Question

In the current year, Tern, Inc., a calendar year C corporation, has $9 million of adjusted...

In the current year, Tern, Inc., a calendar year C corporation, has $9 million of adjusted taxable income, $300,000 of business interest income, zero floor plan financing interest, and $3.2 million of business interest expense. Tern has average gross receipts for the prior three-year period of $45 million. Which of the following statements is correct about the treatment of Tern's business interest expense?

Group of answer choices

Current year deduction of $3 million, carryback of $200,000.

Current year deduction of $2,790,000, carryback of $410,000.

Current year deduction of $3 million, carryforward of $200,000.

Current year deduction of $3.2 million.

Current year deduction of $2,790,000, carryforward of $410,000.

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Answer #1

Ans is

Current year deduction of $3 million, carryforward of $200,000.

Reason:-

Business interest deduction limitation

Business Interest Income = $300000

+ 30% *$9m ie $2.7m

Total current year deduction = $3m

Remaining $200,000 will be allowed next year.

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