DPAD_comprehensive_solution - Required Compute Speed...

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Solution : DPAD – an expanded example Client facts: Speed Company is a U.S. manufacturer of carburetors. They have one plant in the U.S. and one in China. Include in the contract price is an embedded warranty cost. This cost represents 3-4% of the overall contract price (can be ignored since it less than 5%) Speed has three major customers; one in the U.S., one in the U.K. and one in Canada. Sales personnel are located in the U.S., the U.K. and Canada. W-2 wages allocated to DPGR totaled $4,500,000. Average annual three-year gross receipts $10,250,000. Financial information: Total China Sales 14,000,000 4,000,000 Cost of goods sold 7,000,000 1,800,000 Selling, G&A expenses 4,000,000* * $100,000 directly allocable to U.S. production (Can be ignored; unless Sec. 861 Regulations apply – average gross receipts > $100M).
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Unformatted text preview: Required : Compute Speed Company’s 2010 DPAD. U.S. production activities Total activities Gross receipts 14,000,000 Domestic production gross receipts (DPGR) 10,000,000 Cost of goods sold (7,000,000) Cost of goods sold related to domestic production (5,200,000) Gross margin 4,800,000 7,000,000 Less: Selling, G&A expenses 4,000,000 (4,000,000) Allocation percentage based on: DPGR/gross receipts ($10/$14) X 71% (2,840,000) (A) Taxable income 3,000,000 (B) Qualified production activities income (QPAI) 1,960,000 QPAD = Smaller of (A) or (B) x percentage 1,960,000 QPAD percentage for 2010 X 9% (C) Qualified production activities deduction b-4 W-2 limitation 176,400 W-2 wages allocated to DPGR 4,500,000 50% limitation X 50% (D) W-2 limitation 2,250,000 Domestic production activities deduction – smaller of (C) or (D) 176,400...
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