Which of the Following Business Expense Deductions Is Most Likely

question 9

Multiple Choice

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

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

Comparative Advantage

The proficiency of an individual or group in executing a certain economic function more effectively than other tasks.

Lowest Cost

The scenario in which the expenditure required to achieve a certain objective or to purchase goods and services is minimized.

Opportunity Cost

The act of sacrificing possible gains from alternative decisions when one is made.

Freight Train

A freight train is a train composed of freight cars for the purpose of transporting goods and materials rather than passengers.