Question

Phil Armonic is actively engaged in the oil business and owns numerous oil leases in the Southwest. During 2019, he made several trips to inspect oil wells on the leases. As a result of these overnight trips, he paid the following:

Plane fares $4,000
Hotels 1,000
Meals 800
Entertaining lessees 500
Of the $6,300 in expenses incurred, he can claim as deductible expenses _________.
a) 6,300b) 5, 650c) 5,000d) 4, 650

Answer 1

B ($5,6500)

Step-by-step explanation:

Deductible expenses are the expenses incurred in the course of conducting normal business activity and qualify to be claimed from the company's income before it is presented for tax purpose. These expenses must be directly related to business purpose. Examples are administrative expenses , travelling , automobile expenses etc.

Some are claimed immediately while some are spread over a period of time and some seemingly business related expenses like bribe , traffic ticket are not qualified for deduction.

Workings

Plane fare - $4000

Hotel - $1000

Meals $400 ( 50% can be claimed as personal element is included )

Entertainment $250 (50% can be claimed as it includes personal element)

Total deductible expenses - $5650

Answer 2

$6,300

Step-by-step explanation:

Deductible expenses refer to expenses which can be deducted from a firm's total income before it can be subjected to tax. Expenses can either be deductibles or non deductibles. When referring to deductibles we mean, expenses which are incurred during the course of service. For example, when travelling for the inspection of a work,the air tickets, hotel bills and meal tickets are deductibles. Meanwhile, in determining non deductibles, we mean, expenses which do not affect tax activities. These include, insurance, capital equipment personal activities, political donations or funding and charitable doings.

Here, everything in the question is assumed as deductibles because they are incurred in the course of service and they affect tax activities