Homework Chapter 4
Cinthia Gutierrez
Acc 307
Homework Chapter 4
3. Allen visits Reno, Nevada, once a year to gamble. This year his gambling loss was $25,000. He commented to you, “At least I didn’t have to pay for my airfare and hotel room. The casino paid that because I am such a good customer. That was worth at least $3,000. “What are the relevant tax issues for Allen? Allen received something of value from the casino. Under the broad concept of income, the airfare and hotel accommodations would be considered income. However, Allen could argue that the income should be matched with his $25,000 in gambling losses on the trip, and when the income and losses are combined, the net effect is an economic loss
7. Why does the constructive receipt doctrine apply to cash basis taxpayers but not to accrual basis taxpayers?
The cash method taxpayer is subject to the constructive receipt doctrine. Generally, the cash basis taxpayer does not recognize income until it is collected. Under the constructive receipt concept, when the taxpayer has earned the income and the customer has offered to pay, the taxpayer cannot defer its recognition by postponing the date when the income is collected. The constructive receipt doctrine is not relevant to accrual basis taxpayers, who must recognize income when the taxpayer has a right to receive it even though the income has not been collected
12. Wade paid $7,000 for an automobile that needed substantial repairs. He worked nights and weekends to restore the car and spent $2,400 on parts for it. He knows he can sell the car for $13,000. His daughter’s college tuition is due in a few days. Would it matter, after taxes, whether Wade sells the car and pays the tuition or whether he gives the car to his daughter and she sells it for $13,000 and pays her tuitions?
If Wade sells the car, he must pay the tax on the gain of $3,600 ($13,000 $9,400). If Wade gives the automobile to his daughter and she sells it, she will be taxed on the gain of
Acc 307
Homework Chapter 4
3. Allen visits Reno, Nevada, once a year to gamble. This year his gambling loss was $25,000. He commented to you, “At least I didn’t have to pay for my airfare and hotel room. The casino paid that because I am such a good customer. That was worth at least $3,000. “What are the relevant tax issues for Allen? Allen received something of value from the casino. Under the broad concept of income, the airfare and hotel accommodations would be considered income. However, Allen could argue that the income should be matched with his $25,000 in gambling losses on the trip, and when the income and losses are combined, the net effect is an economic loss
7. Why does the constructive receipt doctrine apply to cash basis taxpayers but not to accrual basis taxpayers?
The cash method taxpayer is subject to the constructive receipt doctrine. Generally, the cash basis taxpayer does not recognize income until it is collected. Under the constructive receipt concept, when the taxpayer has earned the income and the customer has offered to pay, the taxpayer cannot defer its recognition by postponing the date when the income is collected. The constructive receipt doctrine is not relevant to accrual basis taxpayers, who must recognize income when the taxpayer has a right to receive it even though the income has not been collected
12. Wade paid $7,000 for an automobile that needed substantial repairs. He worked nights and weekends to restore the car and spent $2,400 on parts for it. He knows he can sell the car for $13,000. His daughter’s college tuition is due in a few days. Would it matter, after taxes, whether Wade sells the car and pays the tuition or whether he gives the car to his daughter and she sells it for $13,000 and pays her tuitions?
If Wade sells the car, he must pay the tax on the gain of $3,600 ($13,000 $9,400). If Wade gives the automobile to his daughter and she sells it, she will be taxed on the gain of