Question

2 (#2) Questions 5-6 DIRECTIONS: The following information is to be used in answering Questions 5 and 6. Mr. Zelev operates a business as a sole proprietor and uses the cash basis for reporting income for income tax purposes. His bank account during 2015 for the business shows receipts totaling $285,000 and cash payments totaling $240,000. Included in the cash pay- ments were payments for three-year business insurance policies whose premiums totaled $1,575. It was determined that the expired premiums for this year were $475. Further exami- nation of the accounts and discussion with Mr. Zelev revealed the fact that included in the receipts were the following items, as well as the proceeds received from customers: $15,000 which Mr. Zelev took from his savings account and deposited in the business account $20,000 which Mr. Zelev received from the bank as a loan which will be repaid next year Included in the cash payments were $10,000 which Mr. Zelev took on a weekly basis from the business receipts to use for his personal expenses. 5. The amount of net income to be reported for income tax purposes for calendar ye for Mr. Zelev is C. $31,100 D. $46,100 A. $21,100 B. $26,100 Assuming the same facts as those reported above, Mr. Zelev would be required to pay a self-employment tax for 2006 of 6 6. B. $1,208.70 C. $1,234.35 D. $1,666.90 A. $895.05

Answer 1

5

Net income = (285,000 – 15,000 – 20,000 ) – (240,000 – 1,575 +475 – 10,000) = $21,100

6

Self-employment tax = 21,100 X 92.35% X 15.3% = 2,981.34