in 2023 and to reinvest in municipal bonds. The following investment assets were sold in 2023: Investment Assets 300 shares of IBM common 3,000 shares of Apple preferred 2,100 shares of Cisco common 451 shares of Vanguard mutual fund Broker's Commission Paid Date Sold 5/6 10/5 8/15 12/21 Sale Price $ 15,200 222,900 63,400 17,200 at Time of Sale $ 100 2,000 650 No-load fund *No commissions are charged when no-load mutual funds are bought and sold. The Howells' broker issued them a Form 1099-B showing the sales proceeds net of the commissions paid. For example, the IBM sales proceeds were reported as $15,100 on the Form 1099-B they received. In addition to the sales reflected in the table above, the Howells provided you with the following additional information concerning 2023: • B The Howells received a Form 1099-B from the Vanguard mutual fund reporting a $900 long-term capital gain distribution. This distribution was reinvested in 31 additional Vanguard mutual fund shares on 6/30/2023. In 2017, Mrs. Howell loaned $7,500 to a friend who was starting a new multilevel marketing company called LD3. The friend declared bankruptcy in 2023, and Mrs. Howell has been notified she will not be receiving any repayment of the loan. The Howells have a $3,800 short-term capital loss carryover and a $6,300 long-term capital loss carryover from prior years. The Howells did not instruct their broker to sell any particular lot of IBM stock. The Howells earned $3,750 in municipal bond interest, $3,750 in interest from corporate bonds, and $5,500 in qualified dividends. • Assume the Howells have $167,500 of wage income during the year. Comprehensive Problem 07-63 Part a (Algo) a. Use Form 8949 and page 1 of Schedule D to compute net long-term and short-term capital gains. Then, compute the Howells' tax liability for the year (ignoring the alternative minimum tax and any phase-out provisions) assuming they file a joint return, they have no dependents, they don't make any special tax elections, and their itemized deductions total $30,000. Assume that asset bases are reported to the IRS. (Use the tax rate schedules, Dividends and Capital Gains Tax Rates.)

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 25E

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