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Tax Based accounting problem

Question Description
ACC 460 TAX PROBLEM #5, FALL 2018 (15 pts.)

PART 1.Clark and Ellen Griswold are married and wish to file a joint return for 2018.They have two dependent children, Audrey (age 17) and Rusty (age 12), who live with them.Their primary residence is in Phoenix, and they own a condo (2nd home) in Flagstaff. They also own a rental house n Mesa. Clark and Ellen have the following items of income and expense for 2018:


Clark’s salary


Ellen’s salary


Interest income on City of Phoenix bonds


Interest income on US Treasury bonds


Qualified cash dividends


FMV of 50 shares of Marty Co. common stock received as a stock dividend


Refund of 2017 Arizona income tax (the Griswolds itemized in 2017)


Net rental income from 100% owned rental house*


Share of Moose Partnership loss**


Share of DF Kaye S Corporation income***


Life insurance proceeds received on the death of Clark’s father


Short-term capital gains


Short-term capital losses


25% Long-term capital gains


15% Long-term capital gains


15% Long-term capital losses



Home mortgage interest ($400,000 principal)


Home equity loan interest ($110,000 principal)


Condo loan interest ($75,000 principal)


Car loan interest


Credit card finance charges


Home property taxes


Condo property taxes


Condo maintenance fees


Car tags (ad valorem part)


Arizona income tax withheld


Federal income taxes withheld


Medical insurance premiums (paid by the Griswolds, not part of an employer plan)


Unreimbursed medical bills


Charitable contributions


Unreimbursed employee business expenses


* The rental house does not meet the definition of a “qualified trade or business” for purposes of the §199A deduction.

**Clark and Ellen invested $10,000 as limitedpartners in the Moose Partnership at the beginning of 2018 .The loss is not the result of real estate rentals. Neither materially participate in the operations of the partnership.

***Ellen is a 50% owner and President of DF Kaye.

REQUIRED:Determine Clark and Ellen’s tax liability, using the tax formula.You must label your work, provide supporting schedules for summary computations, and indicate any carryovers.Present your work in a neat, orderly fashion.

PART 2.Audrey owns a bond mutual fund which was funded from an inheritance from her grandfather. The mutual fund paid $4,800 in interest in 2018.Audrey also earned $2,500 from various part-time jobs during the year.

REQUIRED:Determine Audrey’s tax liability, using the tax formula. Label all work.

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