oe operates a business that locates and purchases specialized assets for clients, among other activities. Joe uses the a
Posted: Sun Jun 05, 2022 9:16 pm
oe operates a business that locates and purchases specialized
assets for clients, among other activities. Joe uses the accrual
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 this year.
Determine the effect of each of the following transactions on the
taxable business income.
Required:
a. Joe has signed a contract to sell
gadgets to the city. The contract provides that sales of gadgets
are dependent upon a test sample of gadgets operating successfully.
In December of this year, Joe delivers $13,550 worth of gadgets to
the city that will be tested in March of next year. Joe
purchased the gadgets especially for this contract and paid
$9,550.
b. Joe paid $285 in July of this year to
entertain a visiting out-of-town client. The client didn’t discuss
business with Joe during this visit, but Joe wants to maintain good
relations to encourage additional business next year.
c. On November 1 of this year, Joe paid
$610 for premiums providing for $61,000 of “key man” insurance on
the life of Joe’s accountant over the next 12 months.
d. At the end of this year, Joe’s
business reports $12,150 of accounts receivable. Based upon past
experience, Joe believes that at least $2,630 of his new
receivables will be uncollectible.
e. In December of this year, Joe rented
equipment to complete a large job. Joe paid $6,150 in December
because the rental agency required a minimum rental of three months
($2,050 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 $510 for airfare, $560 for lodging, and $460 for
meals at restaurants (Joe provided adequate documentation to
substantiate the business purpose for the meals). Joe requires 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 vehicle if he needs to travel after he
reaches the factory. In September of this year, 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 225 miles
visiting work sites and 88 miles driving back and forth between the
factory and his home. Joe uses the standard mileage rate to
determine his auto-related business expenses.
h. Joe paid a visit to his parents in
Dallas over the Christmas holidays this year. While he was in the
city, Joe spent $155 to attend a half-day business symposium. Joe
paid $410 for airfare, $134 for meals provided during the
symposium, and $83 on cab fare to the symposium.
(For all the transactions, select "No Effect" from the
dropdown if no change in the taxable business income. For part g,
round your final answer to whole number. Use standard mileage
rate.)
assets for clients, among other activities. Joe uses the accrual
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 this year.
Determine the effect of each of the following transactions on the
taxable business income.
Required:
a. Joe has signed a contract to sell
gadgets to the city. The contract provides that sales of gadgets
are dependent upon a test sample of gadgets operating successfully.
In December of this year, Joe delivers $13,550 worth of gadgets to
the city that will be tested in March of next year. Joe
purchased the gadgets especially for this contract and paid
$9,550.
b. Joe paid $285 in July of this year to
entertain a visiting out-of-town client. The client didn’t discuss
business with Joe during this visit, but Joe wants to maintain good
relations to encourage additional business next year.
c. On November 1 of this year, Joe paid
$610 for premiums providing for $61,000 of “key man” insurance on
the life of Joe’s accountant over the next 12 months.
d. At the end of this year, Joe’s
business reports $12,150 of accounts receivable. Based upon past
experience, Joe believes that at least $2,630 of his new
receivables will be uncollectible.
e. In December of this year, Joe rented
equipment to complete a large job. Joe paid $6,150 in December
because the rental agency required a minimum rental of three months
($2,050 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 $510 for airfare, $560 for lodging, and $460 for
meals at restaurants (Joe provided adequate documentation to
substantiate the business purpose for the meals). Joe requires 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 vehicle if he needs to travel after he
reaches the factory. In September of this year, 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 225 miles
visiting work sites and 88 miles driving back and forth between the
factory and his home. Joe uses the standard mileage rate to
determine his auto-related business expenses.
h. Joe paid a visit to his parents in
Dallas over the Christmas holidays this year. While he was in the
city, Joe spent $155 to attend a half-day business symposium. Joe
paid $410 for airfare, $134 for meals provided during the
symposium, and $83 on cab fare to the symposium.
(For all the transactions, select "No Effect" from the
dropdown if no change in the taxable business income. For part g,
round your final answer to whole number. Use standard mileage
rate.)