The Crane family recognized the following types of investment income during 20X6: (1) $1,500 qualified dividends, (2) $3,000 long-term capital gains, and (3) $850 taxable interest. Additionally, the Crane family has $500 in investment expenses for the year. The Crane family paid $3,333 in investment interest expense during 20X6. Calculate the different possibilities to determine the maximum deduction for investment interest expense for the Crane family in 20X6. From these possibilities, which provides the maximum deduction?
What will be an ideal response?
Elect to include only $2,483 of long-term capital gain in net investment income.
See calculations below:
Option 1: No election.
Investment income: $850
Investment interest expense allowed to deduct: $850
Investment interest expense carried forward: $3,333 ? $850 = $2,483
Option 2: Election to include all qualified dividends in investment income.
Investment income: $1,500 + $850 = $2,350
Investment interest expense allowed to deduct: $2,350
Investment interest expense carried forward: $3,333 ? $2,350 = $983
Option 3: Election to include all long-term capital gains in investment income.
Investment income: $3,000 + $850 = $3,850
Investment interest expense allowed to deduct: $3,333
Investment interest expense carried forward: $0
Pay higher tax rate on excess $517 elected
Option 4: Election to include all qualified dividends and all long-term capital gains in investment income.
Investment income: $1,500 + $3,000 + $850 = $5,350
Investment interest expense allowed to deduct: $3,333
Investment interest expense carried forward: $0
Pay higher tax rate on excess $2,017 elected
Option 5: Election to include only $2,483 of long-term capital gains in net investment income.
Investment income: $2,483 + $850 = $3,333
Investment interest expense allowed to deduct: $3,333
Investment interest expense carried forward: $0
Option 5 is superior to Options 3 and 4 because it subjects the minimum amount of long-term capital gain to ordinary rates while maintaining the investment interest carried forward at zero. Other combinations of long-term capital gain and qualifying dividends totaling $2,483 would also be acceptable.
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Define epideictic, informative, and persuasive presentations and give one "real-world" example of each type.
What will be an ideal response?
On February 3, Smart Company sold merchandise in the amount of $5,800 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:
A.
| Cash | 5,684 | |
| Accounts receivable | 5,684 |
B.
| Cash | 4,000 | |
| Accounts receivable | 4,000 |
C.
| Cash | 5,800 | |
| Accounts receivable | 5,800 |
D.
| Cash | 3,920 | |
| Sales discounts | 80 | |
| Accounts receivable | 4,000 |
E.
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| Sales discounts | 116 | |
| Accounts receivable | 5,800 |
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