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18. You are asked to prepare an Income Tax Return for C. K. Nesmith, a citizen who lives at 421 Main Street, Springfield, Missouri with his wife and two small children. From an examination of his records and through a personal interview, you ascertain the following facts:
Mr. Nesmith received, during the taxable year, the following items of income: Salary from the Spring Grove Realty Co., of which he is President...
$4,000.00 Interest on Bonds of Spring Grove Realty Co..
744.00 Dividends on Stock of Spring Grove Realty Co.....
160.00 Mr. Nesmith also conducts a retail Dry Goods Business. A summarization of his Cash Book for the taxable year ending December 31 reveals the following information:
In connection with this business, there was received during the year four notes of $7,500.00 each. The first note became due on October 31 and was paid. The second note became due on November 31 and was paid. The third note became due December 31. $3,000.00 was paid at maturity and the balance renewed for two months. The fourth note matures on January 31 of the following year.
The payments received on the above notes were included in the cash receipts. Notes Payable amounting to $37,500.00
$ were issued during the year. $17,500.00 were paid on these notes on December 31 and through an error these payments were included in Merchandise Purchases.
At the end of the year, the Accounts Receivable amounted to $30,000.00; Accounts Payable, $13,500.00; and Expenses due but unpaid, $1,850.00. On July 1, Mr. Nesmith paid $2,700.00 for insurance on his stock of merchandise for the ensuing year. This was charged to Expense. The inventory at beginning of year amounted to $45,000.00, at end of year $60,000.00
(Concluded on page 97)
During the year, Mr. Nesmith sold his personal residence for $6,000.00 less than he paid for it. He paid taxes of $300.00 on this property for the year. He also paid interest of $1,080.00 on a first mortgage. A fire completely destroyed his garage, which he had built earlier in the year at a cost of $525.00. He carried no insurance on the garage.
He made the following contributions during the year:
$75.00 American Red Cross.
75.00 Individual Donations to the Poor.
50.00 (Note. In order to compute the net income of Mr. Nesmith from his retail dry goods business, it is necessary to set up a schedule. This is known as Schedule A on the Income Tax Return. From the total income received from the business should be deducted the cost of goods sold and other business deductions. The total income derived from sales should be computed as follows: Cash.
$600,000.00 Notes Receivable.
12.000.00 Accounts Receivable.
In computing the cost of goods sold, it is necessary to take into consideration purchases, wages, and inventories at beginning and end of year. The total purchases may be computed as follows: Cash..
$386,500.00 Notes Unpaid
20,000.00 Accounts Payable.
With the above information, no difficulty should be experienced in ascertaining all the information needed from this problem in the preparation of an Income Tax Return for C. K. Nesmith.)
19. Prepare a Federal Income Tax Return for the current taxable year from the following information:
Your client, J. Arthur Snyder, is the head of a family consisting of his wife, himself, four dependent children, and his sister, aged 15, the expense of whose education and maintenance is being borne by him. Mr. and Mrs. Snyder desire to file a single joint return.
During the year his wife received a legacy of $50,000.00 in First Liberty Loan Second Converted 474% Bonds; the interest received on these bonds during the year amounted to $1,000.00.
His sister is one of the beneficiaries of a trust fund; her share of the income during the year amounted to $560.00. The income is being accumulated until she reaches the age of twentyone.
In 1916, your client received $100,000.00 common stock of the Atlantic Corporation for his services as founder. This stock he immediately transferred to his wife. It had then no
(Concluded on page 98)
market value and paid no dividends during the current year. Control of the corporation has recently been acquired by a larger company which, during the year, paid Mrs. Snyder $100,000.00 for her stock.
Remuneration received by Mr. Snyder, as director of several undertakings, was $12,000.00 for the year. Interest received on mortgages, notes and bonds amounted to $1,256.00. Dividends received on preferred stocks of American corporations were $894.00 for Mr. Snyder and $620.00 for his wife. A preferred dividend of $240.00 was declared December 25, payable January 1, on stocks owned by Mr. Snyder.
Mr. Snyder reports the following losses for the year:
$ 800.00 Loss through Insolvency of Stockbroker.
Expenditures during the year include:
1,075.00 Contributions to Charities, Churches and Colleges.
560.00 Political Associations..
250.00 (Note. In solving this problem, you may assume that the profit derived from the sale of stock owned by the wife constituted a capital gain and that the loss on the investment in Bolivian bonds constituted a capital loss.)
20. A. B. Miller is a married man living with his wife and two minor children. He also has an aged father who is living with him and who is dependent upon him for financial support. The income of this family is summarized in the following schedule:
The income of John Miller, a son seventeen years of age, consists of:
Wages received as Compensation for Services as Bank Messenger $750.00
The income of Mrs. A. B. Miller consists of:
chased in June, 1920, at a Total Cost of $2,150.00—Sold
During Current Year for $2,340.00. Par Value, $2,200.00)
The income of A. B. Miller consists of:
(Concluded on page 99)
Interest Received from Second Liberty Loan 4% Bonds (Par
600.00 Profit from Sale of Real Estate (Purchased as an Investment
in September, 1922, for $28,000.00. Cost of Improve-
Mr. Miller also conducts a retail business. The following is a summary of the year's transactions: Sales....
. $81,250.00 Cost of Sales.
28,750.00 Expenses: Salary and Wages.
425.00 Income Taxes on Return for Preceding Year.
1,250.00 Traveling Expenses.
1,875.00 Interest on Borrowed Money.
410.00 Stationery and Office Supplies.
185.00 Power, Light and Heat.
3,125.00 Loss from Bad Debts..
615.00 Bad Debts Charged Off as a Loss During Previous Years Collected During Current Year..
Mr. Miller had the following additional expenses during
Taxes on Residential Property.
mainder due to illness of children).
12.00 130.00 60.00 25.00 40.00 25.00 10.00 25.00
Mr. and Mrs. Miller unite in filing a single joint return. Prepare their Income Tax Return.