3. During 2021, First Order Inc. has total sales of $500,000. Based on total sales, the corporation estimates that its bad debts for the year are 3% of sales. At the end of the year, the controller reviews the accounts receivable ledger to identify uncollectible accounts. She determines that $2,800 in accounts receivable cannot be collected. In addition, the accountant's analysis shows that the corporation has recovered $2,200 in accounts receivable written off as a bad debt for tax purposes in the previous year. Determine the amount of (1) bad debt deduction and (2) taxable gross income related to bad debt for 2021. A. (1) Bad debt deduction: $2,800 | _(2) Taxable gross income: $2,200 B. (1) Bad debt deduction: $0 | _(2) Taxable gross income: $2,200 C. (1) Bad debt deduction: $1,500 1 _(2) Taxable gross income: $600 D. (1) Bad debt deduction: $1,500 | _(2) Taxable gross income: $2,200 E. (1) Bad debt deduction: $2,800 / _(2) Taxable gross income: $600 4. Which of the following statements is incorrect? A. A self-employed taxpayer whose business income is $120,000 can claim half of its self- employment tax paid as deduction for AGI. B. A taxpayer (MAGI: $120,000) who is married and files a separate return can claim deduction on interest paid for student loans. C. A self-employed taxpayer can claim health insurance premium paid as deduction for AGI. D. Self-employed taxpayers can deduct the amount of contribution on individual retirement account (TRA). The intention of the tax law is to make self-employed taxpayers fairer with employee taxpayers who can exclude contribution to retirement account from gross income. E. For business taxpayers whose average gross sales for the recent 3-year period are larger than $25 million, the deductible interest expense in the current year is up to 30% * EBITDA. 3. During 2021, First Order Inc. has total sales of $500,000. Based on total sales, the corporation estimates that its bad debts for the year are 3% of sales. At the end of the year, the controller reviews the accounts receivable ledger to identify uncollectible accounts. She determines that $2,800 in accounts receivable cannot be collected. In addition, the accountant's analysis shows that the corporation has recovered $2,200 in accounts receivable written off as a bad debt for tax purposes in the previous year. Determine the amount of (1) bad debt deduction and (2) taxable gross income related to bad debt for 2021. A. (1) Bad debt deduction: $2,800 | _(2) Taxable gross income: $2,200 B. (1) Bad debt deduction: $0 | _(2) Taxable gross income: $2,200 C. (1) Bad debt deduction: $1,500 1 _(2) Taxable gross income: $600 D. (1) Bad debt deduction: $1,500 | _(2) Taxable gross income: $2,200 E. (1) Bad debt deduction: $2,800 / _(2) Taxable gross income: $600 4. Which of the following statements is incorrect? A. A self-employed taxpayer whose business income is $120,000 can claim half of its self- employment tax paid as deduction for AGI. B. A taxpayer (MAGI: $120,000) who is married and files a separate return can claim deduction on interest paid for student loans. C. A self-employed taxpayer can claim health insurance premium paid as deduction for AGI. D. Self-employed taxpayers can deduct the amount of contribution on individual retirement account (TRA). The intention of the tax law is to make self-employed taxpayers fairer with employee taxpayers who can exclude contribution to retirement account from gross income. E. For business taxpayers whose average gross sales for the recent 3-year period are larger than $25 million, the deductible interest expense in the current year is up to 30% * EBITDA
