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

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Question 51

Multiple Choice

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Regarding research and experimental expenditures, which of the following are not qualified expenditures?

A) Costs of improving an existing pilot model.
B) Costs to develop a plant process.
C) Costs of developing a formula.
D) Depreciation on a building used for research.
E) All of the above are qualified expenditures.

F) A) and C)
G) None of the above

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Question 52

Multiple Choice

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Cream, Inc.'s taxable income for 2012 before any deduction for an NOL carryforward of $30,000 is $70,000.Cream's qualified production activities income (QPAI) is $60,000.What is the amount of Cream's domestic production activities deduction (DPAD) for 2012?

A) $1,200.
B) $1,800.
C) $2,400.
D) $3,600.
E) None of the above.

F) A) and B)
G) A) and C)

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Question 53

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A nonbusiness bad debt deduction can be taken any year after the debt becomes totally worthless.

Maria, who is single, had the following items for 2012: Determine Maria's adjusted gross income for 2012.

Last year, Amos had AGI of $50,000. Amos also had a diamond ring stolen which cost $20,000 and was worth $17,000 at the time of the theft. He itemized deductions on last year's tax return. In the current year, Amos recovered $17,000 from the insurance company. Therefore, he must include $11,900 in gross income on the tax return for the current year.

In 2012, 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.

In 2012, Mary had the following items: Assuming that Mary files as head of household (has one dependent child) , determine her taxable income for the current year.

If a business debt previously deducted as partially worthless becomes totally worthless this year, only the amount not previously deducted can be deducted this year.

The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.

Mike, single, age 31, had the following items for 2012: Compute Mike's taxable income for 2012.

If an account receivable written off during the current year is subsequently collected during the current year, the write-off entry is reversed.

John files a return as a single taxpayer.In 2012, he had the following items: Determine John's AGI for 2012.

Five years ago, Tom loaned his son John $20,000 to start a business.A note was executed with an interest rate of 8%, which is the Federal rate.The note required monthly payments of the interest with the $20,000 due at the end of ten years.John always made the interest payments until last year.During the current year, John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800.Tom is a cash basis taxpayer whose only income is salary and interest income.The proper treatment for the nonpayment of the note is:

Peggy is in the business of factoring accounts receivable.Last year, she purchased a $30,000 account receivable for $25,000.This year, the account was settled for $25,000.How much loss can Peggy deduct and in which year?

A cash basis taxpayer can deduct the cost of a product sold even though the purchaser of the product ultimately does not pay the purchase price.

Three years ago, Sharon loaned her sister $30,000 to buy a car.A note was issued for the loan with the provision for monthly payments of principal and interest.Last year, Sharon purchased a car from the same dealer, Hank's Auto.As partial payment for the car, the dealer accepted the note from Sharon's sister.At the time Sharon purchased the car, the note had a balance of $18,000.During the current year, Sharon's sister died.Hank's Auto was notified that no further payments on the note would be received.At the time of the notification, the note had a balance due of $15,500.What is the amount of loss, with respect to the note, that Hank's Auto may claim on the current year tax return?

Discuss the effect of alimony in computing a net operating loss.