Dawn Hewlett maintains a specialized clientele for whom she performs various services, among which are the sourcing of, and sale to them of, handcrafted artifacts from various parts of the Caribbean
Dawn Hewlett maintains a specialized clientele for whom she performs various services, among which are the sourcing of, and sale to them of, handcrafted artifacts from various parts of the Caribbean. At the end of her first year, she disclosed the selected financial information for her business below.
Identify the effect of each transaction on her taxable business income.
a. She signed a contract to sell certain artifacts from St. Croix to an entity in Texas on the condition that after examining them, an expert team certifies them as genuine. On December 15th 2018, she delivers under the contract, artifacts for $20,000 which cost $14,000. The earliest that the artifacts can be examined is March 15th 2019.
b. Also in December, she paid $6,000 to rent a vital piece of equipment for a three-month period and returned the equipment in March at end of the lease term although she had no further use for the equipment by year end.
c. On November 1, she did the following:
a. Paid $1,200 for “key-person” insurance premiums for a policy of $80,000. The premiums were for one year
b. Met a prospective client for lunch and met later that evening for dinner and live performance at the Tillet Gardens Theatre. Total cost amounted to $500.
d. At the end of her first year of operation, December 31, 2018, she identifies $15,000 of accounts receivable but estimates that about one-fifth of the amount will not be collectible
e. She went to Miami to meet prospective clients and promote her business. She paid $650 for airfare, $1,400 for hotels; $550 for car rental and $500 for meals. While there she was ticketed for running a red light while hurrying to an appointment and had to pay $150. She stayed over for a couple of days to do some shopping and incurred incremental expenses for hotel meals and car rental of $600.
f. She owns a Mercedes 350SE which she picked up in Puerto Rico very inexpensively and uses it to travel from her home to work as well as to and from business appointments. At the end of the year she had driven the Mercedes for 3,600 miles, 80% of which was for business purposes. She uses the standard mileage rate to determine automobile business expenses.
g. Her parents live in New York and over the holidays, she visited them for Christmas. While there she attend a business conference on Identifying Genuine from Fake Artifacts hosted by an expert from the Caribbean. Travel to the venue cost $150 and registration and meals cost $500.