Hank started a new business in June, 2020, called Hanks Donut World (HDW). He has hired you to calculate the taxable income earned by HDW during 2020. Hank has estimated HDWs income for 2020 as follows:

Revenue: Donut sales $ 252,000 Catering revenues 71,550 $ 323,550 Expenses: Donut supplies $ 124,240 Catering expense 27,910 Salaries to shop employees 52,500 Rent expense 40,050 Accident insurance premiums 8,400 Other business expenditures 6,850 - 259,950 Net Income $ 63,600

HDW operates as a sole proprietorship. Hank chose to use the cash method of accounting to determine HDWs taxable income. HDW does not make any sales or purchases on credit. Hank has provided the following details for specific 2020 transactions.

A small minority of HDW clients complained about the catering service. To mitigate these complaints, HDWs policy is to refund dissatisfied clients 50% of their catering fee. By the end of 2020, only two HDW clients had complained but had not yet been paid refunds. The expected refunds amount to $1,700, and Hank reduced the reported catering revenues for 2020 to reflect the expected refund.

In 2020 HDW received a $6,750 payment from a client for catering a monthly breakfast for 30 consecutive months beginning in December, 2020. Because the payment didnt relate to 2020 operations, Hank excluded the entire amount when he calculated HDWs catering revenues.

In July, 2020, HDW paid $1,500 to ADMAN Co for an advertising campaign to distribute fliers advertising HDW catering service. Unfortunately, this campaign violated a city code restricting advertising by fliers, and the city fined HDW $250 for the violation. HDW paid the fine, and Hank included the fine and the cost of the campaign in other business expenditures.

In July, 2020, HDW also paid $8,400 for a 24-month insurance policy that covers HDW for accidents and casualties for the period August 1, 2020 through July 31, 2022. HDW deducted the entire $8,400 as accident insurance premiums.

In May, 2020, HDW signed a contract to lease the HDW donut shop for 10 months from an unrelated lessor. Upon signing the contract, HDW paid $2,000 as a refundable security deposit and $8,050 for rent ($805 per month). Also in May, 2020, HDW paid $30,000 to lease kitchen equipment for 24 months ($1,250 per month). Both leases began on June 1, 2020. In his estimate, HDW deducted these amounts ($40,050 in total) as rent expense.

During 2020, HDW signed a contract hiring WEGO Catering to help cater breakfasts. At the end of 2020, WEGO asked HDW to hold the last catering payment for the year, $9,250, until after January 1 (apparently because WEGO didnt want to report the income on its tax return). The $9,250 check was delivered to WEGO in January, 2021. However, because the payment related to 2020 operations, HDW included the $9,250 in HDWs 2020 catering expenses.

Hank believes that the key to the success of HDW has been hiring Jimbo Jones to supervise the donut production and manage the shop. Because Jimbo is such an important employee, HDW purchased a key-employee term-life insurance policy during 2020 on Jimbos life. HDW paid a $5,100 premium for this policy in December, 2020, and it will pay HDW a $40,000 death benefit if Jimbo passes away any time before the end of 2021. This payment was included in HDWs other business expenditures.

In 2020 HDW catered a large breakfast event to celebrate the citys anniversary. The city agreed to pay $7,100 for the event, but HDW forgot to notify the city of the outstanding bill until January, 2021. When it mailed the bill in January, 2021, HDW decided to discount the charge to $5,500. On the bill, HDW thanked the mayor and the city council for their patronage and asked them to send a little more business our way. This bill is not reflected in Hanks estimate of HDWs income for 2020.

(10 points) Taking into account any adjustments required by the above facts, what is the amount of HDWs total expenses in 2020 for federal income tax purposes?

Answer:__________ ?