Question

Exercise 6-31 (Algorithmic) (LO. 3)

Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New York to discuss acquiring a bakery. Stanford does not acquire the restaurant but does purchase the bakery on November 1, 2020.

Stanford incurred the following expenses:

Total investigation costs related to the restaurant $39,500 Total investigation costs related to the bakery 52,200

If required, round any division to two decimal places and use in subsequent computation. Round your final answer to the nearest dollar.

What is the maximum amount Stanford can deduct in 2020 for investigation expenses?

Answer 1

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Answer is highlighted in yellow: As instructed, final answer must be rounded to nearest dollar: Solution: $ 3,349 Answer: Explanation: As stanford didn't acquire the restaurant business. Therefore, no investigation expense is deductible for tax purpose. Since, Bakery business has been acquired. Investigation expenses will be deducted as follows: 5000 -2200 First year additional deduction Phase out dollar to dollar above $50,000 (52200-50000) Phased out amount Amortization of remaining expenses (52200-2800)/180*2 $ Maximum amount deduction for Investigation expense $ 2800 549 3,349