Pamela Was an Officer in Green Restaurant Which Subsequently Went

question 1907

Multiple Choice

Pamela was an officer in Green Restaurant which subsequently went bankrupt. Pamela started a new restaurant and, to establish goodwill, paid off the debts of $100,000 of Green Restaurant. She was under no obligation to do so. The $100,000 is

• A) deductible currently as an itemized deduction.
• B) deductible currently as a trade or business expense since the expenses are considered ordinary and necessary business expenses.
• C) capitalized because the expenses are not ordinary.
• D) None of the above.

---

Definitions:

Credit Balance

The amount of money in a financial account that indicates that a customer has funds or credits available to them.

Consolidated Cash

The total cash and cash equivalents held by a parent company and its subsidiaries, presented as a single figure on consolidated financial statements.

Common Stock

A type of equity ownership in a corporation, representing a claim on a portion of the company’s profits and the right to vote on matters affecting the company.

Acquisition

The process of obtaining control of another company by purchase or exchange of stock.