80.2K

Verified Solution

Link Copied!

Bryan followed in his father's footsteps and entered the carpet business. He

owns and operates I Do Carpet $($IDC$).$ Bryan prefers to install carpet only, but

in order to earn additional revenue, he also cleans carpets and sells carpet$-$

cleaning supplies.

a$.$ IDC contracted with a homebuilder in December of last year to install

carpet in $10$ new homes being built. The contract price of $$82,000$ includes

$$50,800$ for materials $($carpet$).$ The remaining $$31,200$ is for IDC's service

of installing the carpet. The contract also stated that all money was to be

paid up front. The homebuilder paid IDC in full on December $28$ of last

year. The contract required IDC to complete the work by January $31$ of this

year. Bryan purchased the necessary carpet on January $2$ and began

working on the first home January $4.$ He completed the last home on

January $27$ of this year.

b$.$ IDC finalized several other contracts this year and completed the work

before year$-$end. The work cost $$138,000$ in materials, and IDC elects to

immediately deduct supplies. Bryan billed out $$240,800$ but only collected

$$220,000$ by year$-$end. Of the $$20,800$ still owed to him, Bryan wrote off

$$3,200$ he didn't expect to collect as a bad debt from a customer

experiencing extreme financial difficulties.

c$.$ IDC agreed to a three$-$year contract to clean the carpets of an office

building. The contract specified that IDC would clean the carpets monthly

from July $1$ of this year through June $30$ three years hence. IDC received

payment in full of $$8,784($ $$244$ a month for $36$ months$)$ on June $30$ of this

year.

d$.$ IDC sold $100$ bottles of carpet stain remover this year for $$5$ per bottle $($it

collected $$500).$ IDC sold $40$ bottles on June $1$ and $60$ bottles on November

IDC had the following carpet$-$cleaning supplies on hand for this year, and

IDC has elected to use the LIFO method of accounting for inventory under a

perpetual inventory system:

e$.$ On August $1$ of this year, IDC needed more room for storage and paid

$$1,140$ to rent a garage for $12$ months.

f$.$ On November $30$ of this year, Bryan decided it was time to get his logo on

the sides of his work van. IDC hired We Paint Anything incorporated

$($WPA$)$ to do the job. It paid $$580$ down and agreed to pay the remaining

$$1,740$ upon completion of the job. WPA indicated it wouldn't be able to

begin the job until January $15$ of next year, but the job would only take one

week to complete. Due to circumstances beyond its control, WPA was

unable to complete the job until April $1$ of next year, at which time IDC

paid the remaining $$1,740.$

g$.$ In December, Bryan's son, Aiden, helped him finish some carpeting jobs.

IDC owed Aiden $$680($reasonable$)$ compensation for his work. However,

Aiden did not receive the payment until January of next year.

h$.$ IDC also paid $$1,800$ for interest on a short$-$term bank loan relating to the

period from November $1$ of this year through March $31$ of next year.

Required:

Compute his taxable income for the current year considering the above items.

Note: Enter zero for no effect on taxable income. Do not round intermediate

calculations.

Required:

Compute his taxable income for the current year considering the above items.

Note: Enter zero for no effect on taxable income. Do not round intermediate calculations.

Answer & Explanation Solved by verified expert

See Answer