Diane, a successful accountant with an annual income of $150,000, also enjoys raising and training race horses, an activity in which she spends about 10 hours per week. Over the past five years her winnings from races have amounted to $20,000. She employs neighborhood children to feed the horses but has a professional trainer who works with the horses about 5 hours per week. Discuss some of the
factors that might enter into the determination of whether or not this activity is a hobby or a trade/business.
What will be an ideal response?
There is no direct way to prove a profit motivation. Factors taken into account include: whether the taxpayer conducts the activity in a businesslike manner; the expertise of the taxpayer or the taxpayer's advisors; the time and effort expended by the taxpayer in carrying on the activity; whether the assets used in the activity are expected to appreciate in value; the taxpayer's success in carrying on other similar activities; the taxpayer's history of income or losses with respect to the activity; the amount of occasional profits earned, if any; the taxpayer's financial status; and any elements of personal pleasure or recreation the activity might involve.
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After closing the temporary owners' equity accounts into Income Summary, and after allocating the net income and closing the partners' drawing accounts, assume the partners' capital accounts had credit balances as follows: Yang, $20,000; Wolfe, $30,000; Stamatis, $45,000 . Partners share profits and losses as follows: Yang, 20%; Wolfe, 30%; and Stamatis, 50%. If Yang purchased Stamatis's interest
in the partnership for $40,000 cash, the amount entered in Yang's capital account is a a. $5,000 debit. b. $40,000 debit. c. $40,000 credit. d. $45,000 credit.
Permanent accounts carry their balances into the next accounting period.
Answer the following statement true (T) or false (F)
An advantage of maintaining a large inventory is _____
a. customer satisfaction b. a high stock turnover rate c. fresh merchandise d. low insurance costs
Which of the following items might cause activity-based costing (ABC) to be more difficult to implement in a service company than in a manufacturing company?
A) The lack of direct labor. B) The lack of facility-level costs. C) The lack of repetitive activities. D) The lack of overhead costs.