Riva Borrows $10,000 That She Intends to Use for Purchasing

question 80

Multiple Choice

Riva borrows $10,000 that she intends to use for purchasing supplies for her business.She temporarily deposits the funds in her personal checking account.Prior to the deposit,the checking account held $40,000 of personal funds.Riva books a vacation for $6,000 and writes a check to the travel agency from her personal account.Later in the month,the business supplies bill arrives and Riva writes a check for $10,000 from the personal account.With respect to the interest expense on the $10,000 loan

• A)it will all be treated as trade or business expense.
• B)60 percent will be treated as personal interest expense and 40 percent as trade or business expense.
• C)it will all be treated as personal expense.
• D)20 percent will be treated as trade or business expense.

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Definitions:

Manufacturing Overhead

includes all the indirect costs associated with the production process, such as utilities, maintenance, and factory equipment depreciation, which are not directly traceable to a specific product.

Traditional Costing System

A costing methodology that assigns manufacturing costs to products based on volume metrics such as direct labor hours or machine hours.

Unit Product

A specific item or version of a product, distinct in unit size or configuration, produced by a company.

Direct Labor-Hours

The total time workers spend producing a product or performing a service, specifically those directly involved in manufacturing.