Boasso Corporation manufactures an exercise machine at a cost of $800 and sells the machine to Kirby Corporation for $1,000 in 2011. Kirby incurs TV advertising expenses of $300 and sells the machine by phone order for $1,700. If Boasso and Kirby corporations are members of an expanded affiliated group (EAG), their QPAI is:

Question

Quizplus · Accepted Answer

Since Boasso Corporation is a member of an EAG, its eligible costs must be reduced to $400 (50% of $800) to calculate QPAI, the qualified production activity income. Kirby’s advertising expenses are not included in Boasso’s eligible costs, so we can calculate Kirby’s gross receipts minus cost of goods sold to arrive at Kirby’s QPAI.

Kirby’s cost of goods sold is $800 (the purchase price from Boasso). Kirby’s QPAI is $900 ($1,700 - $800) since they incurred TV advertising expenses of $300.

Therefore, the EAG’s QPAI is $600 ($400 from Boasso and $900 from Kirby).

Boasso Corporation Manufactures an Exercise Machine at a Cost of $800