Joe operates a business that locates and purchases specialized assets for clients, among other activities. Joe uses the accrual method of accounting, but he doesn’t keep any significant inventories of the specialized assets that he sells. Joe reported the following financial information for his business activities during this year. Determine the effect of each of the following transactions on the taxable business income. Required: a. Joe has signed a contract to sell gadgets to the city. The contract provides that sales of gadgets are dependent upon a test sample of gadgets operating successfully. In December of this year, Joe delivers $12,000 worth of gadgets to the city that will be tested in March of next year. Joe purchased the gadgets especially for this contract and paid $8,500. b. Joe paid $180 in July of this year to entertain a visiting out-of-town client. The client didn’t discuss business with Joe during this visit, but Joe wants to maintain good relations to encourage additional business next year. c. On November 1 of this year, Joe paid $600 for premiums providing for $40,000 of “key man” insurance on the life of Joe’s accountant over the next 12 months. d. At the end of this year, Joe’s business reports $9,000 of accounts receivable. Based upon past experience, Joe believes that at least $2,000 of his new receivables will be uncollectible. e. In December of this year, Joe rented equipment to complete a large job. Joe paid $3,000 in December because the rental agency required a minimum rental of three months ($1,000 per month). Joe completed the job before year-end, but he returned the equipment at the end of the lease. f. Joe hired a new sales representative as an employee and sent her to Dallas for a week to contact prospective out-of-state clients. Joe ended up reimbursing his employee $300 for airfare, $350 for lodging, and $250 for meals at restaurants (Joe provided adequate documentation to substantiate the business purpose for the meals). Joe requires the employee to account for all expenditures in order to be reimbursed. g. Joe uses his BMW (a personal auto) to travel to and from his residence to his factory. However, he switches to a business vehicle if he needs to travel after he reaches the factory. In September of this year, the business vehicle broke down and he was forced to use the BMW both to travel to and from the factory and to visit work sites. He drove 120 miles visiting work sites and 46 miles driving back and forth between the factory and his home. Joe uses the standard mileage rate to determine his auto-related business expenses. h. Joe paid a visit to his parents in Dallas over the Christmas holidays this year. While he was in the city, Joe spent $50 to attend a half-day business symposium. Joe paid $200 for airfare, $50 for meals provided during the symposium, and $20 on cab fare to the symposium. (For all the transactions, select "No Effect" from the dropdown if no change in the taxable business income. For part g, round your final answer to whole number. Use standard mileage rate.)
Joe operates a business that locates and purchases specialized assets for clients, among other activities. Joe uses the accrual method of accounting, but he doesn’t keep any significant inventories of the specialized assets that he sells. Joe reported the following financial information for his business activities during this year.
Determine the effect of each of the following transactions on the taxable business income.
Required:
a. Joe has signed a contract to sell gadgets to the city. The contract provides that sales of gadgets are dependent upon a test sample of gadgets operating successfully. In December of this year, Joe delivers $12,000 worth of gadgets to the city that will be tested in March of next year. Joe purchased the gadgets especially for this contract and paid $8,500.
b. Joe paid $180 in July of this year to entertain a visiting out-of-town client. The client didn’t discuss business with Joe during this visit, but Joe wants to maintain good relations to encourage additional business next year.
c. On November 1 of this year, Joe paid $600 for premiums providing for $40,000 of “key man” insurance on the life of Joe’s accountant over the next 12 months.
d. At the end of this year, Joe’s business reports $9,000 of accounts receivable. Based upon past experience, Joe believes that at least $2,000 of his new receivables will be uncollectible.
e. In December of this year, Joe rented equipment to complete a large job. Joe paid $3,000 in December because the rental agency required a minimum rental of three months ($1,000 per month). Joe completed the job before year-end, but he returned the equipment at the end of the lease.
f. Joe hired a new sales representative as an employee and sent her to Dallas for a week to contact prospective out-of-state clients. Joe ended up reimbursing his employee $300 for airfare, $350 for lodging, and $250 for meals at restaurants (Joe provided adequate documentation to substantiate the business purpose for the meals). Joe requires the employee to account for all expenditures in order to be reimbursed.
g. Joe uses his BMW (a personal auto) to travel to and from his residence to his factory. However, he switches to a business vehicle if he needs to travel after he reaches the factory. In September of this year, the business vehicle broke down and he was forced to use the BMW both to travel to and from the factory and to visit work sites. He drove 120 miles visiting work sites and 46 miles driving back and forth between the factory and his home. Joe uses the standard mileage rate to determine his auto-related business expenses.
h. Joe paid a visit to his parents in Dallas over the Christmas holidays this year. While he was in the city, Joe spent $50 to attend a half-day business symposium. Joe paid $200 for airfare, $50 for meals provided during the symposium, and $20 on cab fare to the symposium.
(For all the transactions, select "No Effect" from the dropdown if no change in the taxable business income. For part g, round your final answer to whole number. Use standard mileage rate.)
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