Wrong Answers Flashcards
On January 1, Smith sold land to Baker for $100,000 cash plus a note for $200,000 plus adequate interest with a $30,000 principal payment due in the second year. Smith’s basis in the property was $100,000. What is the amount of the gain recognized in the second year under the installment method?
$20,000
The formula for the gain recognized in any year under the installment method:
(Gross Profit/ Total Contract Price) × Amount Received
($200,000/$300,000) × $30,000 = $20,000
In 2022, Roe Corp. purchased and placed in service a used machine to be used in its manufacturing operations. This machine cost $3,000,000. What portion of the cost may Roe elect to treat as an expense rather than as a capital expenditure?
$780,000
Sec. 179 permits a taxpayer to elect to treat up to $1,080,000 of the cost of qualifying depreciable personal property as an expense rather than as a capital expenditure. However, the $1,080,000 maximum is reduced dollar for dollar by the cost of qualifying property placed in service during the taxable year that exceeds $2,700,000. Here, the maximum amount that can be expensed [$1,080,000 − ($3,000,000 − $2,700,000)] = $780,000.
Alex and Myra Burg, married and filing joint income tax returns, derive their entire income from the operation of their retail candy shop. Their Year 3 adjusted gross income was $50,000. The Burgs itemized their deductions on Schedule A for Year 3. The following unreimbursed cash expenditures were among those made by the Burgs during Year 3:
Repair of glass vase accidentally broken in home by dog (vase cost $500 in Year 1; fair value $600 before accident and $200 after accident): $90
Without regard to the $100 “floor” and the adjusted gross income percentage threshold, what amount should the Burgs deduct for the casualty loss in their itemized deductions on Schedule A for Year 3?
$0
Loss due to accidental breakage is not allowed under casualty loss rules
Filler-Up is an accrual-basis, calendar-year C corporation. Filler-Up uses an allowance method for accounting for bad debts. The allowance for bad debts was $20,000 at the beginning of the year and $30,000 at the end of the year. During the year, Filler-Up wrote off $5,000 of uncollectible receivables and accrued an additional $15,000 of expenses for accounts estimated to be uncollectible. What is the Schedule M-1 adjustment on Filler-Up’s federal income tax return?
$10,000 increase in taxable income.
The tax deduction for bad debts is limited to the amount allowed under the direct write-off method. Under the allowance method for bad debts (used for book purposes), Filler-Up recorded $15,000 in bad debt expenses for accounts estimated to be uncollectible. Filler-Up can deduct only $5,000 as bad debt expense for tax purposes. Therefore, Filler-Up must add $10,000 ($15,000 – $5,000) to book income as an M−1 adjustment.
A partner received a partnership interest with a fair market value (FMV) of $55,000 in exchange for the following items:
Cash $20,000
Property w/ a basis of $10,000 & FMV of $30,000
Services rendered worth $5,000
What is the partner’s basis in the partnership interest?
$35,000
Lite-Mart, a C corporation, had a beginning credit balance in its warranty reserve account of $120,000. During the year, Lite-Mart accrued estimated warranty expense of $16,000. At the end of the year, Lite-Mart’s warranty reserve had a $90,000 credit balance. What amount of warranty expense should Lite-Mart deduct?
$46,000
Warranty reserve BoY $120,000
Estimated warranty expense $16,000
Less: Warranty expense incurred (?)
Warranty reserve YoE $90,000
In a general partnership, which of the following acts must be approved by all the partners?
Dissolution of the partnership.
Admission of a partner.
Authorization of a partnership capital expenditure.
Hiring of an employee
Admission of a partner
During 2022, George (age nine and is a dependent of his parents) received dividend income of $3,700, and had wages from an after-school job of $1,700. What is the amount that will be reported as George’s taxable income for 2022?
$3,300 George's basic standard deduction is limited to the greater of $1,150, or George's earned income of $1,700, plus $400. Thus, George's taxable income would be computed as follows: Dividends $ 3,700 Wages 1,700 AGI $ 5,400 Std. deduction (2,100) Taxable income $ 3,300
