Jack, a geologist, had been debating for years whether or not to venture out on his own and operate his own business He had developed a lot of solid relationships with clients and he believed that many of them would follow him if he were to leave his current employer As part of a New Year's resolution, Jack decided he would finally do it Jack put his business plan together and, on January 1 of this year, Jack opened his doors for business as a C corporation called Geo Jack (GJ) Jack is the sole shareholder Jack reported the following financial information for the year (assume GJ reports on a calendar year and uses the accrual method of accounting) In January, GJ rented a small business office about 12 miles from Jack's home GJ paid $10,000, which represented a damage deposit of $4,000 and rent for two years ($3,000 annually) GJ earned and collected $290,000 performing geological related services and selling its specialized digging tool GJ received $50 interest from municipal bonds and $2,100 interest from other investments GJ purchased some new equipment in February for $42,500 It claimed depreciation on these assets under tax basis during the year in the amount of $6,540 GJ paid $7,000 to buy luxury season tickets for Jack's parents for State U football games GJ paid Jack's father $10,000 for services that would have cost no more than $6,000 if Jack had hired any other local business to perform the services While Jack's dad was competent, he does not command such a premium from his other clients In an attempt to get his name and new business recognized, GJ paid $7,000 for a one page ad in the Geologic Survey It also paid $15,000 in radio ads to be run through the end of December GJ leased additional office space in a building downtown GJ paid rent of $27,000 for the year In November, Jack's office was broken into and equipment valued at $5,000 was stolen The tax basis of the equipment was $5,500 Jack received $2,000 of insurance proceeds from the theft GJ incurred a $4,000 fine from the state government for digging in an unauthorized digging zone GJ contributed $3,000 to lobbyists for their help in persuading the state government to authorize certain unauthorized digging zones On July 1, GJ paid $1,800 for an 18 month insurance policy for its business equipment The policy covers the period July 1 of this year through December 31 of next year GJ borrowed $20,000 to help with the company's initial funding needs GJ used $2,000 of funds to invest in municipal bonds At the end of the year, GJ paid the $1,200 of interest expense that accrued on the loan during the year Jack lives 12 miles from the office He carefully tracked his mileage and drove his truck 6,280 miles between the office and his home He also drove an additional 7,200 miles between the office and traveling to client sites Jack did not use the truck for any other purposes He did not keep track of the specific expenses associated with the truck However, while traveling to a client site, Jack received a $150 speeding ticket GJ reimbursed Jack for business mileage and for the speeding ticket GJ purchased two season tickets (20 games) to attend State U baseball games for a total of $1,100 Jack took existing and prospective clients to the games to maintain contact and find further work This was very successful for Jack as GJ gained many new projects through substantial discussions with the clients following the games GJ paid $3,500 for meals when sales employees met with prospective clients GJ had a client who needed Jack to perform work in Florida Because Jack had never been to Florida before, he booked an extra day and night for sightseeing Jack spent $400 for airfare and booked a hotel forthree nights ($120 night) (Jack stayed two days for business purposes and one day for personal purposes ) He also rented a car for $45 per day The client arranged for Jack's meals while Jack was doing business, but GJ paid all expenses GJ paid a total of $10,000 of wages to employees during the year and cost of goods sold was $15,000

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 28, 2024

Jack, a geologist, had been debating for years whether or not to venture out on his own and operate his own business. He had developed

Jack, a geologist, had been debating for years whether or not to venture out on his own and operate his own business. He had developed a lot of solid relationships with clients and he believed that many of them would follow him if he were to leave his current employer. As part of a New Year's resolution, Jack decided he would finally do it. Jack put his business plan together and, on January 1 of this year, Jack opened his doors for business as a C corporation called Geo-Jack (GJ). Jack is the sole shareholder. Jack reported the following financial information for the year (assume GJ reports on a calendar year and uses the accrual method of accounting).

In January, GJ rented a small business office about 12 miles from Jack's home. GJ paid $10,000, which represented a damage deposit of $4,000 and rent for two years ($3,000 annually).
GJ earned and collected $290,000 performing geological-related services and selling its specialized digging tool.
GJ received $50 interest from municipal bonds and $2,100 interest from other investments.
GJ purchased some new equipment in February for $42,500.It claimed depreciation on these assets under tax basis during the year in the amount of $6,540.
GJ paid $7,000 to buy luxury season tickets for Jack's parents for State U football games.
GJ paid Jack's father $10,000 for services that would have cost no more than $6,000 if Jack had hired any other local business to perform the services.While Jack's dad was competent, he does not command such a premium from his other clients.
In an attempt to get his name and new business recognized, GJ paid $7,000 for a one-page ad in theGeologic Survey.It also paid $15,000 in radio ads to be run through the end of December.
GJ leased additional office space in a building downtown.GJ paid rent of $27,000 for the year.
In November, Jack's office was broken into and equipment valued at $5,000 was stolen. The tax basis of the equipment was $5,500. Jack received $2,000 of insurance proceeds from the theft.
GJ incurred a $4,000 fine from the state government for digging in an unauthorized digging zone.
GJ contributed $3,000 to lobbyists for their help in persuading the state government to authorize certain unauthorized digging zones.
On July 1, GJ paid $1,800 for an 18-month insurance policy for its business equipment. The policy covers the period July 1 of this year through December 31 of next year.
GJ borrowed $20,000 to help with the company's initial funding needs. GJ used $2,000 of funds to invest in municipal bonds. At the end of the year, GJ paid the $1,200 of interest expense that accrued on the loan during the year.
Jack lives 12 miles from the office.He carefully tracked his mileage and drove his truck 6,280 miles between the office and his home. He also drove an additional 7,200 miles between the office and traveling to client sites. Jack did not use the truck for any other purposes.He did not keep track of the specific expenses associated with the truck. However, while traveling to a client site, Jack received a $150 speeding ticket.GJ reimbursed Jack for business mileage and for the speeding ticket.
GJ purchased two season tickets (20 games) to attend State U baseball games for a total of $1,100.Jack took existing and prospective clients to the games to maintain contact and find further work.This was very successful for Jack as GJ gained many new projects through substantial discussions with the clients following the games.
GJ paid $3,500 for meals when sales employees met with prospective clients.
GJ had a client who needed Jack to perform work in Florida.Because Jack had never been to Florida before, he booked an extra day and night for sightseeing. Jack spent $400 for airfare and booked a hotel forthree nights ($120/night). (Jack stayed two days for business purposes and one day for personal purposes.) He also rented a car for $45 per day.The client arranged for Jack's meals while Jack was doing business, but GJ paid all expenses.
GJ paid a total of $10,000 of wages to employees during the year and cost of goods sold was $15,000.