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Business · Accounting
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(1).Which of the following expenditures incurred in the operation of a business is not required to be capitalized?
A. Cost of replacing an old shingle roof with a new tile roof.
B. Cost of changing from one heating system to another.
C. Cost of replacing an old truck used for business delivery.
D. Cost of replacing small tools.

(2) Mr. B paid the following amounts in the current year in connection with his business property:
New motor purchased in December for a truck that extended its useful life by 3 years
$ 600
Replacement parts to maintain machinery
in efficient operating condition
3,000
Labor to maintain the above equipment
1,800
Cost of replacing gravel driveway with
heavy-duty concrete
12,000
Cost of repainting factory building
1,400
What is Mr. B's allowable deduction for repairs and maintenance expense on his current year Schedule C, Form 1040?
A. $2,400
B. $6,200
C. $6,800
D. $18,800


(3) Mr. March, a medical equipment manufacturer, paid and incurred the following expenses during the current year:
Raw materials
$60,000
Direct labor
50,000
Materials and supplies
50,000
Freight-in on raw materials
1,000
Freight on shipments of finished goods
1,000
Allocable overhead expenses for production
10,000
Cost of inventory donated to charity
1,000
Fair market value of inventory donated
3,000
Beginning inventory
20,000
Ending inventory
30,000
The inventory donated to charity was included in the beginning inventory and is not eligible for special treatment under Sec. 170(e)(3). What was the amount of Mr. March's cost of goods sold for the current year?
A. $161,000
B. $160,000
C. $159,000
D. $158,000


(4) Mr. M, a cash-basis sole proprietor, secured two business loans from two different banks. The following information pertains to the loans. Assume all costs have been paid by M.
Loan 1
Loan 2
Date of loan
1/1/Yr 1
1/1/Yr 3
Term
10 years
10 years
Loan origination fee
$1,000
$2,000
Mortgage commission
250
500
Abstract fees
150
300
Recording fees
100
200
Interest for Year 3
5,000
7,000
On December 31, Year 3, Mr. M paid off Loan 1 and had to pay a prepayment penalty of $1,500. What deductions can Mr. M take in Year 3 with respect to these loans?

Interest Expense

Other Costs

A.
$14,500
$500
B.
$14,000
$2,500
C.
$13,500
$3,000
D.
$12,000
$4,500

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