Charles Owns a Business with Two Separate Departments

question 19

Multiple Choice

Charles owns a business with two separate departments.Department A produces $100,000 of income and Department B incurs a $60,000 loss.Charles participates for 550 hours in Department A and 100 hours in Department B.He has full-time employees in both departments.

• A)If Charles elects to treat both departments as a single activity, he cannot offset the $60,000 loss against the $100,000 income.
• B)Charles may not treat Department A and Department B as separate activities because they are parts of one business.
• C)If Charles elects to treat the two departments as separate activities, he can offset the $60,000 loss against the $100,000 income.
• D)If Charles elects to treat both departments as a single activity, he can offset the $60,000 loss against the $100,000 income.
• E)None of these is correct.

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Definitions:

Financial Obligations

Liabilities or commitments that require a business or individual to make payments, including debts, loans, and other financial responsibilities.

Direct Bankruptcy Costs

Expenses directly associated with the process of filing for bankruptcy, including legal fees, accounting expenses, and other administrative costs.

Indirect Bankruptcy Costs

Costs associated with bankruptcy or financial distress but not directly tied to the process, such as lost sales, customer and supplier defections, and reduced access to credit.

Financial Solvency

The ability of an entity to meet its long-term financial obligations, indicating a stable and viable fiscal position.