Robin Owns an Appliance Store

question 76

Essay

Robin owns an appliance store. Robin gives Tim a stereo unit to paint the front of her store building. The stereo unit, included in Robin's inventory at a cost of $400, normally retails for $700. If Tim had billed Robin for his work like he charged other customers, he would have sent Robin a bill for $600. Does Tim have income from the receipt of the stereo unit? If so, what amount should Tim report as gross income? Explain in terms of the Income Tax Concepts.

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Definitions:

NPV

Net Present Value, a calculation used to estimate the profitability of an investment or project by summing the present values of all expected future cash flows.

Probability

The measure of the likelihood that an event will occur, expressed as a number between 0 and 1, where 1 indicates certainty.

Capital Budgeting

The process by which a business evaluates and selects long-term investments that are expected to yield returns over a period of time.

Risk Character

A term describing the unique attributes and level of risk associated with an investment or financial decision.