70 1. LO 6-5 6. Firm B, a calendar year, cash basis taxpayer, leases lawn and garden equipment. During December, it received the following cash payments. To what extent does each payment represent current taxable income to Firm B? a. $522 repayment of a loan from an employee. Firm B loaned $500 to the employee six months ago, and the employee repaid the loan with interest. b. $600 deposit from a customer who rented mechanical equipment. Firm B must return the entire deposit when the customer returns the undamaged equipment. c. $10,000 short-term loan from a local bank, Firm B gave the bank a written note to repay the loan in one year at 5 percent interest. d. $888 prepaid rent from the customer described in part b. The rent is $12 per day for the 74-day period from December 17 through February 28 1. LO 6-5 7. Firm F is a cash basis legal firm. In 2017, it performed services for a client, mailed the client a bill for $6,150, and recorded a $6,150 receivable. In 2018, Firm F discovered that the client was under criminal indictment and had fled the country. After learning this news, it wrote off the receivable. a. What was the effect of the recording of the account receivable on Firm F's taxable income? b. What was the effect of the write-off on Firm F's taxable income? 1. LO 6-5 8. Firm Q operates a cash basis consulting business. In October, Firm billed a client for $23.400 of consulting services. In November, the client settled the bill by paying $10,000 cash and transferring marketable securities worth $13.400 to Firm Q. How much taxable income does Firm Q recognize on settlement of the bill? 1. LO 6-5, - 99999993 594449 70 1. LO 6-5 6. Firm B, a calendar year, cash basis taxpayer, leases lawn and garden equipment. During December, it received the following cash payments. To what extent does each payment represent current taxable income to Firm B? a. $522 repayment of a loan from an employee. Firm B loaned $500 to the employee six months ago, and the employee repaid the loan with interest. b. $600 deposit from a customer who rented mechanical equipment. Firm B must return the entire deposit when the customer returns the undamaged equipment. c. $10,000 short-term loan from a local bank, Firm B gave the bank a written note to repay the loan in one year at 5 percent interest. d. $888 prepaid rent from the customer described in part b. The rent is $12 per day for the 74-day period from December 17 through February 28 1. LO 6-5 7. Firm F is a cash basis legal firm. In 2017, it performed services for a client, mailed the client a bill for $6,150, and recorded a $6,150 receivable. In 2018, Firm F discovered that the client was under criminal indictment and had fled the country. After learning this news, it wrote off the receivable. a. What was the effect of the recording of the account receivable on Firm F's taxable income? b. What was the effect of the write-off on Firm F's taxable income? 1. LO 6-5 8. Firm Q operates a cash basis consulting business. In October, Firm billed a client for $23.400 of consulting services. In November, the client settled the bill by paying $10,000 cash and transferring marketable securities worth $13.400 to Firm Q. How much taxable income does Firm Q recognize on settlement of the bill? 1. LO 6-5, - 99999993 594449