80.2K

Verified Solution

Link Copied!

USE THE $2023$ TAX YEAR FOR THE FOLLOWING PROBLEMS.

Ken operates a business that locates and purchases specialized assets for clients, among other activities. Ken uses the accrual accounting method, but he doesn't keep any significant inventories of the specialized assets that he sells. Ken reported the following financial information for his business activities during the current tax year. Determine the effect of each of the following transactions on the taxable business income for the current tax year $($ONLY$).$

a$)$ Ken has signed a contract to sell gadgets to the city. The contract provides that sales of gadgets are dependent upon a test sample of gadgets operating successfully. In December of the current tax year, Ken delivers $$18,000$ worth of gadgets to the city that will be tested and accepted or rejected in March. Ken purchased the gadgets specifically for this contract and paid $$8,500.$ Amount taxable or deductible.

b$)$ Ken paid $$280$ in the current tax year for entertaining a visiting out$-$of$-$town client. The client didn't discuss business with Ken during this visit, but Ken wants to maintain good relations to encourage new business next year.

Amount taxable or deductible.

c$)$ On November $1$ of the current tax year, Ken paid $$1,200$ for premiums providing for $$40,000$ of "key man" insurance on the life of Kens accountant over the next $12$ months.

Amount taxable or deductible.

d$)$ Two tax years ago, Ken had included $$3,800$ of taxable income from John Smith, which was an accounts receivable at that time. Last tax year, Ken took a bad debt deduction of $$3,800$ because John filed bankruptcy without making any payments. This tax year, the bankruptcy court made a final distribution to Ken of $$900.$ Amount taxable or deductible in this tax year $($only$).$

e$)$ In December of the current tax year, Ken rented equipment to complete a large job. Ken paid $$1,800$ in November because the rental agency required a minimum rental of three months $($$$600$ per month$).$ Ken completed the job before the year$-$end, but he returned the equipment at the end of the lease.

Amount taxable or deductible.

SOLVE A$,$b$,$c$,$d$,$e

Answer & Explanation Solved by verified expert

See Answer