Noah and Joan Arc’s Tax Return

Noah and Joan Arc live with their family at 4342 Josie Jo, Santee, CA 92071. Noah’s Social

Security number is 434-11-3311; Joan’s is 456-87-5432. Both are in their mid-30s and

enjoy good health and eyesight. Noah owns and operates a pet store and Joan is a fire-

fighter for the city.

1.  The Arcs have two children, a son named Billie Bob (Social Security number 598-01-

2345), who is 7 years old, and a daughter named Mary Sue (Social Security number

554-33-2411), who is 4 years old. The Arcs paid $2,800 to the Roundup Day Care

Center to take care of Mary Sue while they worked. Because Joan is a firefighter, she

was home in the afternoon to care for Billie Bob after school.

2.  For the current year, Joan’s W-2 from the city fire department is located on page D-4.

Noah made estimated federal income tax payments of $12,000 and estimated state

income tax payments of $1,000 during the current year.

3.  Noah’s pet store is located at 18542 Mission Road, Santee, CA 92071. The name of

the store is ‘‘The Arc,’’ and its taxpayer ID number is 95-9876556. The beginning

inventories and ending inventories are both $10,000. The revenue and expenses for the

year are as follows:

Sales Revenue (merchant card sales) $ 144,000


Cost of Sales $62,000

Insurance 750

Accounting fees 1,800

Wages 25,000

Payroll taxes 2,250

Utilities 2,700

Rental expense 7,200

Total Expenses (101,700)

Net Income $  42,300

4.  Noah and Joan paid the following amounts during the year (all by check):

Political contributions $  250

Church donations (for which a written

acknowledgment was received)2,300

Real estate taxes on their home 1,200

Mortgage interest for purchase of home See Form 1098 (page D-5)

Tax return preparation fees 350

Credit card interest 220

Automobile insurance premiums 600

Uniforms for Joan 125

5.  Noah likes to invest in the stock market. His Form 1099-B showed the following

information for Noah’s stock sales:

Stock Date Acquired Date Sold Sales Price Cost Basis

Blue Co. 02/11/03 08/15/12 $ 4,500 $2,300

Yellow Co. 01/31/12 06/05/12 6,000 5,000

Red Co. 10/02/04 10/07/12 12,000 1,600

The expenses of sale are included in the cost basis. Noah has a long-term capital

loss carryover from last year of $2,300.

6.  During the year, Noah and Joan received the following qualifying dividends:

Exxon $320

Texas Utilities 220

Coca-Cola See 1099-DIV (page D-4)

All stocks, bonds, and savings accounts were purchased or established with com-

munity property.

7.  Noah and Joan own rental property located at 6431 Gary Ct., San Diego, CA 92115.

The revenue and expenses for the year are as follows:

Rent Income See 1099-MISC (page D-5)

Insurance $  550

Interest expense 7,000

Property taxes 1,000

Miscellaneous expenses 600

Depreciation (the house was acquired in 1990) 3,000

Required: Although Noah and Joan do not believe their tax return will be unduly

complicated, they do realize their limitations and come to you for assistance. You are

to prepare their federal income tax return in good form, signing the return as the

preparer. Do not complete a California state income tax return. Noah and Joan have

completed a tax organizer and have also given you several IRS forms (see pages D-4

and D-5) that they were not sure what to do with. Assume any other information

(addresses, etc.) that you may need. The following forms and schedules are required:

Form 1040 Schedule E

Schedule A Schedule SE

Schedule B Form 2441

Schedule C Form 8949

Schedule D

Note: The forms included in Appendix D are provided for the student to work only

one of the two comprehensive problems. If desired, additional forms may be obtained

from the IRS Web site at use 2012 form.

    • 7 years ago
    • 20