petro company donated inventory to hospitals. the basis of the inventory was 70,000 and its fair...

petro company donated inventory to hospitals. the basis of the inventory was 70,000 and its fair market value was 120000. petro made no other cintributions this year. what is the charitable contribution deduction assuming that petry co taxes income before the dividend received deduction and charitable contributions deduction is 600,000 and included in income was a 100000 dividende received from a 15% owned domestic coproation

Expert Solution

“when a company contributes inventory to be used by the donee for the care of the needy, the qualified contribution is reduced by half of the amount of potential ordinary income if property had been sold at its FMV”

Petro Company allowable contribution deduction should not exceed $60000 ($600,000 adjusted taxable income × 10%).

Contributions $120,000
Less: Potential ordinary income if sold [($120,000 FMV - $70,000 basis) × 50%] $25,000

Contribution deduction $95,000

So here, Petro Company can take up to $60,000 as contribution deduction

I hope this will help you. If requires clarification , you may comment below.

ekkarill92 answered 10 months ago

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