Blue Corporation, a manufacturing company, decided to develop a new line of merchandise. The project began in 2013. Blue had the following expenses in connection with the project:
2013 2014

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Salaries $500,000 $600,000
Materials 90,000 70,000
Insurance 8,000 11,000
Utilities 6,000 8,000
Cost of inspection of materials for quality control 7,000 6,000
Promotion expenses 11,000 18,000
Advertising –0– 20,000
Equipment depreciation 15,000 14,000
Cost of market survey 8,000 –0–
The new product will be introduced for sale beginning in July 2015. Determine the amount of the deduction for research and experimental expenditures for 2013, 2014, and 2015 if:
a. Blue Corporation elects to expense the research and experimental expenditures.
b. Blue Corporation elects to amortize the research and experimental expenditures over 60 months.

38. LO.6 Sarah Ham, operating as a sole proprietor, manufactures printers in the United
States. For 2013, the proprietorship has QPAI of $400,000. Sarah’s modified AGI was $350,000. The W–2 wages paid by the proprietorship to employees engaged in the qualified domestic production activity were $60,000. Calculate Sarah’s DPAD for 2013.

39. LO.6 Barbara, a calendar year taxpayer, owns and operates a company that manufactures toys. For 2013, she has modified AGI of $500,000 and QPAI of $550,000. Ignoring the W–2 wage limitation, calculate Barbara’s DPAD.

40. LO.6 Red Corporation manufactures hand tools in the United States. For the current year, the QPAI derived from the manufacture of hand tools was $1 million. Red’s taxable income for the current year was $2.0 million. Last year, Red had an NOL of $800,000, which Red elected to carry forward. Calculate Red’s DPAD for the current year.

41. LO.6 Green Corporation manufactures skirts and blouses in the United States. The
DPGR derived from the manufacture of one skirt is $12, and the DPGR from one blouse

is $10. The cost of goods sold is $5 for one skirt and $6 for one blouse. Other allocated costs are $1 for one skirt and $5 for one blouse. What amount of QPAI is available to
Green for calculating the DPAD?

42. LO.6 In 2013, Rose, Inc., has QPAI of $4 million and taxable income of $3 million. Rose pays independent contractors $500,000. Rose’s W–2 wages are $600,000, but only $400,000 of the wages are paid to employees engaged in qualified domestic production activities.
a. Calculate the DPAD for Rose, Inc., for 2013.
b. What suggestions could you make to enable Rose to increase its DPAD?

43. LO.1, 3 Nell, single and age 38, had the following income and expense items in 2013:
Nonbusiness bad debt $ 6,000
Business bad debt 2,000
Nonbusiness long-term capital gain 4,000
Nonbusiness short-term capital loss 3,000
Salary 50,000
Interest income 3,000
Determine Nell’s AGI for 2013.