Mia operates a computer network and support consulting business in which other small businesses hire Mia to assist with technology issues. Mia operates on the cash basis of accounting for tax purposes. Mia provided $10,000 of services to a customer on a credit basis and the customer has run into financial difficulty and can only pay $8,000. As a cash-basis business, Mia does not recognize gross income until the cash is received and so she will recognize $8,000 when paid and will not have a bad debt deduction. If Mia were an accrual-based taxpayer, she would recognize the $10,000 at the time the services were provided. Later, when she was only paid $8,000, the remaining $2,000 would be deducted as bad debt expense.

Mia operates a computer network and support consulting business in which other small businesses hire Mia to assist with technology issues. Mia operates on the cash basis of accounting for tax purposes. Mia provided $10,000 of services to a customer on a credit basis and the customer has run into financial difficulty and can only pay $8,000. As a cash-basis business, Mia does not recognize gross income until the cash is received and so she will recognize $8,000 when paid and will not have a bad debt deduction. If Mia were an accrual-based taxpayer, she would recognize the $10,000 at the time the services were provided. Later, when she was only paid $8,000, the remaining $2,000 would be deducted as bad debt expense.

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter1: An Introducti On To Taxation And Understa Nding The Federal Tax Law

Section: Chapter Questions

Problem 35DQ

See similar textbooks

Similar questions

Serena operates a gift shop. To reduce costs of credit card transactions, she offers customers a discount if they pay in cash. For the holiday rush, she hires some short-term workers but pays them cash and does not add them to the payroll. a. What are some of the tax problems Serena might have? b. Assess Serenas chances of audit by the IRS.
In order to improve the cash flow of the company, Neal Emerald decided to postpone depositing all employment taxes a few months ago. He told his sales manager, “I’ll pay up before the IRS catches up with me.” What risks does Emerald face by not upholding his responsibility for the collection and payment of employment taxes?
Michelle operates several food trucks. Indicate the amount (if any) that she can deduct as an ordinary and necessary business deduction in each of the following situations. Note: Leave no answers blank. Enter zero if applicable. a. Michelle moves her food truck between various locations on a daily rotation. Last week, Michelle was stopped for speeding. She paid a fine of $160 for speeding, including $115 for legal advice in connection with the ticket. b. Michelle paid $785 to reserve a parking place for her food truck for the fall football season outside the local football stadium. Michelle also paid $130 for tickets to a game for her children. c. Michelle provided a candidate with free advertising painted on her truck during the candidate's campaign for city council. Michelle paid $640 to have the ad prepared and an additional $340 to have the ad removed from the truck after the candidate lost the election. d. Michelle realized a $1,235 loss when she sold one of her food trucks to her…
You are a CPA and do tax returns for individuals. A woman enters your office and asks you to complete her tax return. During your meeting, she mentions that she is expecting about $5000 in refund, and needs that to pay off a debt, that will result in a $1000 fine if she does not pay in the next month. You complete her tax return, but the refund is much lower than she expected, only $1000. She is very mad, and consults with another CPA. The other CPA determines that you made a significant mistake, but the period to file returns has passed. It will cost $500 to file an amendment. What damages is the woman likely entitled to? Group of answer choices A. None, because accountants can't be perfect B. $500, because that is all that is needed to make it right C. $500, and potentially $1000, because of the consequential damages of not being able to pay off her loan on time D. $4000, because that is the difference between the proper refund and your mistake.
Amy is a salesperson for ABC Company. Although ABC never expressly authorized her to collect payments (cash and checks) from the customers, she routinely does so for some of her long standing customers and submits them to ABC, who accepted payment without issue. One day, Amy collects cash from one of her customers and runs off. The customer sues ABC Company. If ABC is liable, it is because Amy has a. apparent authority b. implied authority c. no authority d. express authority
Your client is preparing financial statements to show the bank. You know that he has incurred a refrigeration repair expense during the month, but you see no such expense on the books. When you question the client, he tells you that he has not yet paid the 1,255 bill. Your client is on the accrual basis of accounting. He does not want the refrigeration repair expense on the books as of the end of the month because he wants his profits to look good for the bank. Is your client behaving ethically by suggesting that the refrigeration repair expense not be booked until the 1,255 is paid? Are you behaving ethically if you agree to the clients request? What principle is involved here?
Blaze operates a restaurant in Cleveland. He travels to Columbus to investigate acquiring a business. He incurs expenses as follows: 1,500 for travel, 2,000 for legal advice, and 3,500 for a market analysis. Based on the different tax consequences listed below, describe the circumstances that were involved in Blazes investigation of the business. a. Blaze deducts the 7,000 of expenses. b. Blaze cannot deduct any of the 7,000 of expenses. c. Blaze deducts 5,000 of the expenses and amortizes the 2,000 balance over a period of 180 months.
Tom’s Tax Services is a small accounting firm that offers tax services to small businesses and individuals. A local store owner has approached Tom about doing his taxes but is concerned about the fees Tom normally charges. The costs and revenues at Tom’s Tax Services follow: Tom’s Tax Services Annual Income Statement Sales Revenue 724,000 Costs Labor 457,000 Equipment Lease 48,000 Rent 42,500 Supplies 31,300 Tom’s Salary 73,800 Other Costs 21,400 Total Costs 674,900 Operating Profit (Loss) 49,100 If Tom gets the store’s business, he will incur an additional $59,200 in labor costs. Tom also estimates that he will have to increase equipment leases by about 5 percent, supplies by 5 percent, and other costs by 15 percent. Required: What are the differential costs that would be incurred as…
Mansi, a self-employed influencer, left her home in Georgia on Monday to fly to New York to meet with another influencer to discuss a "collab". She returned the next day. Her expenses are as follows: Airfare $500, lunch in New York at a restaurant with influencer $100, Taxi $50. How much can Mansi deduct? (Do not use commas or dollar signs. Round to the nearest dollar.)
Janet Starr, a CPA in Baltimore, received the following request from a former client, South Shore Swim Club (S.S.S.C.): "Please send me copies of my 2016 tax return, the original set of sales receipts I provided you in 2017, plus copies of all our email correspondence related to the 2017 returns. Thank you." S.S.S.C. has not paid Ms. Starr all of the fees owed to her for her work preparing and filing their 2016 tax returns. According to the AICPA Code of Professional Conduct, Janet Starr must: Select one: send SSSC the 2017 tax return but not the receipts or copies of the emails. send SSSC the sales receipts but not the tax return or the emails. send SSSC all of the requested items. send SSSC the 2017 tax return and the receipts but not the emails.
First Metro Pacific was able to persuade Francis to join the company as its Assistant Vice President for Finance which included a car plan worth P3,000,000 in its compensation The company purchased the vehicle and registered the same in favor of Francis. Assuming further that Francis is a non-resident alien not engaged in trade or business, how much is the fringe benefits tax?
Jane Marks has a restaurant in which she accepts credit cards and checks.Several of the places that Jane shops now accept debit cards and do notaccept checks. Jane’s banker explained that a debit card would immediatelytransfer money into her account, but it would cost $50 per monthfor the equipment and bank charges. Although she requires proper identification,Jane loses approximately $590 a year as a result of bad checks.She also determined that on average, she loses 115 days of interest onall checks because the banks are closed on 11 holidays and weekends (52 weeks * 2 weekend days = 104 + 11 holidays). Jane currently earns3 percent interest on her bank accounts and accepts an average of $2,000 aday in checks.a. What is the total annual cost to Jane for the debit card service?b. What is the benefit?c. Should Jane implement the system?