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FromTheMoon [43]
3 years ago
13

Sarah has investments in four passive activity partnerships purchased several years ago. Last year the income and losses were as

follows: Activity Income (Loss) A $30,000 B (30,000) C (15,000) D (5,000) In the current year, she sold her interest in Activity D for a $10,000 gain. Activity D, which had been profitable until last year, had a current loss of $1,500. Answer the following questions to determine how the sale of Activity D affects Sarah's taxable income in the current year. a. The amount of suspended losses carried forward to the year of the sale is $ . b. What amount of the suspended losses is allocated to Activity D? $ c. How much, if any, of this net gain may be used to absorb passive activity losses from other activities? $
Business
1 answer:
iogann1982 [59]3 years ago
6 0

Answer:

Explanation:

In last year, Sarah couldn't deduct anything against non passive income and need to allocate the $20,000 net loss between the three loss activities.

Activity                      Income (Loss)

A                                 30,000

B                                 (30,000)

C                                  (15,000)

D                                   (5,000)

Net Passive Loss         (20,000)

Allocation of net passive loss to Activity B,C and D.

Activity B (30/50 * $20,000)    ($12,000)

Activity C (15/50 * $20,000)         ($6,000)

Activity D (5/50 * $20,000)          ($2,000)

Suspended losses Total        ($20,000)

In current year, Sarah has a net gain of $10,000 from sale of Activity D. Sarah can set off $2,000 suspended loss from the activity and the current year’s loss of $1,500 from activity across $10,000 gain. Further, the balancing net gain of $6,500 (10,000-2,000 -1,500) from the sale may be utilized to cover passive losses from the other activities.

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Self-confidence

Self-knowledge

Initiative

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6 0
3 years ago
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi p
kolbaska11 [484]

Answer:

Kokomochi

YEAR 1

Incremental Earnings Forecast ($ million)

Sales of Mini Mochi Munch                   $8,310,000

Other Sales                                           $2,380,000

Other sales revenue                           $10,690,000

Cost of Goods Sold                               $7,186,500

Gross Profit                                           $3,503,500

Selling, General, and Administrative    $4,130,000

Depreciation                                         $0

EBIT                                                       ($ 626,500)

Income Tax at 35%                               $0

Unlevered Net Income                         $0

Calculate the unlevered net income for year 2 below:

YEAR 2

Sales of Mini Mochi Munch                   $6,310,000

Other Sales                                           $2,380,000

Total sales revenue                              $8,690,000

Cost of Goods Sold                              $5,886,500

Gross Profit                                           $2,803,500  

Selling, General, and Administrative   $ 0

Depreciation                                         $0

EBIT                                                       $2,803,500

Income Tax at 35%                                  $981,225

Unlevered Net Income                         $1,822,275

Explanation:

a) Data and Calculations:

Advertising campaign expenses = $4.13 million

Incremental sales revenue from Mini Mochi Munch = $8.31 million

Next years incremental sales revenue from Mini Mochi Munch = $6.31 million

Incremental sales revenue from other products = $2.38 million each year

Gross profit margin or the Mini Mochi Munch = 35%

Gross profit margin for other products = 25%

Marginal corporate tax rate = 35%

Cost of goods sold:

Year 1:

Mini Mochi Much = 65% (100 - 35%) of sales = 65% * $8.31 m = $5,401,500

Other products = 75% (100 - 25%) of sales = 75% * $2.38 m =   $1,785,000

Total cost of goods sold = $7,186,500

Year 2:

Mini Mochi Much = 65% (100 - 35%) of sales = 65% * $6.31 m = $4,101,500

Other products = 75% (100 - 25%) of sales = 75% * $2.38 m =   $1,785,000

Total cost of goods sold = $5,886,500

b) The company will incur a loss in the first year, which will be recovered by the second year's profit, because advertising expense are not capitalized or spread over the two years.

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the cost of land improvements are capitalized separately from land because land improvements tend to have a useful life.
lisabon 2012 [21]

Land improvements are capitalized separately from Land because land improvements have only a limited useful life.

Land is a special fixed asset which means that:

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Land improvements on the other hand, will not last forever. They will eventually wear out and need to be replaced. They are therefore capitalized separately from land so that they can be depreciated if need be.

In conclusion, land improvements are capitalized separately from land because they have a limited useful life.

<em>Find out more at brainly.com/question/14436052.</em>

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