Question

method of accounting but he doesn't keep any significant inventories of the specialized assets that he sells. Joe reported the following financial information for his business activities during year 0 Joe operates a business that locates and purchases specialized assets for clients, among other activities. Joe uses the accrual Determine the effect of each of the following transactions on the taxable business income. (Select "No Effect" from the dropd If no change in the taxable business income.) own a. Joe has signed a contract to sell gadgets to the city. The contract provides that sales of gadgets are d b. Joe paid $260 for entertaining a visiting out-of-town client. The client didn't discuss business with Joe during this visit, but Joe c On November 1, Joe paid $560 for premiums providing for $56,000 of key man" Insurance on the life of Joe's accountant d. At the end of year O, Joe's business reports $11,400 of accounts recelvable. Based upon past experience, Joe Required: dependent upon a test sample of gadgets operating successfully. In December, Joe delivers $13,050 worth of gadgets to the city that will be tested in contract and paid $9.300. ets especially for this March. Joe purchased the g wants to maintain good relations to encourage additional business next year over the next 12 months. least $2,480 of his new receivables will be uncollectible e. In December of year O, Joe rented equipment to complete a large job. Joe paid $5,400 in December because the rental agency required a minimum rental of three months ($1,800 per month). Joe completed the job before year-end, but he returned the equipment at the end of the lease. f. Joe hired a new sales representative as an employee and sent her to Dallas for a week to contact prospective out-of-state clients. Joe ended up reimbursing his employee $460 for airfare, $510 for lodging.$410 for meals, and $310 for entertainment (Joe provided adequate documentation to substantiate the business purpose for the meals and entertainment), Joe requi the employee to account for all expenditures in order to be reimbursed. g. Joe uses his BMW (a personal auto) to travel to and from his residence to his factory. However, he switches to a business ehicle if he needs to travel after he reaches the factory. Last month, the business vehicle broke down and he was forced to use the BMW both to travel to and from the factory and to visit work sites. He drove 200 miles visiting work sites and 78 miles driving to and from the factory from his home. Joe uses the standard mileage rate to determine his auto-related business expenses. (Round your answer to whole number. Use standard mileage rate.) h. Joe paid a visit to his parents in Dallas over the Christmas holidays. While he was in the city, Joe spent $130 to attend a half Prev 1 of 1 Next

Answer 1

1. Cost of sales = $9,300 is to be deducted from taxable income.
2. No effect on taxable business income
3. $560 key man insurance premium will reduce taxable business income
4. Joe will provision for $2,480 and deduct it from his taxable income ( He needs to provide historical proof that evidences the difficulty of collecting a similar amount in the past)
5. Although the rent should ideally be accrued over 3 months, ($1,800 each month), he can recognize the entire $5,400 in December as expense provided that he also recognized the entire revenue from the job that he finished in year 0. - Matching concept
6. All the expenses can be claimed as business expenses provided there is documentary proof of the bills and receipts. The entertainment expenses might not be claimable if not directly related to the business, depending on the nature of entertainment and on the discretion of the IRS Officer.
7. Given that 58c is the standard mileage rate for 2019, we can assume that he can claim (278*0.58)=$161.24 as his business expenses, and reduce from taxable income.
8. Not deductible. No effect on business income.