311-Chapter 6 Homework Solutions

311-Chapter 6 Homework Solutions - ACC 311 Chapter 6...

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ACC 311 Chapter 6 Homework Solutions Assignment #1 26. A.J. is the vice president for Keane Products, a marketing consulting firm. On a business trip to New York City, he meets with three executives from Keane’s top account. After the meeting, A.J. takes them to dinner and then to the theater. The theater tickets cost $350. The cost of the meal is $190, including sales tax of $17 and a tip of $34. Throughout the evening, A.J. pays $42 in cab fares. How much can A. J. deduct as an entertainment expense? A.J. can deduct $175 (50% x $350) for the theater tickets and $95 (50% x $190) for the meal. The entertainment qualifies as an expense associated with the conduct of the taxpayer's trade or business because it follows a substantial business discussion. The $42 cab fare is fully deductible as transportation and is not subject to the 50% rule because it is not considered to be an entertainment expense. Thus, A.J’s total deduction for the evening is $312 ($175 + $95 + $42). Instructor’s Note: Even if A.J. and the clients did not have a business meeting before the theater, the entertainment is deductible if they had a business discussion at dinner. 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
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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.
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