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Compute casualty loss, employee business expenses, gain

A flood damaged an auto owned by Mr. and Mrs. South on June 15, this year.
Fair market value before the flood $8,500
Fair market value after the flood 2,000
Cost basis 10,000
Insurance proceeds 3,000
Adjusted gross income for this year 25,000
Business use of auto 0
Based on these facts, what is the amount of the South's casualty loss deduction after limitations for this year
a. $900.
b. $1,000.
c. $4,400.
d. $4,500.

8. Sarah incurred employee business expenses of $5,000 consisting of $3,000 business meals and $2,000 customer entertainment. She provided an adequate accounting to her employer's accountable plan and received reimbursement for one half of the total expenses. How much of the meals and entertainment will be deductible by Sarah without consideration of the 2% of AGI limit?
a. $0
b. $1,250
c. $2,500
d. $5,000

9. On November 3, this year, Kerry acquired and placed into service 7 year business equipment costing $50,000. In addition, on May 5th of this year, Kerry had also placed in business use 5-year recovery property costing $10,000. Kerry did not elect Section 179 immediate expensing. No other assets were purchased during the year. The depreciation for this year is
a. $3,785.
b. $4,285.
c. $9,145.
d. $9,645.

10. This year, a contractor agrees to build a building for $2,500,000 by the end of next year. The builder's cost is estimated to be $1,800,000. The actual costs this year are $900,000 and next year's actual costs are $1,300,000. Under the percentage of completion method this year's gross profit is
a. $0.
b. $300,000.
c. $350,000.
d. $700,000.

11. Frank, a single person age 52, sold his home this year. He had lived in the house for 10 years. Signed a contract on March 4 to sell his home
Sold May 3 for $202,000
Selling expenses 12,000
Replaced and paid for a broken window on March 2 200
Basis of old home before repairs and improvements 150,000
Purchased new home 110,000
Based on these facts, what is the amount of his recognized gain?
a. $-0-
b. $39,800
c. $40,000
d. $52,000

12. Mary Jo purchased residential rental property for $600,000 on January 1, 1985, and total ACRS deductions for 1985 through the date of sale amounted to $210,000. If the straight line method of depreciation had been used, depreciation would have been $160,000. The property is sold for $550,000 on January 1 of the current year. The amount and character of the gain is
a. $50,000 Sec. 1250 ordinary income and $110,000 Sec. 1231 gain.
b. $50,000 Sec. 1231 gain and $110,000 Sec. 1250 ordinary income.
c. $160,000 Sec. 1231 gain.
d. $160,000 Sec. 1250 ordinary income.

Solution Preview

A flood damaged an auto owned by Mr. and Mrs. South on June 15, this year.
Fair market value before the flood $8,500
Fair market value after the flood 2,000
Cost basis 10,000
Insurance proceeds 3,000
Adjusted gross income for this year 25,000
Business use of auto 0
Based on these facts, what is the amount of the South's casualty loss deduction after limitations for this year
a. $900.
b. $1,000.
c. $4,400.
d. $4,500.

Answer is a. Amount of loss is 8500 - 2000 = 6500. 6500 less insurance of 3000 = 3500. 3500 - 100 exclusion amount = 3400. 3400 - 10% of AGI of 2500 = 900

8. Sarah incurred employee business expenses of $5,000 consisting of $3,000 business meals and $2,000 customer entertainment. She provided an adequate accounting to her employer's accountable plan and received reimbursement for one half of the total expenses. How much of the meals and entertainment will be deductible by Sarah without consideration of the 2% of AGI limit?
a. $0
b. $1,250
c. $2,500
d. $5,000

Because Sarah has been reimbursed for the portion, she is allowed a deduction calculated as 5000 - 2500 - 50% = 1250. Answer is b.

9. On November ...

Solution Summary

In two or three sentences, each situation is explained with a reference to the law. Calculations are included as required to answer the questions.

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