FEDERAL INCOME TAX PROBLEMS

WHEN this book is used as a text-book it is recommended that the problem assignments be solved concurrently with a study of the text. The following division is suggested:

1. (a) A corporation's net taxable income for the calendar year 1926 is $102,567.15. What income tax will it pay?

365

(b) An individual's net taxable income for the calendar year 1926 is $28,965.12, consisting of salary, $15,000; dividends, $10,000; and profits from the sale of land purchased in 1915, $3,965.12. He is married and has 2 dependents. What income tax will he pay?

2. (a) A corporation's net taxable income for the calendar year 1926 was $25,152.10. Compute the tax payable.

(b) If the individual in 1 (b), above, lost, in 1926, $22,000 from the sale of stocks which he had held for more than 2 years, what tax would he pay?

3. (a) An unmarried individual's net taxable income for the fiscal year ending October 31, 1926, was $54,158.96, consisting of salary, $25,000; dividends, $12,000; taxable interest from Liberty bonds, $2,125; interest from corporation bonds, $13,500; profits from the sale of stock held for more than two years, $1,533.96.

(b) If, in addition to the figures appearing in (a), additional stock had been sold at a loss of $30,000, what tax would the individual pay?

4. What is your understanding of the following terms:

(a) taxpayer

(b) return

(c) invested capital

(d) personal service corporation

(e) taxable, calendar, and fiscal year

(f) net income

5. The following points are presented for disposition in connection with the tax return of A, who is a lessee of a building owned by B:

(a) The lease was acquired on January 1, 1923, whereby $12,000 was paid down immediately, and $1,200 was to be paid each year as rent during the 20-year life of the lease. Improvements made by the lessee are to revert to the lessor, without reimbursement to the lessee, when the lease expires in 1943.

(b) A, at the beginning of 1923, installed partitions and put in a new lighting system at a cost of $22,000.

(c) At January 1, 1924, A made extensive repairs of the roof, occasioned by ordinary wear and tear, which cost $4,000. He believes it will be necessary to make a similar repair every five years.

(d) According to the terms of the lease, A is responsible for keeping the building in good repair. In 1925 a portion of the foundation gave way, necessitating a replacement and a strengthening of the remainder of the foundation at a cost of $2,500.

(e) At December 31, 1925, C, a sublessee, whose lease was taken over by A at January 1, 1923, and extends to January 1, 1930, was paid $2,000 by A in cancellation of the sublease. The reason for the collection is that A now needs the entire space covered by the lease.

(f) Because of the installation of a heavy machine on January 2, 1926, A is compelled to further strengthen the foundation of the building on that date at a cost of $510.

(g) By mutual agreement, the lease is canceled December 31, 1926, B paying A $50,000. None of the improvements mentioned could be removed by A. In this instance, compute the profit or loss following the cancelation, assuming that all adjusting entries for the year 1926 have been spread on the books of account.

6. (a) A lease is renewed from year to year, the lessor being a stockholder. The lessee corporation constructs a building on the leased land. May its cost be deducted in the year of construction?

(b) A lease is acquired by D covering a period of 5 years with the privilege of renewing for another like period at the end of that time, the annual rent to be determined in accordance with the then value of the land. How may