Gabby Owns and Operates a Part-Time Art Gallery,now in Its

question 89

Multiple Choice

Gabby owns and operates a part-time art gallery,now in its fifth year.She views it as a business activity,but she is concerned that the IRS will challenge her classification and consider it a hobby.Her business results,using the cash method of accounting,were net losses in the first and fourth years and small profits in the second and third years.It is now almost year-end and based on projections,the business is showing a small profit of $6,000.Repairs to the security system and to the heating/cooling system were recently completed and these bills total $7,000.When should Gabby pay these bills?

• A)before year-end to get the current year deduction
• B)next year
• C)split into $6,000 this year and $1,000 next year
• D)It does not matter when she pays the bills.The work was performed this year,so the costs will be deducted this year.

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Definitions:

Marginal Cost

The additional expense incurred from producing another unit of a product.

Marginal Revenue

The additional revenue that a company generates from selling one more unit of a good or service.

Average Total Cost

The total cost of production divided by the total number of units produced.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, measuring the opportunity costs of a firm's resources.