Other Objective Questions Designate Whether the Following Expenses Are Fully Deductible (F), Partially

question 30

Multiple Choice

Other Objective Questions
Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid.
-On November 1, 2018, Hernandez Corporation (a cash-basis, calendar-year taxpayer) signed a 36-month lease with Taylor Realty Corporation for rental office space. The market rental rate for this office space is $2,000 per month but Hernandez was able to rent it for $1,900 per month by agreeing to prepay the rent for the entire 36-month period. How much can Hernandez deduct in 2018 rent expense?

• A) $68,400
• B) $22,800
• C) $4,000
• D) $3,800

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Definitions:

Clientele Effect

A theory suggesting that the stock price movements are influenced by the preferences of a company's current shareholder base.

Payout Ratios

The proportion of earnings paid out to shareholders in dividends, indicating how much profit is distributed versus retained.

Investors

Persons or organizations that invest funds anticipating financial profits in return.

Expectations Theory

With respect to dividends: a dividend that’s lower than expected will be taken as a negative by investors even if it is larger than previous dividends. A variation on the signaling effect of dividends. With respect to interest rates: A theory explaining the shape of the yield curve. The curve slopes up or down depending on whether expectations about future interest and inflation rates are increasing or decreasing.