Answered: a.How much interest expense can CL…

Name: CL LLC is a manufacturing business and reported taxable income of $40,
Uploaded: 2024-03-04T10:43:15.000Z
Channel: Bartleby
Description: CL LLC is a manufacturing business and reported taxable income of $40,000,000 before interest expense, taxes, depreciation, and amortization (“tax EBITDA”), plus $1,500,000 of separately stated investment income. CL incurred interest expense of $1,00

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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CL LLC is a manufacturing business and reported taxable income of $40,000,000 before interest expense, taxes, depreciation, and amortization (“tax EBITDA”), plus $1,500,000 of separately stated investment income. CL incurred interest expense of $1,000,000 in connection with this investment income and $14,000,000 in con-nection with its trade or business.

a.How much interest expense can CL deduct?

b.How is the interest expense reported on CL’s Schedule K?

c.What action, if any, is needed by the LLC members?

d.How would your answers to parts (a) through (c) change if CL’s tax EBITDA was $4,000,000 (plus $150,000 of investment income), its average annual gross receipts for all prior tax years was $10,000,000 or less, and the interest expense amounts were $100,000 (investment) and $1,400,000 (business)?

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