Powell Inc

question 22

Multiple Choice

Powell Inc. was incorporated and began operations on October 1 and adopted a calendar year for tax purposes. Powell paid $4,200 to the attorney who handled the corporate formation. Which of the following statements is true?

• A) If Powell capitalized the $4,200 payment for financial statement purposes, it must also capitalize it for tax purposes.
• B) Powell can deduct the $4,200 payment on its first tax return.
• C) For tax purposes, Powell must capitalize the $4,200 organizational cost and amortize it over 15 years.
• D) None of these choices are true.

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Definitions:

Beginning Cash Balance

The amount of cash a company has at the start of a new financial period, carried over from the end of the previous period.

Cost of Goods Sold

The expenses incurred that are directly related to the manufacturing of products a company sells, including labor and materials.

Inventory Purchases

The process of acquiring goods or raw materials that a business holds for the ultimate goal of resale or production.

Merchandise

Products that are purchased and sold during business activities.