Ned, a College Professor, Owns a Separate Business (Not Real

question 20

Multiple Choice

Ned, a college professor, owns a separate business (not real estate) in which he participates in the current year. He has one employee who works part-time in the business.

• A) If Ned participates for 120 hours and the employee participates for 120 hours during the year, Ned does not qualify as a material participant.
• B) If Ned participates for 95 hours and the employee participates for 5 hours during the year, Ned probably does not qualify as material participant.
• C) If Ned participates for 500 hours and the employee participates for 520 hours during the year, Ned qualifies as material participant.
• D) If Ned participates for 600 hours and the employee participates for 2,000 hours during the year, Ned qualifies as a material participant.
• E) None of the above.

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Definitions:

Debit Memorandum

A document issued by a buyer to a seller indicating a debit or adjustment to an account, typically related to goods returned or a pricing dispute.

Sales Returns and Allowances

A reduction in sales revenue due to returns or allowances for unsatisfactory goods, reported as a contra-revenue account.

Debit Memorandum

A document issued to signal a decrease in accounts receivable, often due to a return or an adjustment.

Accounts Payable

Liabilities or amounts a company owes to creditors or suppliers for goods or services that have been received but not yet paid for.