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Ace Corporation, an accrual basis taxpayer, sells

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Ace Corporation, an accrual basis taxpayer, sells widgets. Ace sold on account a deluxe widget to Alan, Inc., for $22,000. Ace had a basis in the widget of $12,000. During the current year, after receiving $3,000 from Alan, Ace was notified that Alan was bankrupt and no further payments would be received. What amount of loss may Ace deduct in the current year?
a.$0.
b.$7,000.
c.$9,000.
d.$10,000.
e.None of the above.
On May 1, 2006, Mary loaned John $20,000. In 2007, John filed for bankruptcy. At that time, it was revealed that John's creditors could expect to receive 60 cents on the dollar. In March 2008, final settlement was made, and Mary received $5,000. How much loss can Mary deduct and in which year?
a.2006—$15,000.
b.2007—zero; 2008—$15,000.
c.2007—$12,000; 2008—$3,000.
d.2007—$8,000; 2008—$7,000.
e.None of the above.
Jones Corporation incurred a $10,000 bad debt in the current year. Jones Corporation also had a $6,000 long-term capital gain during the current year. How should Jones report the bad debt deduction on the tax return?
a.$0 bad debt deduction.
b.$3,000 bad debt deduction.
c.$4,000 bad debt deduction.
d.$10,000 bad debt deduction.
e.None of the above.
Two years ago, Green Corporation, an accrual basis taxpayer, sold merchandise on credit to John, an individual. Green’s account receivable from John was $20,000. Last year, John filed for bankruptcy, and Green was notified that it could expect to receive 20 cents on the dollar. Accordingly, Green took a $16,000 bad debt deduction on last year’s tax return. In June of the current year, Green received a $6,000 payment from John in final settlement of the debt. How should Green 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 $2,000 of income for the current year.
d.Report $4,000 of income for the current year.
e.Report $6,000 of income for the current year.
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:
a.     No deduction.
b.     $3,000 deduction.
c.     $20,000 deduction.
d.     $21,800 deduction.
e.None of the above.
On September 3, 2006, Able purchased stock in Red Corporation (the stock is not small business stock) for $6,000. On December 31, 2006, the stock was worth $8,500. On August 15, 2007, Able was notified that the stock was worthless. How should Able report this item on his 2006 and 2007 tax returns?
a.2006—$0; 2007—$6,000 short-term capital loss.
b.2006—$0; 2007—$6,000 long-term capital loss.
c.2006—$2,500 short-term capital loss; 2007—$8,500 short-term capital loss.
d.2006—$2,500 short-term capital gain; 2007—$3,800 long-term capital loss.
e.None of the above.
On February 20, 2006, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000. On May 1, 2007, the stock became worthless. During 2007, 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 2007 tax return?
a.$4,000 long-term capital loss and $9,000 short-term capital loss.
b.$4,000 long-term capital loss and $3,000 short-term capital loss.
c.$8,000 ordinary loss and $3,000 short-term capital loss.
d.$8,000 ordinary loss and $5,000 short-term capital loss.
e.$8,000 long-term capital loss and $6,000 short-term capital loss.
On January 10, 2006, Margie, who is single, purchased stock in Orange Corporation (the stock is § 1244 small business stock) for $140,000. On October 15, 2007, Margie sold the stock for $20,000. How should Margie treat the loss on the sale of the stock?
a.$120,000 ordinary loss.
b.$20,000 short-term capital loss; $100,000 ordinary loss.
c.$20,000 long-term capital loss; $100,000 ordinary loss.
d.$50,000 ordinary loss and $70,000 long-term capital loss.
e.None of the above.
Jim had a car accident 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 in connection with his management of apartment buildings. Jim received an insurance recovery of 80% of the value of the car at the time of the accident. If Jim’s AGI for the year is $50,000, determine his deductible loss on the car.
a.     $900.
b.     $6,000.
c.     $10,900.
d.     $30,000.
e.     None of the above.
Alma is in the business of dairy farming. During the year, one of her barns was completely destroyed by fire. The adjusted basis of the barn was $90,000. The fair market value of the barn before the fire was $75,000. The barn was insured for 95% of its fair market value, and Alma recovered this amount under the insurance policy. Alma has adjusted gross income for the year of $40,000 (before considering the casualty). Determine the amount of loss she can deduct on her tax return for the current year.
a.     $3,750.
b.     $14,650.
c.     $14,750.
d.     $18,750.
e.     None of the above.
Alma is in the business of dairy farming. During the year, one of her barns was completely destroyed by fire. The adjusted basis of the barn was $90,000. The fair market value of the barn before the fire was $75,000. The barn was insured for 95% of its fair market value, and Alma recovered this amount under the insurance policy. Alma has adjusted gross income for the year of $40,000 (before considering the casualty). Determine the amount of loss she can deduct on her tax return for the current year.
a.     $3,750.
b.     $14,650.
c.     $14,750.
d.     $18,750.
e.     None of the above.
Alma is in the business of dairy farming. During the year, one of her barns was completely destroyed by fire. The adjusted basis of the barn was $90,000. The fair market value of the barn before the fire was $75,000. The barn was insured for 95% of its fair market value, and Alma recovered this amount under the insurance policy. Alma has adjusted gross income for the year of $40,000 (before considering the casualty). Determine the amount of loss she can deduct on her tax return for the current year.
a.     $3,750.
b.     $14,650.
c.     $14,750.
d.     $18,750.
e.     None of the above.
Alma is in the business of dairy farming. During the year, one of her barns was completely destroyed by fire. The adjusted basis of the barn was $90,000. The fair market value of the barn before the fire was $75,000. The barn was insured for 95% of its fair market value, and Alma recovered this amount under the insurance policy. Alma has adjusted gross income for the year of $40,000 (before considering the casualty). Determine the amount of loss she can deduct on her tax return for the current year.
a.     $3,750.
b.     $14,650.
c.     $14,750.
d.     $18,750.
e.     None of the above.
Submitted: 7 years ago.
Category: Homework
Expert:  Dolly replied 7 years ago.

 

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