Reference no: EM132821356
Question - A senior tax partner in your office has requested that you meet with Mr. Jehangir Dauwalla, a new client, to assist in preparing his personal income tax return. During your initial client meeting, you obtained the following information about Mr. Dauwalla's new business, which he started on June 1, 2020. The proprietorship provides hot air balloon rides and weekend leisure trips. His accounting is prepared on the cash basis.
Cash Flow Statement from Proprietorship June 1 to December 31, 2020
Cash receipts (Note a) $27,220
Cash disbursements:
Advertising (Note b) $2,200
Charitable donations 380
Equipment rental 3,450
Liability insurance 2,860
Licenses (Note c) 680
Salary paid to Jehangir 14,750
Supplies 3,870
Telephone-Long distance 610 ($28,800)
Cash outflow ($1,580)
Notes:
(a) Payments received from customers in January 2021 for all December flights and outstanding Accounts receivable total $4,650 and are not included above.
(b) Advertising includes $462 of meals and entertainment expenses relating to promoting business with clients.
(c) Licences expense includes $460 for golf memberships for Jehangir and his spouse. He has met Several potential new customers through the club and feels that this cost should be deductible.
The remaining amount was for business licensing.
(d) In September, Jehangir won a new car through a minor hockey association ticket raffle. The Prize had an estimated fair market value of $12,500.
Required - Jehangir has asked you to calculate his income from a business for tax purposes.