One of the Criteria to Be Satisfied in Order for a Business

question 110

Multiple Choice

One of the criteria to be satisfied in order for a business to deduct an expense is that the expense be "necessary." In applying this standard,case law has determined that necessary means

• A)indispensable if the business is to succeed.
• B)mandated by law.
• C)appropriate and helpful to the business.
• D)none of the above.

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Definitions:

Effective-interest Method

A technique used in finance to calculate the actual interest rate on a bond or loan, taking into account the effect of compounding over the period.

Interest Expense

The cost incurred by an entity for borrowed funds; it is a non-operating expense shown on the income statement.

Straight-line Amortization

A method of reducing the carrying amount of an intangible asset over a fixed period of time in a systematic and rational manner.

Premium Amortization

The gradual expense or reduction of the premium paid above the par value of a debt security over its remaining term.