ACCT 308 – Chp. 7 Questions (# 30, 31, 33, 35, 38, 42, 43) – Flashcards
Unlock all answers in this set
Unlock answersquestion
Sally is in the business of purchasing accounts receivable. Last year, Sally purchased an accounts receivable with a face value of $80,000 for $60,000. During the current year, Sally settled the account, receiving $65,000. Determine the maximum amount of the bad debt deduction for Sally for the current year.
answer
Sally has no bad debt deduction. Sally has income of $5,000 ($65,000 ? $60,000) because she collected more than her basis in the receivable.
question
Mable and Jack file a joint return. For the current year, they had the following items: Salaries ($120,000) Loss on sale of (law - 1244) stock acquired two years ago ($105,000) Gain on sale of (law - 1244) stock acquired six months ago ($20,000) Nonbusiness bad debt ($19,000) Determine their AGI for the current year.
answer
Salary $120,000 § 1244 ordinary loss (limit of $100,000) (100,000) Short-term capital gain on § 1244 stock $ 20,000 Short-term capital loss (nonbusiness bad debt) (19,000) Net short-term capital gain $ 1,000 Net long-term capital loss (remaining § 1244 loss) (5,000) Net capital loss (limited to $3,000; $1,000 LTCL carryover) (3,000) Adjusted gross income $ 17,000
question
Olaf lives in the state of Minnesota. A tornado hit the area and damaged his home and automobile. Applicable information as follows: Item Home Auto Adjusted Basis $350,000 $60,000 FMV before 500,000 40,000 FMV after 100,000 10,000 Insurance Proceeds 280,000 20,000 Because of the extensive damage caused by the tornado, the President designated the area a disaster area. Olaf and his wife, Anna, always file a joint return. Their 2015 tax return shows AGI of $180,000 and taxable income of $140,000. In 2016, their return shows AGI of $300,000 and taxable income (exclusive of the casualty loss deduction) of $215,000. Determine the amount of Olaf and Anna's loss and the year in which they should take the loss.
answer
The amount of the loss before the 10%-of-AGI limitation is computed as follows: Home ($350,000 ? $280,000) $70,000 Auto ($30,000 ? $20,000) 10,000 Total loss $80,000 Less: $100 (100) Loss before 10% of AGI $79,900 Because the President declared the area a disaster area, Olaf and Anna could claim the loss on last year's return (2015) or on the current year's return (2016). Amount of loss on last year's return: Loss $ 79,900 Less: 10% of AGI (10% $180,000) (18,000) Total loss $ 61,900 Amount of loss on current year's return: Loss $ 79,900 Less: 10% of AGI (10% $300,000) (30,000) Total loss $ 49,900 If Olaf and Anna apply the loss to 2015, the benefit of the loss will be at a rate of 25% because taxable income will be $78,100 ($140,000 ? $61,900) and the loss falls entirely within the 25% tax bracket. If the loss is applied to 2016, the benefit will be at a rate of 28% because taxable income will be $165,100 ($215,000 ? $49,900) and the loss falls entirely within the 28% tax bracket. The tax savings will be $15,475 (25% $61,900) if the loss is taken in 2015 and $13,972 (28% $49,900) if the loss is taken in 2016. Therefore, Olaf and Anna should include the loss on their 2015 return, because the tax savings is $1,503 ($15,475 ? $13,972) greater.
question
On July 24 of the current year, Sam Smith was involved in an accident with his business use automobile. Sam had purchased the car for $30,000. The automobile had a fair market value of $20,000 before the accident and $8,000 immediately after the accident. Sam has taken $20,000 of depreciation on the car. The car is insured for the fair market value of any loss. Because of Sam's history, he is afraid that if he submits a claim, his policy will be canceled. Therefore, he is considering not filing a claim. Sam believes that the tax loss deduction will help mitigate the loss of the insurance reimbursement. Sam's current marginal tax rate is 35%. Write a letter to Same that contains your advice with respect to the tax and cash-flow consequences of filing versus not filing a claim for the insurance reimbursement for the damage to his car. Also prepare a memo for the tax files. Sam's address is 450 Colonel's Way, Warrensburg, MO 64093.
answer
too long --> look at answer sheet
question
Nell, single and age 38, had the following income and expense items in 2016: Nonbusiness bad debt $6,000 Business bad debt 2,000 Nonbusiness long-term capital gain 4,000 Nonbusiness short-term capital loss 3,000 Salary 50,000 Interest income 3,000 Determine Nell's AGI for 2016.
answer
Salary $50,000 Interest income 3,000 Business bad debt (2,000) Nonbusiness bad debt (short-term capital loss) ($6,000) Short-term capital loss (3,000) Total short-term capital loss ($9,000) Long-term capital gain 4,000 Net short-term capital loss ($5,000) Capital loss limit (3,000) Adjusted gross income $48,000
question
Assume that in addition to the information in Problem 42, Nell had the following items in 2016: Personal casualty gain on asset held for four months ($10,000) Personal casualty loss on an asset held for two years ($1,000) Determine Nell's AGI for 2016.
answer
Salary $50,000 Interest income 3,000 Business bad debt (2,000) Nonbusiness bad debt ($ 6,000) Short-term capital loss (3,000) Total short-term capital loss ($ 9,000) Short-term capital gain* 10,000 Net short-term capital gain 1,000 Long-term capital gain $ 4,000 Long-term capital loss* (1,000) Net long-term capital gain 3,000 Adjusted gross income $55,000 *Personal casualty gains exceed personal casualty losses ($10,000 ? $1,000 = $9,000); therefore, all personal casualty items are treated as capital gains and losses.
question
Barbara, a calendar year taxpayer, owns and operates a company that manufactures toys. For 2016, she has modified AGI of $500,000 and QPAI of $550,000. Ignoring the W-2 wage limitation, calculate Barbara's DPAD.
answer
Barbara's DPAD is $45,000 [9% × $500,000 (the smaller of $500,000 AGI and $550,000 QPAI)].
