Calculate the amount of expenses katie may deduct

Assignment Help Accounting Basics

Reference no: EM131881991

Question: 1. Larry qualifies for a home office deduction. The amount of space devoted to the business is 500 square feet of the total 2,000 square feet in his house. Larry's total rent on the house is $7,000, and he pays utilities (other than telephone) of $4,500 for the year. Calculate Larry's deductions for home office expenses before the gross income limitation.

- Rent expense

- Utilities

- Total home office expenses

2. Vinnie has a small retail store and sells one product. His beginning inventory consisted of 1,000 products at $4 each for a total of $4,000. During the year, Vinnie made the following purchases of the product:

March 1 5,000 products at $5 each = $25,000

August 1 1,000 products at $6 each = $ 6,000

Vinnie uses the LIFO method of inventory valuation and he sells 5,000 products during the current year.

a. Calculate the total cost of goods available for sale.

b. Calculate the cost of the ending inventory.

c. Calculate the cost of goods sold.

3. Katie operates a ceramics studio from her garage. She incurs the following expenses:

Clay and paints 3,500

Painting technique seminars 400

Pottery wheel 75

Utilities for the ceramic studio 375

Personal property taxes on

ceramic equipment 50

Katie's gross receipts from her
business were $2,000.

a. If the studio is deemed to be a hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return.

b. If the studio is not a hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return.

4. Candace uses an office in her home exclusively for her business. The business use of the home is 100 sq ft out of 2,000 sq ft for the entire home. The total expenses to allocate are $3,000. Candace wishes to maximize her deduction in 2016. What is the amount of her home office deduction before any income limitations?

5. What is the purpose of Schedule C?

Reference no: EM131881991

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