Armitage Inc. has earned gross receipts of about $10 million for the past 3 years. This year it earns gross receipts of $10,600,000. Armitage has $5,000 of business interest income, $400,000 of adjusted taxable income and $200,000 of business interest expense. How much business interest expense can Armitage deduct? Assume the same facts except that Armitage’s gross receipts for the past 3 years have averaged about $30 million. How much business interest can Armitage deduct?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Armitage Inc. has earned gross receipts of about $10 million for the past 3 years. This year it earns gross receipts of $10,600,000. Armitage has $5,000 of business interest income, $400,000 of adjusted taxable income and $200,000 of business interest expense.

  1. How much business interest expense can Armitage deduct?
  2. Assume the same facts except that Armitage’s gross receipts for the past 3 years have averaged about $30 million. How much business interest can Armitage deduct?
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Step 1 General Introduction

Business interest expense for the year is that amount which is properly allocable to both an excepted trade or business and a note expected trade or business.

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