Question

The Crown Howe accounting firm rents a skybox at Lucas Oil Field where the Indianapolis Colts plays their home games. The cost of the skybox for the season is $80,000 and includes 8 tickets to each game. The team plays 10 games a year at the arena. The most expensive non-luxury box seat is $200. After acquiring a new accounting client, the managing partner invites 5 business associates to watch a game in the firm skybox. What amount can Crown Howe deduct as an entertainment expense? a. $0 b. $1,000 c. $1,200 d. $2,400 e. $4,400

Answer 1

The correct option is C) $1,200

Step-by-step explanation:

Very simple to deduce. If the cost per game to the company is $200, then the total cost of that invitation is:

$200 x 6 people (Managing Partner + 5 Business Associates)

It's almost inconceivable that he would invite his associates to watch a game without being there to host them (all things being equal);

The managing partner is separate from the business. His income and expenses are therefore separate from that of the business. This is a principle taught in Accounting 101. If his income and expenses are separate from the business, then he should pay for services purchased and or enjoyed from the business.

Thus total entertainment expense deductible by Crown Howe equals $1,200.

Cheers!