Discuss Whether the Following Expenditures Meet the Ordinary, Necessary, and Reasonable

question 81

Essay

Discuss whether the following expenditures meet the ordinary, necessary, and reasonable requirements for deductibility.
a.Mortimer owns a shoe store. Every August Mortimer has a "Back-to-School" sale. To promote that event Mortimer spends $2,000 on newspaper and radio advertising. Generally, this event generates about $85,000 in sales. These sales revenues are about twice the level of sales in other months.
b.Wilma bought a small manufacturing business that had been declared bankrupt. To retain the current sales force, she pays some of the obligations owed to these people by the former owners. Wilma has no legal obligation to pay these debts.
c.Ned owns a large sporting goods store. Nick's 17-year-old son, Tony, works in the store when time permits. Nick pays Tony $10 per hour because he has worked in the store several years. Other high school age individuals also work at the store and perform functions requiring less experience than Tony. They are paid $8 per hour.
d.Art is a self-employed CPA. Last month he attended an AICPA Continuing Education course that cost him $750. In addition to the course registration fee, Art incurred $800 in travel expenses to attend the course.
e.Elvira is a stockholder in over 100 different corporations. However, she does not own more than 10 shares of stock in any one company. She enjoys attending annual stockholder meetings and often gives her "two cents worth" about issues affecting the companies' operations. In the past year Elvira spent $7,540 to attend the stockholder meetings to help protect her investments.

Identify and report changes in equity related to investment securities.

Account for foreign exchange implications on international transactions.

Distinguish between the accounting treatments for trading securities, available-for-sale securities, and held-to-maturity debt securities.

Understand the impact of sample size and sample diversity on the reliability of point estimates.

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Definitions:

Mental Processes

Internal operations that include thinking, perceiving, remembering and feeling, which influence human behavior.

Elements of Thought

The fundamental aspects or principles involved in the process of thinking, such as reasoning, problem-solving, and decision-making.

Perceptions

The process of organizing, identifying, and interpreting sensory information to represent and understand the environment or an element within it.

Naturalistic Observation

A research method in which subjects are observed in their natural environment without any manipulation by the experimenter.