Acc555 Chapter 5 Homework
Franchesca Fomby
ACC555
Week 3 Homework
Chapter 5
5-11Why did the Supreme Court rule in the Corn Products case that a gain due to the sale of futures contracts is ordinary income instead of capital gains? The Supreme Court felt that the purchase and sale of futures contracts represented an integral part of the business and its purpose is to protect the company’s operations. Therefore the gain on the sale is ordinary income, because it is done in the ordinary course of business.
5-49 Capital Losses. To better understand the rules for offsetting capital losses and how to treat capital losses carried forward, analyze the following data for an unmarried individual for the period 2008 through 2011. No capital loss carryforwards are included in the figures. For each year, determine AGI and the capital losses to be carried forward to a later tax year. 2008 2009 2010 2011
AGI (excluding property Transactions) $40,000 $50,000 $60,000 $70,000
STCG 4,000 5,000 7,000 10,000
STCL 9,000 3,000 5,000 12,000
LTCG 6,000 10,000 2,200 6,000
LTCL 5,000 21,000 1,000 9,500
AGI (including property Transactions) $41,000 $50,000 $60,000 $70,000
STCL to be carried forward 5,000 3,000 1,000 3,000
LTCL to be carried forward ¬ 0 11,000 9,800 13,300
5-50 Character of Loss. The Michigan Corporation owns 20% of the Wolverine Corporation. The Wolverine stock was acquired eight years ago to ensure a steady supply of raw materials. Michigan also owns 30% of Spartan Corporation and 85% of Huron Corporation. Stock in both corporations was acquired more than ten years ago for investment purposes. During the current year, Wolverine, Spartan, and Huron are deemed bankrupt, and the stocks are considered worthless. Describe how Michigan should treat its losses. Michigan would report the loss on the Wolverine stock as an ordinary loss
ACC555
Week 3 Homework
Chapter 5
5-11Why did the Supreme Court rule in the Corn Products case that a gain due to the sale of futures contracts is ordinary income instead of capital gains? The Supreme Court felt that the purchase and sale of futures contracts represented an integral part of the business and its purpose is to protect the company’s operations. Therefore the gain on the sale is ordinary income, because it is done in the ordinary course of business.
5-49 Capital Losses. To better understand the rules for offsetting capital losses and how to treat capital losses carried forward, analyze the following data for an unmarried individual for the period 2008 through 2011. No capital loss carryforwards are included in the figures. For each year, determine AGI and the capital losses to be carried forward to a later tax year. 2008 2009 2010 2011
AGI (excluding property Transactions) $40,000 $50,000 $60,000 $70,000
STCG 4,000 5,000 7,000 10,000
STCL 9,000 3,000 5,000 12,000
LTCG 6,000 10,000 2,200 6,000
LTCL 5,000 21,000 1,000 9,500
AGI (including property Transactions) $41,000 $50,000 $60,000 $70,000
STCL to be carried forward 5,000 3,000 1,000 3,000
LTCL to be carried forward ¬ 0 11,000 9,800 13,300
5-50 Character of Loss. The Michigan Corporation owns 20% of the Wolverine Corporation. The Wolverine stock was acquired eight years ago to ensure a steady supply of raw materials. Michigan also owns 30% of Spartan Corporation and 85% of Huron Corporation. Stock in both corporations was acquired more than ten years ago for investment purposes. During the current year, Wolverine, Spartan, and Huron are deemed bankrupt, and the stocks are considered worthless. Describe how Michigan should treat its losses. Michigan would report the loss on the Wolverine stock as an ordinary loss