Homework & Solutions Homework & Solutions Homework & Solutions Homework & Solutions Homework & Solutions

Chapter 5
5. Tim is a plumber who joined a barter club. This year Tim exchanges plumbing services for a
New roof. The roof is properly valued at $2,500, but Tim would have only billed $2,200 for the
Plumbing services. What amount of income should Tim recognize on the exchange of his
Services for a roof? Would your answer change if Tim would have normally billed $3,000 for
His services?
IRS recognizes Fair market value of services received through an exchange or barter of services. So both parties have to report income which is traded fairly in exchange system.
Thus, Tim should recognize income as FMV of Roof, i.e., $ 2,500 instead of whatever he receives in actual.
11. Janet is a cash-basis, calendar-year taxpayer. She received a check for services provided in
the mail during the last week of December. However, rather than cash the check, Janet decided
to wait until the following January because she believes that her delay will cause the income to
be realized and recognized next year. What would you tell her? Would it matter if she didn't
open the envelope? Would it matter if she refused to check her mail during the last week of
December? Explain.
Janet was obligated to report the payment as her income as soon client paid the check.
The cash-basis method reckon when the compensation reach your destination at Janet's mailbox
If Janet does not opening her mail or checking the mail then it will not influence the fact that she has to report the income as part of that year's taxes.
14. Dewey is a lawyer who uses the cash method of accounting. Last year Dewey provided a
client with legal services worth $55,000, but the client could not pay the fee. This year Dewey
requested that in lieu of paying Dewey $55,000 for the services, the client could make a
$45,000 gift to Dewey's daughter. Dewey's daughter received the check for $45,000 and
deposited it in her bank account. How much of this income is taxed, if any, to Dewey?
Explain.
According to Assignment of income Doctrine, earned income, whether in form of gift will be taxed to taxpayer in year it is received in lieu of providing services or product.
Hence, Dewey will be taxed in year in which he received check of $45000.
His daughter will not be taxed on this income as it will be treated as a gift from father.
17. Jim purchased 100 shares of stock this year and elected to participate in a dividend
reinvestment program. This program automatically uses dividends to purchase additional
shares of stock. This year Jim's shares paid $350 of dividends, and he used these funds to
purchase shares of stock. These additional shares are worth $375 at year-end. What amount of
dividends, if any, should Jim declare as income this year? Explain.
Jim Received Dividends and further use it to purchase new stocks. Jim Shares actually paid $350
Of dividend which Jim should recognize as dividend income.
Appreciation of additional shares value in this year is not relevant as Jim...