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Exam 7: Deductions and Losses: Certain Business Expenses and Losses

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Question 1

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On June 2,2013,Fred's TV Sales sold Mark a large HD TV,on account,for $12,000.Fred's TV Sales uses the accrual method.In 2014,when the balance on the account was $8,000,Mark filed for bankruptcy.Fred was notified that he could not expect to receive any of the amount owed to him.In 2015,final settlement was made and Fred received $1,000.How much bad debt loss can Fred deduct in 2015?

A) $0
B) $7,000
C) $8,000
D) $12,000
E) None of these

F) C) and D)
G) A) and C)

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Question 2

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In 2014,Tan Corporation incurred the following expenditures in connection with the development of a new product: $\begin{array}{lr}\text { Salaries } & \$ 60,000 \\\text { Supplies } & 20,000 \\\text { Depreciation on research equipment } & 10,000 \\\text { Testing for quality control } & 5,000 \\\text { Advertising } & 8,000 \\\text { Overhead allocated to research } & 2,000\end{array}$ Tan began selling the product in November 2014.If Tan elects to amortize research and experimental expenditures,determine Tan's deduction for 2014.

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Salaries $60,000
Supplies 20,0...

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Question 3

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If a taxpayer sells their § 1244 stock at a loss,all of the loss will be ordinary loss.

Why was the domestic production activities deduction (DPAD)enacted by Congress?

James is in the business of debt collection.He purchased a $20,000 account receivable from Green Corporation for $15,000.During the year,James collected $17,000 in final settlement of the account.James can take a $2,000 bad debt deduction in the current year.

Losses on rental property are classified as deductions for AGI.

A taxpayer who sustains a casualty loss in an area designated by the President of the United States as a disaster area may take the loss in the year in which the loss occurred or elect to take the loss in the previous year.Identify factors that should be considered in deciding in which year to take the loss.

If a taxpayer has an NOL in 2014 of $20,000,of which $8,000 is attributable to a theft of rental use property,the taxpayer may:

Jed is an electrician.Jed and his wife are accrual basis taxpayers and file a joint return.Jed wired a new house for Alison and billed her $15,000.Alison paid Jed $10,000 and refused to pay the remainder of the bill,claiming the fee to be exorbitant.Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgment.Jed was able to collect the judgment but not the remainder of the bill from Alison.What amount of loss may Jed deduct in the current year?

An NOL carryforward is used in determining the current year's charitable contribution deduction.

Bruce,who is single,had the following items for the current year: -Salary of $80,000. -Gain of $20,000 on the sale of § 1244 stock acquired two years earlier. -Loss of $75,000 on the sale of § 1244 stock acquired three years earlier. -Worthless stock of $15,000.The stock was acquired on February 1 of the prior year and became worthless on January 15 of the current year. Determine Bruce's AGI for the current year.

In 2014,Morley,a single taxpayer,had an AGI of $30,000 before considering the following items: Determine the amount of Morley's itemized deduction from the losses.

Juanita,single and age 43,had the following items for 2014: Compute Juanita's taxable income for 2014.

Ralph is single and has the following items for the current year: In calculating Ralph's net operating loss,and with respect to the above amounts only,what amount must be added back to taxable income (loss) ?

Last year,Lucy purchased a $100,000 account receivable for $90,000.During the current year,Lucy collected $97,000 on the account.What are the tax consequences to Lucy associated with the collection of the account receivable? No subsequent collections are expected.

When a net operating loss is carried back to a non-loss year,the net operating loss can affect the medical expense deduction of the carryback year.

Jose,single,had the following items for 2014: Salary $44,000 § 1244 loss on stock acquired 3 years ago (70,000) § 1244 gain on stock acquired 10 months ago 26,000 Worthless security purchased in June of last year (4,000) Nonbusiness bad debt (7,000) Interest income 8,000 Compute Jose's adjusted gross income for 2014.

Ivory,Inc. ,has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in 2014.Ivory's domestic production activities deduction is:

Janice,single,had the following items for the year 2014: $\begin{array}{lr}\text { Salary } & \$ 30,000 \\\text { Dividend income } & 8,000 \\\text { Loss on } \S 1244 \text { small business stock held for three years } & (45,000) \\\text { Total itemized deductions } & (5,0000\\\text { Determine Janice's net operating loss for the year } 2014 \text {. }\end{array}$

In 2013,Robin Corporation incurred the following expenditures in connection with the development of a new product: $\begin{array}{lr}\text { Salaries } & \$ 100,000 \\\text { Supplies } & 40,000 \\\text { Market survey } & 10,000 \\\text { Depreciation } & 25,000\end{array}$ In 2014,Robin incurred the following additional expenditures in connection with the development of the product: $\begin{array}{lr}\text { Salaries } & \$ 125,000 \\\text { Supplies } & 50,000 \\\text { Depreciation } & 30,000 \\\text { Advertising } & 10,000\end{array}$ In October 2014,Robin began receiving benefits from the project.If Robin elects to expense research and experimental expenditures,determine the amount and year of the deduction.