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LN Consulting is a calendar year, cash basis unincorporated business. The business is not required to provide audited financial statements to any external user. LNs
LN Consulting is a calendar year, cash basis unincorporated business. The business is not required to provide audited financial statements to any external user. LNs accounting records show the following:
Cash receipts: | |||
Revenues from service contracts | $ | 292,000 | |
Proceeds from sale of mutual fund shares | 18,000 | ||
Insurance reimbursement for fire loss | 7,000 | ||
Cash disbursements: | |||
Administrative salaries | $ | 32,000 | |
Professional fees | 800 | ||
Business meals | 1,090 | ||
Business entertainment costs | 2,000 | ||
State and local business taxes | 5,000 | ||
Interest expense | 7,600 | ||
Advertising | 970 | ||
Office expense | 1,200 | ||
Office rent | 14,400 | ||
New office equipment | 8,300 | ||
LNs records reveal the following facts:
- In December, the bookkeeper prepaid $1,500 interest on a business debt. This interest is related to the next taxable year.
- LN disposed of two assets during the year. It exchanged computer equipment for office furniture. (These assets are not like-kind for federal tax purposes.) The original cost of the computer equipment was $13,000, and accumulated MACRS depreciation through date of exchange was $9,700. The office furniture has a $6,000 FMV. It sold 1,200 shares in a mutual fund for $18,000. LN purchased the shares as a short-term investment of excess working capital. The cost of the shares was $16,600.
- An electrical fire completely destroyed a company car. The adjusted basis of the car was $9,100, and LNs property insurance company paid $7,000 in complete settlement of its damage claim. LN used the insurance money to pay various operating expenses.
- MACRS depreciation for assets placed in service in prior years (including the computer equipment and company car) is $4,600. The only asset acquired this year (in addition to the office furniture) was office equipment costing $8,300. The equipment was placed in service on August 19.
On the basis of these facts, compute the taxable income generated by LN Consultings activities, before any 20 percent (QBI) deduction that might be available to LN's owners.
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