Intermediate Managerial and Tax Accounting Taxable Income from Business Operations

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Intermediate Managerial and Tax Accounting
ACCTG 325, Fall 2024
Exercise 5
Chapter 6, Taxable Income from Business Operations
Name _________________________________
RedID# _______________________________
1. Malo Inc. uses a fiscal year ending June 30. On May 29, Malo received a check for $3,900 from a business that
leases parking spaces in Malo’s parking garage. This payment was for the three-month period beginning June 1.
On June 15, Malo sent an invoice for $5,500 to a customer for services rendered during May and June. Malo
received payment from the customer on July 3. (Remember the exception for prepaid rent income)
a. If Malo is a cash basis taxpayer, how much income should it recognize from the given transactions in the
current fiscal year?
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b. If Malo is an accrual basis taxpayer, how much income should it recognize from the given transactions in
the current fiscal year?
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2. LSG Company is a calendar year, cash basis taxpayer. On November 1, 2021, LSG paid $9,450 to the janitorial
service that cleans their offices. How much of this expenditure can LSG deduct in 2021 assuming that:
a. The expenditure is a prepayment for 6 months of cleaning services from November 2021 through April
2022?
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b. The expenditure is a prepayment for 18 months of cleaning services from November 2021 through April
2023?
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3. TRW Inc. began business in 2021 and incurred net operating losses for its first 2 years. In 2023, it became
profitable. The following amounts are TRW’s taxable income before consideration of the NOLs. Recompute
TRS’s taxable income for 2023 through 2028 after its allowable net operating loss deduction. How much of the
NOL remains in 2025?
2021 = $(420,000), 2022 = $(358,000), 2023 = $81,000, 2024 = $41,000, 2025 = $210,000, 2026 = $298,000,
2027 = $387,000, 2028 = $905,000
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4. Margaret, a married taxpayer filing a joint return, engaged in two business activities this year. Business A earned
$470,000 of profit. Business B incurred a loss of $(995,000). How much of Margaret’s net business loss is not
currently deductible if the MFJ threshold is $510,000?
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