Indicate the Proper Treatment in the Current Year for the Underlined

question 105

Multiple Choice

Indicate the proper treatment in the current year for the underlined amounts.Treat each item as an independent event.Indicate whether the amount is deductible or not;if deductible whether it is deductible FOR or FROM AGI;and indicate the amount of the deduction for the current year considering any relevant limitations.Assume the taxpayer has deductions greater than the standard deduction,has AGI of $69,000 without regard to the following transactions and has no "total" income limitations related to itemized deductions.
-Hobby expenses of $2,500.Hobby income is $2,000.Amount $2,000,subject to 2% of AGI

• A)Not Deductible
• B)Deductible - For AGI
• C)Deductible - From AGI

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) as part of the cost base of a product.

Variable Costing

An accounting method that includes only variable production costs in product costs and treats fixed overheads as period costs.

Fixed Manufacturing Overhead

The sum of all regular, non-variable costs involved in manufacturing, including rent, salaries of permanent staff, and maintenance of equipment.

Absorption Costing

An accounting method that includes all manufacturing costs, such as direct materials, direct labor, and both variable and fixed manufacturing overhead, in the cost of a product.