Which of the Following Business Expense Deductions Is Most Likely

question 9

Multiple Choice

Which of the following business expense deductions is most likely to be unreasonable in amount?

• A)Compensation paid to the taxpayer's spouse in excess of salary payments to other employees.
• B)Amounts paid to a subsidiary corporation for services where the amount is in excess of the cost of comparable services by competing corporations.
• C)Cost of a meal with a former client when there is no possibility of any future benefits from a relation with that client.
• D)All of the choices are likely to be unreasonable in amount.
• E)None of the choices are likely to be unreasonable in amount.

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Definitions:

Required Reserves

The minimum amount of funds that a bank is required to hold in reserve against deposits made by customers, as mandated by regulatory authorities.

Required Reserve Ratio

The fraction of deposits that banks are required to keep on hand as reserves, either in cash or as deposits with a central bank.

Checkable Deposits

Deposits in financial institutions that can be withdrawn by writing a check or using a debit card.

Reserves

Assets held by financial institutions or central banks as a requirement or for ensuring liquidity in times of need, including cash, deposits, or securities.