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

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Question 1

Multiple Choice

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Jim had a car accident in 2011 in which his car was completely destroyed.At the time of the accident,the car had a fair market value of $30,000 and an adjusted basis of $40,000.Jim used the car 100% of the time for personal use.Jim received an insurance recovery of 70% of the value of the car at the time of the accident.If Jim's AGI for the year is $60,000,determine his deductible loss on the car.

A) $900.
B) $2,900.
C) $3,000.
D) $9,000.
E) None of the above.

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

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B

Question 2

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

A) True
B) False

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Question 3

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The amount of a loss on insured business use property is reduced by the insurance coverage if no claim is made against the insurer.

Identify the factors that should be considered in determining whether a transaction is a bona fide loan or a gift.

Tonya had the following items for last year: For the current year,Tonya had the following items:

Al,who is single,has a gain of $40,000 on the sale of §1244 stock (small business stock)and a loss of $80,000 on the sale of § 1244 stock.As a result,Al has a $40,000 ordinary loss.

Blue Corporation incurred the following expenses in connection with the development of a new product: Blue expects to begin selling the product next year.If Blue elects to amortize research and experimental expenditures over 60 months,determine the amount of the deduction for research and experimental expenditures for the current year.

If a taxpayer has an NOL in 2011 of $20,000,of which $8,000 is attributable to a theft of personal use property,the taxpayer may:

When a nonbusiness casualty loss is spread between two taxable years,the loss in the second year is reduced by 10% of adjusted gross income for the first year.

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

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 judgement.Jed was never able to collect the judgement nor the remainder of the bill from Alison.What amount of loss may Jed deduct in the current year?

Roger,an individual,owns a proprietorship called Green Thing.For the year 2011,Roger has the following items: · Business income-$200,000. · Business expense-$150,000. · Loss on a completely destroyed business machine.The machine had an adjusted basis of $25,000 and a fair market value of $20,000. · Loss on a business truck.The truck had an adjusted basis of $8,000.The repairs to fix the truck cost $10,000.

Maria,who is single,had the following items for 2011:

Cream,Inc.'s taxable income for 2011 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 2011?

On February 20,2010,Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000.On May 1,2011,the stock became worthless.During 2011,Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago,a $9,000 loss on a nonbusiness bad debt,and a $5,000 long-term capital gain.How should Bill treat these items on his 2011 tax return?

For tax years beginning in 2011,the domestic production activities deduction (DPAD)for a sole proprietor is calculated by multiplying 9% times the lesser of (1)qualified production activities income (QPAI)or (2)taxable income or alternative minimum taxable income.

A corporation which makes a loan to a shareholder cannot have a nonbusiness bad debt deduction.

A casualty loss deduction is not allowed for losses resulting from a decline in value rather than an actual loss of property.

In 2011,Juan's home was burglarized.Juan had the following items stolen: Juan's homeowner's policy had a $50,000 deductible clause for thefts.If Juan's salary for the year is $50,000,determine the amount of his itemized deductions as a result of the theft.

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