Which of the Following Business Expense Deductions Is Most Likely

question 15

Multiple Choice

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

• A) Cost of entertaining a former client when there is no possibility of any future benefits from a relation with that client.
• B) Compensation paid to the taxpayer's spouse in excess of salary payments to other employees.
• C) Amounts paid to a subsidiary corporation for services where the amount is in excess of the cost of comparable services by competing corporations.
• 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:

Inflation

A widespread rise in prices and a decrease in the value of money.

Spending Multiplier

A concept in Keynesian economics that quantifies the effect of an increase in autonomous spending on the total economic output.

Potential Output

The highest level of economic output that can be sustained over the long term without increasing inflation.

MPC

Marginal Propensity to Consume, which indicates the fraction of additional income that a household is likely to spend on consumption.