Reference no: EM133115716
Questions -
Q1. Contribuyente is a public limited company dedicated to the advertising and marketing business. During taxable year 20X1, did the following activities take place:
He paid $25,000 to the Captain of the vessel La Merced. The ship belongs to the corporation and is used for activities with the aim of entertaining the corporation's clients, discussing advertising campaigns with clients and presenting possible campaigns to potential clients.
You purchased $3,000 in homeowners insurance from a highly regarded international insurance company that is not permitted to operate in Puerto Rico.
It spent the following amounts on trips for its marketing managers to serve a client in Spain:
Hotels: $15,000
Transportation: $10,000
Food: $4,000
What amount can the Taxpayer claim as an ordinary and necessary expense for taxable year 20X1?
a. $57,000
b. $38,500
c. $32,000
d. $13,500
Q2. Contribuyente is a limited liability company (LLC) dedicated to providing architectural engineering and surveying services for construction projects. Taxpayer has adopted the accrual method ("accrual basis") to determine its gross income and ordinary and necessary expenses. During taxable year 20X1, carried out the following activities:
Taxpayer subcontracted three (3) engineers to cover an excess of work at the end of 20X1. As of December 31, 20X1, the Taxpayer owed the subcontracted engineers the amount of $45,000, which is recorded as a professional services expense for 20X1. On April 3, 20X2, Taxpayer finally paid the engineers the $45,000 owed.
Taxpayer assumed a $100,000 loan and with the cash received purchased New York State bonds. During 20X1, the company received $5,000 of interest income. However, during 20X1 the entity paid $3,000 of interest on the assumed loan of $100,000. The $3,000 is recorded on the books as an interest expense.
During taxable year 20X1, an employee sued the Taxpayer for harassment. Taxpayer, in order not to continue incurring legal expenses and the negative publicity that the lawsuit could generate, decided to settle the lawsuit with his employee, paid him the amount of $100,000, but included a non-disclosure clause in the agreement, which prevents third parties from persons, entities and government agencies may request a copy of the agreement. The $100,000 is included as an expense in the Taxpayer's books for 20X1.
With respect to the events detailed above, determine what amount the Taxpayer can claim as an ordinary and necessary expense for taxable year 20X1.
a. $48,000
b. $0
c. $148,000
d. $45,000
Q3. Contribuyente is a company dedicated to the manufacture of electronic equipment. 10 employees work in the company. During taxable year 20X1, the company paid compensation to its employees for the work performed of $200,000.
During 20X1 the company exceeded its sales expectations. To compensate its employees for this achievement, the entity gave each employee $2,000.
On the other hand, the company hired a firm of engineers who offer quality control services ("Quality Control"). Personnel from the engineering firm visited the Taxpayer's company on four (4) occasions during 20X1 to offer their services. The total paid to the engineering firm is $12,000.
Determine what amount the Taxpayer can deduct as Salary Expense for 20X1.
a. $232,000
b. $220,000
c. $212,000
d. $200,000