Question

17 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. $1,248 repayment of a loan from an employee. Firm B loaned $1,200 to the employee six months ago, and the employee repaid the loan with interest b. $1,300 deposit from a customer who rented mechanical equipment. Firm B must return the entire deposit when the customer returns the undamaged equipment. c. $11,400 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. $666 prepaid rent from the customer described in part b. The rent is $9 per day for the 74-day period from December 17 through February 28 5 points 01:15:50 eBook Taxable income a. b. Taxable income Taxable income C. d. Taxable income

Answer 1

Taxable income $48 a b Taxable income $0 $0 Taxable income C d Taxable income $666 Explanation: $48 taxable income. Although Firm B received $1248 cash, the $1200 principal repayment return of investment. Only the $48 interest is income. a) a nontaxable was No taxable income. Although Firm B received $1300 cash, the receipt created a of the deposit and did not increase net worth liability for repayment b) No taxable income. Although Firm B received $11,400 cash, the receipt created a liability for repayment of the loan and did not increase net worth C) $666 taxable income. Although Firm B earned only $135 of the prepaid rent this year, (15 days in December x $9) the income is recognized in the year payment is received. d)