Question

1-1

Henrietta, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $67,000 of expenses associated with this investigation. Based on the regulatory environment for hotels in the city, she decides not to expand. During the year, she also investigates opening a restaurant that will be part of a national restaurant chain. Her expenses for this are $52,200. She proceeds with opening the restaurant, and it begins operations on May 1.

Determine the amount that Henrietta can deduct in the current year for investigating these two businesses.

In your computations, round the per-month amount to the nearest dollar and use rounded amount in subsequent computations.

a. The deductible amount of investigation expenses related to expansion of her hotel chain into another city: answer :$67000

b. The deductible amount of investigation expenses related to opening a restaurant: $ ???

what is b answer? thank you

1-2

Monty loaned his friend Ned $19,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $16,150, Ned filed for bankruptcy and notified Monty that he would be unable to pay the balance on the loan. Monty treated the $16,150 as a nonbusiness bad debt. Last year, before considering the tax implications of the nonbusiness bad debt, Monty had capital gains of $6,460 and taxable income of $29,750. During the current year, Ned paid Monty $14,535 in satisfaction of the debt.

Determine Monty's tax treatment for the $14,535 received in the current year.

The nonbusiness bad debt of $16,150 would have been reported as a short-term capital loss , and $ ??? would be included in Monty's gross income this year.

1-1 b answer and 1-2 ??? answer.

Thank you for your help.

Answer 1

Answer:-

1-1)
a). The deductible amount of investigation expenses related to expansion of her hotel chain into another city: answer :$67000
b). Where in case of Restuarant business , as Restaurant business was not the business of Henreitta , only part of the investigation expense will be allowed as deductible expense. For the startup upto $5000 is allowed as a deductible expense immediately which is reduce if the expense is above 50000 , hence deductible expense which is allowed immediately will be 5000 - Excess over 50000 , ie (5000-2200) = $2800, and The balance (52200-2800) $49400 will be amortised over 180 month from the month the business started ie May 1.
Amortization per month =49400÷180=$274
Total deductible expense for the year for Restaurant =$2800+ ($274×8 mnth ) =$2800+2192 =$4992
The deductible amount of investigation expenses related to opening a restaurant: $4,992
1-2)
a) As per Question , it is clearly mentioned that $ 16150 would be reported as short term capital Loss as Non Business bad debt .
But How much amount would be included in Monty's gross income , as explained below :
Monty recently received $ 14535 in the current year but he can not consider full amount as income . He has to calculate Capital Gain before that .
Monty's capital gain - ( tax benefit Prior Year ) - ==== $ 6460
Add - Annual Allowance limit -==================$ 3,000
Total amount to include Monty's Gross income ==== $ 9,460
Of the $ 16,150 loss produced tax benefit.

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