10.Which of the following would be a business bad debt if it were uncollectible? a) A taxpayer loans his father $10,000 to start a business b) A tax payer loans his son $1,000 to purchase a rental house. c) A dentist, using the accrual basis of accounting, records income when it is earned and extends credit to a patient for services provided. d) None of these answers is correct

10.Which of the following would be a business bad debt if it were uncollectible? a) A taxpayer loans his father $10,000 to start a business b) A tax payer loans his son $1,000 to purchase a rental house. c) A dentist, using the accrual basis of accounting, records income when it is earned and extends credit to a patient for services provided. d) None of these answers is correct

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter7: Deductions And Losses: Certain Business Expenses And Losses

Section: Chapter Questions

Problem 2DQ

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LO.4 Vic, who was experiencing financial difficulties, was able to adjust his debts as follows: a. Vic is an attorney. Vic owed his uncle 25,000. The uncle told Vic that if he serves as the executor of the uncles estate, Vics debt will be canceled in the uncles will. b. Vic borrowed 80,000 from First Bank. The debt was secured by land that Vic purchased for 100,000. Vic was unable to pay, and the bank foreclosed when the liability was 80,000, which was also the fair market value of the property. c. The Land Company, which had sold land to Vic for 80,000, reduced the mortgage on the land by 12,000. Determine the tax consequences to Vic.
LO.4 Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is not a principal purpose of any of the loans. Assume that the relevant Federal rate is 5% and that the loans were outstanding for the last six months of the year. What are the effects of the imputed interest rules on these transactions? Compute Elizabeths gross income from each loan: a. Richard b. Woody c. Irene
Sandra, a cash-basis taxpayer, operated a pet store on the cash method of accounting. She lent $4,500 to a friend but then forgave the loan. She also wrote off an account receivable of $2,200 that became uncollectible. She had to pay $8,000 on a supplier’s debt that she guaranteed in order to maintain a source of inventory. What is Sandra’s business bad debt expense? (a) $2,200 (b) $4,500 (c) $8,000 (d) $10,200 Choose the correct answer and defend your choice in 2-3 sentences.
The Cohan rule is most likely to come to the rescue (or partial rescue) of which of the following taxpayers who lacks adequate records or receipt(s)? (a) An amateur gambler (slot machines) claiming losing wagers equal to her reported gambling winnings for the year. (b) An individual who claims a $20,000 deduction for contributions to her church but who has only $5,000 in cancelled checks to support that claimed amount. (c) A self-employed accountant who claims a standard mileage deduction for having used her personal car to drive 125,000 “business travel miles” during the year. (d) An individual who claims a compensation expense deduction for payments allegedly made to an ex-boyfriend or ex-girlfriend while they were still living together.
Julie loaned her friend Nathan $2,500. Nathan did not repay the debt and skipped town. Can Julie claim any deduction for this bad debt? In answering this case, use only the Internal Revenue Code for your research.
1. Tim loaned a friend $4,000 to buy a used car. In the current year, Tim's friend declares bankruptcy and the debt is considered totally worthless. What amount may Tim deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year? a.$3,000 short-term capital loss b.$4,000 short-term capital loss c.$3,000 ordinary loss d.$4,000 ordinary loss e.$2,000 short-term capital loss 2. An asset's adjusted basis is computed as: a.Original basis − capital improvements + accumulated depreciation. b.Original basis + capital improvements − accumulated depreciation. c.Original basis + capital improvements + gain or loss realized. d.Original basis + capital improvements + accumulated depreciation. e.None of these choices are correct. 3. Sol purchased land as an investment on January 12, 2018 for $85,000. On January 31, 2021 Sol sold the land for $90,000 cash. What is the nature of the gain or loss?…
Albert, the managing director of Albert's Vehicle Parts, guaranteed a bank loan of $750,00 for Josh his employee. Josh left the Island unexpectedly owing the bank $150,000 which Albert had to pa Discuss whether Albert can claim this as an allowable deduction fro the accounts of Albert's Vehicle Parts? Would your answer be differen Albert's Vehicle Parts had lent Josh the money and had forgiven Josh the debt before he left?
Hoang Nguyen, a resident taxpayer, had the following receipts and balances during the2018/19 tax year. Ignore GST.Receipts related to business as a plumber:Receipts from debtors $ 172,000Cash Sales 15,000Volume rebates from suppliers 3,000Insurance recovery for loss of income(Hoang spent 2 weeks in hospital following a work accident) 7,000Hoang also had the following balances relating to his business:Debtors as at 30 June 2018 19,000Debtors as at 30 June 2019 27,500Receipts related to rental property in Brisbane:Rent received from tenants during the year 12,000Water rates recovered from tenants 600Balances relating to rental property in Brisbane:Rent received in advance as at 30 June 2018 1,300Rent outstanding from tenants as at 30 June 2019 2,000Tenant’s bond held by Rental Bond Board 1,200Total deductions from business and rental property 132,000PAYG tax instalments paid by Hoang during the year 21,000Calculate Hoang’s taxable income for the 2018/19 tax year.
For an accrual basis taxpayer, the all events test is not met until economic performance occurs. Economic performance occurs: (a.) When a corporation receives its completed tax return from its accountant (b.) When the employees of self-insured corporation receive medical treatment (c.) When a corporation purchases a $5 million annuity in settlement of $20 million award to a plaintiff/customer in a production liability lawsuit (d.) On March 1, when a corporation uses a leased copy machine to make 12,000 copies for the month of March and it must pay $.10 per copy for copies mad in excess 10,000 plus a flat fee of $500/month.
1. The imputed interest rules apply to which of the following type of loan? a.Coercion-related loans b.Loans from one employee to another c.Shareholder-corporation loans made from a shareholder to a corporation d.Gift loans made out of love or affection e.Loans made between two objective parties at the market rate of interest 2. In December 2022, Bellamy collected the December 2022 and January 2023 rent from a tenant. Bellamy is a cash basis taxpayer. The amount collected in December 2022 for the 2023 rent should be included in the 2023 gross income. True False
1. Deductible transportation expenses: a.Do not include the normal costs of commuting. b.Do not include daily expenses for transportation between the taxpayer's home and temporary work locations if the taxpayer has a regular place of business. c.Include only costs incurred while away from home. d.Include meals and lodging. 2. Barry is a self-employed attorney who travels to New York on a business trip during 2021. Barry's expenses were as follows: Airfare $550 Taxis 40 Restaurant meals 150 Lodging 350 How much may Barry deduct as travel expenses for the trip? a.$0 b.$1,015 c.$940 d.$1,090 e.None of these choices are correct. 3. Which of the following is deductible as dues, subscriptions, or publications? a.Subscription to the "Journal of Taxation" for a tax attorney b.Dues to a health club for a doctor c.Dues to the drama club for a student d.Subscription to "Vogue" magazine for a corporate president e.None of these choices are correct.
Sally is in the business of purchasing accounts receivable. Last year, Sally purchased an account 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. If an amount is zero, enter "0". Sally's basis in the account receivable is $fill in the blank 1 . Therefore, she has a bad debt deduction of $fill in the blank 2 and income of $fill in the blank 3 .