Which of the Following Business Expense Deductions Is Most Likely

question 9

Multiple Choice

Which of the following business expense deductions is most likely to be unreasonable in amount?

• A)Compensation paid to the taxpayer's spouse in excess of salary payments to other employees.
• B)Amounts paid to a subsidiary corporation for services where the amount is in excess of the cost of comparable services by competing corporations.
• C)Cost of a meal with a former client when there is no possibility of any future benefits from a relation with that client.
• D)All of the choices are likely to be unreasonable in amount.
• E)None of the choices are likely to be unreasonable in amount.

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Definitions:

Retained Earnings

The portion of a company's profits not distributed to shareholders as dividends and retained for reinvestment or debt repayment.

Pro Forma Net Income

A projected net income over a specific period, calculated under hypothetical assumptions or adjustments.

Profit Margin

A financial metric that measures the percentage of revenue that exceeds the costs of goods sold, indicating the profitability of a company.

Sales Decrease

A reduction in the amount of goods or services sold by a business within a specific time period.