Ssq6 - Chapter 6 Self-Study Questions 30 For each of the following situations explain whether a deduction should be allowed for entertainment

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Chapter 6 Self-Study Questions 30. For each of the following situations, explain whether a deduction should be allowed for entertainment expenses: a. Gayle, a dentist, invites 50 of her best patients to her daughter's wedding reception. The cost of the reception related to the presence of her patients is $5,000. Gayle cannot deduct the $5,000 of entertainment expenses. The wedding reception is not an ordinary and necessary expense of Gayle's business. The reception is a personally motivated event which lacks a business purpose. b. Stan is one of 5 shift supervisors responsible for 100 employees at Label House, Inc. He regularly meets with the other shift supervisors at the plant. In addition, Stan makes it a practice to go to lunch at least once a week with each of the other 4 shift supervisors in order to network. During the current year, Stan pays $1,500 for his and the other supervisors' lunches. Stan's job description does not require him to entertain the other supervisors. Stan may not deduct the $1,500. The expenses related to Stan's meals are personal living expenses. Because Stan's supervisory position is not affected by the entertainment (i.e., not required as part of his job), the lunches are not an ordinary and necessary expense of his job. c. Jan is a real estate broker who holds an open house for a different client each Sunday afternoon. During the open house, she provides cookies and soft drinks for whoever visits the house. Jan pays $2,000 for open house entertainment. The $2,000 Jan paid for refreshments at the open house is deductible. The expenses are in the nature of advertising or promoting goodwill and are an ordinary and necessary expense of a real estate broker. These expenses are not subject to the 50% limitation, under the exception for food and entertainment provided to the general public. d. Felicia is vice-president of sales for Drivitt, Inc. She invited the company's major clients and some of her coworkers from Drivitt to her annual Super Bowl party. Most guests attend with their spouses. The party is held in a separate room at a local sports bar and costs her $1,500. The expense of the party does not qualify as an entertainment expense because it fails both the directly related and associated with tests. The directly related test requires that the entertainment expense meet four test, one of which is that a bonafide business activity take place during the
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This note was uploaded on 04/18/2008 for the course ACCT 3013 taught by Professor Murphy during the Spring '08 term at Oklahoma State.

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Ssq6 - Chapter 6 Self-Study Questions 30 For each of the following situations explain whether a deduction should be allowed for entertainment

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