Pamela Was an Officer in Green Restaurant Which Subsequently Went

question 134

Multiple Choice

Pamela was an officer in Green Restaurant which subsequently went bankrupt.Pamela started a new restaurant and,to establish goodwill,paid off the debts of $100,000 of Green Restaurant.She was under no obligation to do so.The $100,000 is

• A)deductible currently as an itemized deduction.
• B)capitalized because the expenses are not ordinary.
• C)deductible currently as a trade or business expense since the expenses are considered ordinary and necessary business expenses.
• D)None of the above.

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Definitions:

Net Operating Loss

A period when a company's allowable tax deductions exceed its taxable income, potentially reducing future taxable income.

Deferred Income Taxes

Taxes that are payable in a future period due to temporary differences between financial accounting and tax reporting.

Net Income

The net income of a business, which remains after deducting all costs, taxes, and expenses from the gross revenue.

Deferred Tax Asset Account

An account on the balance sheet representing taxes paid or carried forward but not yet realized, which can be used to offset future tax liabilities.