Iris, a Calendar Year Cash Basis Taxpayer, Owns and Operates

question 69

Multiple Choice

Iris, a calendar year cash basis taxpayer, owns and operates several TV rental outlets in Florida, and wants to expand to other states.During 2012, she spends $14,000 to investigate TV rental stores in South Carolina and $9,000 to investigate TV rental stores in Georgia.She acquires the South Carolina operations, but not the outlets in Georgia.As to these expenses, Iris should:

• A)Capitalize $14,000 and not deduct $9,000.
• B)Expense $23,000 for 2012.
• C)Expense $9,000 for 2012 and capitalize $14,000.
• D)Capitalize $23,000.
• E)None of the above.

---

Definitions:

Labor Efficiency Variance

The difference between the actual hours worked and the standard hours allowed for the actual production, multiplied by the standard labor rate.

Labor Rate Variance

The difference between the actual costs of labor and the expected (or standard) costs, based on the standard labor rate.

Labor Efficiency Variance

The difference between the actual hours worked and the standard hours expected, multiplied by the standard labor rate, highlighting efficiency in labor.

Standard Direct Labor

The predetermined cost of labor that is directly involved in the production of goods.