Question

please answer 1-3

You are examining the audit work papers of a client, Sunrise Manufacturing. In preparation of their 2019 tax return. The audit work papers provide all the detail for each of the accounts that are provided on the financial statements. For example, all the detail for the accounts receivable account is contained in the audit work papers so that you know exactly what makes up the number for that account. As you are examining the Seling, General and Administrative (SG&A) account, you notice several different expenses that may or may not be deductible. Of the following expenses that you notice, which will give you the greatest uncertainty about its deductibility or partial deductibility? This means you must ask the client about the nature of the expense to determine if it's deductible or not. Multiple Choice A fine paid to the State of California in the amount of $23,000 A meal expense for $250 in which the CEO of Sunrise and an official from the City of Sacramento were present A life insurance prémium paid to MetLife in the amount of $1,900 All of the above expenses are clearly deductible or not deductible, There is no uncertainty with any of the above expenses.

Answer 1

Question 1:-

The correct answer to the question is Option A - A fine paid to the state of California in the amount of $23,000. Fines and penalties are generally not deductible for a business as a valid business expense. As such, any amount reported on the financial statements under the category would require further investigation and understanding on the part of the auditor as to the reasonableness of such expenses reported. Hence, this is the correct answer.

Option B is incorrect as a meal expense is valid and can be deductible.

Option C is incorrect as the life insurance premium paid can be deductible.

Option D is incorrect as it is incorrect. There is uncertainty about the expense reported as part of the fines. As such, this is incorrect.

Kindly note that i have answered the first question per the HOMEWORKLIB RULESs. Request you to post the remaining question separately so that we can answer them as well. All the best and please let me know if you have any questions via the comments section .