Nancy Purchased a Building and Then Leased the Building to ZML.Nancy

question 62

Essay

Nancy purchased a building and then leased the building to ZML.Nancy is the sole shareholder of ZML.She leased the building to ZML for $2,500 per month.However,the IRS determined that the fair market value of the lease payment should only be $1,500 per month.How would the lease payment be treated with respect to both Nancy and ZML?

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Definitions:

Discretionary Cost

Costs that are not essential for the operation of a home or business and can be adjusted or eliminated depending on financial circumstances.

Condensed Income Statement

A simplified financial statement that summarizes revenues, costs, and expenses to show a company's net income over a specific period.

Discontinuance

The action of stopping the production or sale of a product or service, often as a result of strategic business decisions.

Fixed Costs

Costs that tend to remain the same in amount, regardless of variations in the level of activity.