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

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Question 31

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Two years ago, Gina loaned Tom $50,000. Tom signed a note the terms of which called for monthly payments of $2,000 plus 6% interest on the outstanding balance. Last year, when the balance owing on the loan was $18,000, Tom defaulted on the note. As of the end of last year, there appeared to be no reasonable prospect of Gina recovering the $18,000. As a consequence, Gina claimed the $18,000 as a nonbusiness bad debt. Last year, Gina had AGI of a negative $6,000 which included $5,000 net long-term capital gains and $4,000 of qualified dividends. Gina did not itemize her deductions. During the current year, Tom paid Gina $13,000 in final settlement of the loan. How should Gina account for the payment in the current year?

A) File an amended tax return for last year.
B) Report no income for the current year.
C) Report $8,000 of income for the current year.
D) Report $12,000 of income for the current year.
E) None of the above.

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

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Question 32

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A personal casualty loss deduction may be allowed for losses resulting from termites.

A) True
B) False

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Question 33

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Tonya had the following items for last year: For the current year, Tonya had the following items: Determine Tonya's adjusted gross income for the current year.

In 2011, Tan Corporation incurred the following expenditures in connection with the development of a new product: Tan began selling the product in November, 2011. If Tax elects to amortize research and experimental expenditures, determine Tan's deduction for 2012.

Neal, single and age 37, has the following items for 2012: Determine Neal's taxable income for 2012.

In 2011, Robin Corporation incurred the following expenditures in connection with the development of a new product: In 2012, Robin incurred the following additional expenditures in connection with the development of the product: In October 2012, Robin began receiving benefits from the project.If Robin elects to expense research and experimental expenditures, determine the amount and year of the deduction.

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.

A father cannot claim a casualty on his daughter's personal use property.

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.

If rental property is completely destroyed, the amount of the loss is the adjusted basis of the property at the time of the destruction reduced by $100 and 10% of AGI.

Losses on rental property are classified as deductions from AGI (itemized deductions).

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

If an election is made to defer deduction of research expenditures, the amortization period is based on the expected life of the research project if less than 60 months.

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?

Research and experimental expenditures do not include expenditures for ordinary testing of materials for quality control.

Depreciation on a building used for research may be a research and experimental expense.

How is qualified production activities income (QPAI) calculated?

Last year, Green Corporation incurred the following expenditures in the development of a new plant process: During the current year, benefits from the project began being realized in May.If Green Corporation elects a 60 month deferral and amortization period, determine the amount of the deduction for the current year.

On February 20, 2011, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000.On May 1, 2012, the stock became worthless.During 2012, 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 2012 tax return?