Art Has Worked for Denver's Diamond Dealers (DDD) for Ten

question 18

Multiple Choice

Art has worked for Denver's Diamond Dealers (DDD) for ten years. During the current year, Art marries and moves from his downtown apartment to a house in the suburbs. Before he was married, Art always rode the bus to work. Because there is no bus service to his new home, Art needs to purchase a car. Wayne, the owner of DDD gives Art $17,000 to purchase a used car. Which of the following statements concerning the $17,000 payment is/are correct?
I.If DDD does not require Art to repay the $17,000, Art has $17,000 of compensation income.
II.If DDD requires Art to repay the $17,000, Art has no compensation income from the receipt of the $17,000.
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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Definitions:

Percentage of Sales Basis

A method used to forecast future financial outcomes by assuming that certain expenses, net income, and balance sheet items change in direct proportion to changes in sales.

Uncollectibles

Debts from customers that are considered impossible to collect and are therefore written off as a loss.

Expense with Revenues

Represents the relationship between the costs incurred and the revenues generated in a specific period.

Direct Write-off Method

An accounting method for treating bad debts that writes off specific invoices as uncollectable only at the time they are deemed irrecoverable.