Question

Brett operates a business that locates and purchases specialized items for clients, among other activities. Brett uses the accrual method of accounting but he doesn’t keep any significant inventories of the items that he sells. Brett reported the following financial information for his business activities during the year. For each of the following items determine the effect on the taxable business income.

a.      Brett paid $380 for entertaining a visiting out-of-town client. The client didn’t discuss business with Brett during this visit, but Brett wants to maintain good relations to encourage additional business next year.

b.      Brett paid a visit to his parents in Dallas over the Christmas holidays. While he was in the city, Brett spent $250 to attend a half-day business symposium. Brett paid $500 for airfare, $70 for meals during the symposium, and $30 on cab fare to the symposium.

c.       At the end of the year, Brett’s business reports $12,000 of accounts receivable. Based upon past experience, Brett believes that at least $3,000 of his new receivables will be uncollectible.

d.      In December of this year, Brett rented equipment to complete a large job. Brett paid $4,000 in December because the rental agency required a minimum rental of four months ($1,000 per month). Brett completed the job before year-end, but he returned the equipment at the end of the lease.

e.       Brett 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, Brett delivers $22,000 worth of gadgets to the city that will be tested in March. Brett purchased the gadgets especially for this contract and paid $15,500.

Item	Treatment	Why
A
B
C
D
E

Answer 1