For Each of the Following Situations Explain Why the Expenditure

question 61

Essay

For each of the following situations explain why the expenditure is or is not deductible and any limitations that may be placed on the amount of the deduction.
a. Akira is self-employed as a personal financial planner. He went out-of-town for two days to visit three of his best clients and incurs the following expenses:


$\begin{array}{lr}\text { Airfare } & \$ 350 \\\text { Rental car } & 160 \\\text { Lodging } & 240 \\\text { Incidentals } & 90 \\\text { Meals } & 220 \\\text { Entertainment } & 130\end{array}$


b. Woodrow is President and CEO of ISPEP, a dosely held corporation with assets of $\$ 20,000,000$ . Woodrow, who owns $60 \%$ of the company, decides to hire his twin daughters who have just completed their freshman year at Aztec State to work in the promotions department of the company. His daughters will be paid $\$ 5,000$ each for the summer. Other college students who are hired for the summer to perform similar tasks will be paid $\$ 4,000$ .


c. Felix is a Realtor. To show his appreciation, he gives each dient who buys a home from him a $\$ 75$ wall dock. During the year Felix gives 64 clocks to his clients.


d. Sandy sues Harrison for divorce. Originally, Sandy asks for one-half of all their assets, including $50 \%$ of Harrison's car dealership. Harrison's lawyer has worked out a compromise with Sandy and her attorney that allows Harri son to retain $100 \%$ ownership of the dealership. Harrison pays his lawyer $\$ 10,000$ in legal fees.
a.Marvin owns a real estate development firm and his adjusted gross income is $60,000.He enrolls as a part-time student at Northern College.His primary motivation for taking the classes is to obtain a greater understanding of the accounting issues associated with his real estate development business.He also believes that he can save 25% of the amount he pays in accounting expenses.The cost of the 2 courses he enrolls in is $900.

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Definitions:

Mixed Cost

A cost that contains both variable and fixed cost elements, changing in total with changes in activity level but not in the same proportion.

Electrical Cost

The financial outlay for electricity usage, often a significant part of operational expenses for businesses and households alike.

Contribution Margin

A financial metric that represents the difference between a company's sales revenue and its variable costs. It is used to analyze the profitability of individual products.

Monthly Sales Volume

Refers to the total number of units sold or services rendered in a month.