Question 1

Under GAAP, a corporation that recognizes bad debt expense for accounts receivable using the allowance method. These estimated receivables that cannot yet be written off for tax purposes result in a deferred tax asset.

a. True or false? Explain.

b. If these debts actually become worthless, what is the reversing effect?

Question 2

Read IRC 448(a) and (c)(1) and IRC 471(c). The $25 million has been adjusted for inflation to $26 million.

In your own words, consulting your text, explain these provisions. Limit your answer to 100 words.

You can find the Code sections at Cornell Law School LII using any search engine.

Question 3

Phyllis Corporation has gross income and deductions as follows:

2020 2021 2022

Gross income 400,000 500,000 600,000

Deductions 750,000 400,000 300,000

How much is the corporations gross tax for each year 2020 2022. Recall that the corporate tax rate is 21%.