Alvin Is a Self-Employed Sound Technician Who Reports on the Cash

question 91

Essay

Alvin is a self-employed sound technician who reports on the cash method and calendar year. Alvin has a shop in Austin, Texas, but he spends much of his time away from his shop traveling to and from various concerts around the country. Alvin leases a truck to move his equipment around the country, and this year, he spent $12,000 in lease payments and paid $18,000 for gas, oil, and repairs. Alvin keeps records of his personal use of the truck and he estimates that 6,000 of the total 36,000 miles put on the truck this year were for personal trips. What amount of these expenses may Alvin deduct as business expenses?

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Definitions:

Profitability

A measure of how efficiently a company or project generates profit in relation to its revenue or investments.

Times Interest Earned

A financial ratio that measures a company’s ability to meet its debt obligations, calculated by dividing earnings before interest and taxes (EBIT) by interest expenses.

Interest Payments

The amount paid by a borrower to a lender over a period of time for the use of borrowed money, typically expressed as an annual percentage rate.

Earnings Decrease

This term refers to a reduction in a company’s net income or earnings per share (EPS) in comparison to a previous period, indicating a decline in profitability.