Joe operates a business that locates and purchases specialized assets for clients, among other activities.

81. Joe operates a business that locates and purchases specialized assets for clients,among other activities. Joe uses the accrual method of accounting but he doesn’tkeep any significant inventories of the specialized assets that he sells. Joe reportedthe following financial information for his business activities during year 0. Determinethe effect of each of the following transactions on the taxable business income.a. Joe has signed a contract to sell gadgets to the city. The contract providesthat sales of gadgets are dependent upon a test sample of gadgets operatingsuccessfully. In December, Joe delivers $12,000 worth of gadgets to the citythat will be tested in March. Joe purchased the gadgets especially for thiscontract and paid $8,500.b. Joe paid $180 for entertaining a visiting out-of-town client. The client didn’tdiscuss business with Joe during this visit, but Joe wants to maintain goodrelations to encourage additional business next year.c. On November 1, Joe paid $600 for premiums providing for $40,000 of “keyman” insurance on the life of Joe’s accountant over the next 12 months.d. At the end of the year (year 1), Joe’s business reports $9,000 of accounts receivable.Based upon past experience, Joe believes that at least $2,000 of hisnew receivables will be uncollectible.e. In December of year 0, Joe rented equipment for a large job. The rentalagency required a minimum rental of three months ($1,000 per month), butJoe completed the job before year-end.f. Joe hired a new sales representative as an employee and sent her to Dallasfor a week to contact prospective out-of-state clients. Joe ended up reimbursinghis employee $300 for airfare, $350 for lodging, $250 for meals, and $150for entertainment. Joe requires the employee to account for all expendituresin order to be reimbursed.g. Joe uses his BMW (a personal auto) to travel to and from his residence tohis factory. However, he switches to a business vehicle if he needs to travelafter he reaches the factory. Last month, the business vehicle broke downand he was forced to use the BMW both to travel to and from the factory8-48 chapter 8 Business Income, Deductions, and Accounting Methodsand to visit work sites. He drove 120 miles visiting work sites and 46 milesdriving to and from the factory from his home.h. Joe paid a visit to his parents in Dallas over the Christmas holidays. Whilehe was in the city, Joe spent $50 to attend a half-day business symposium.Joe paid $200 for airfare, $50 for meals during the symposium, and $20 oncab fare to the symposium.

Question:Joe operates a business that locates and purchases specialized assets for clients, among otheractivities. Joe uses the accrual method of accounting but he doesn’t keep any significant…

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