Martha owns a grocery store. On October 2, 2011, a tornado caused her stores freezers to

lose power. As a result of the power outage, $5,000 of frozen food spoiled. Her insurance

company reimbursed her $4,000 on December 7, 2011. In 2011, Martha had a beginning

inventory of $10,000, purchases of $8,000, and an ending inventory of $3,000. Which of

the following is a proper method to account for this event?

Report the inventory as she normally would and exclude the $4,000 from gross

income.

A. Report the inventory as she normally would and exclude the $4,000 from gross

income.

B. Reduce purchases by $5,000 for 2011 and deduct a $1,000 loss on her 2012 tax

return.

C.Reduce beginning inventory by $5,000 for 2011 and deduct a $1,000 loss on her

2012 return.

D.Report the inventory as she normally would and report the $4,000 as additional

gross income for 2011.

Regarding other business expenses, all of the following statements are correct except

A. Penalties you pay for late performance or nonperformance of a contract are

generally deductible.

B. The cost of a license granted by a governmental unit or agency including issuances

and renewals is a deductible business expense.

C. You may deduct your own education expenses, including certain related travel that

is related to your trade or business.

D. Legal fees paid to acquire a new office building must be added to the basis of the

building and recovered through depreciation.

In 2011, John and George formed a partnership that began business on July 1, 2011. They

spent $4,000 in legal fees for negotiating and preparing the partnership agreement,

$2,000 for accounting services setting up the partnerships books, and $1,000 in

commissions associated with acquiring assets for the partnership. Assuming these are

their only expenses in starting their partnership, what is the proper amortization expense

for 2011 after any immediate expense?

A. $67

B. $33

C. $233

D. $600