Maria, an Engineer, Has Adjusted Gross Income of $167,000 Before

question 91

Multiple Choice

Maria, an engineer, has adjusted gross income of $167,000 before considering the following losses. The passive activity rules disallow the deduction for the loss in which of the following?
I.Maria has a $21,000 loss from her ownership of Family Apartment Village, a low-income housing project.
II.Maria owns and actively participates in managing a rental house across the street from East State College. This activity generates a $7,000 loss in the current year.
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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Definitions:

Direct Write-Off Method

An accounting practice where uncollectible accounts receivable are directly written off against revenue at the time they are deemed to be uncollectible.

Allowance Method

An accounting technique that estimates and reduces accounts receivable to reflect only amounts expected to be collected.

Allowance Method

A technique in accounting used to account for bad debts, where anticipated uncollectible accounts receivable are estimated and recorded.

Adjusting Entry

Journal entries made in accounting to update records for expenses and revenues not recorded during an accounting period.