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Tori, an engineering geologist, had been debating for years whether or not to venture out on her own and operate her own business.

She had developed a lot of solid relationships with clients and believed that she could have a good client base. Tori put her business

plan together and, on January 1 of this year, Tori opened the doors for her business called TEG. TEG will use the accrual method of

accounting and will be use the calendar year (Schedule C). Tori reported the following financial information for the year.

What is

Toris Schedule C income (Revenues and Expenses) for the year?

A

In January TEG rented a small business office about 12 miles from Toris home. TEG paid $12,000

which represented a damage deposit of $2,000 and rent for two years ($5,000 annually).

B

TEG purchased two season tickets (20 games) to attend Green U baseball games for a total of $1,100.

Tori took existing and prospective clients to the games to maintain contact and discuss current and

potential work. This was very successful for Tori as TEG gained many new projects through substantial

discussions with the clients following the games.

C

TEG earned and collected $375,000 performing geological engineering-related services and selling

specialized analysis tools that it designed for clients.

D

TEG incurred a $1,500 fine from the state government for an unsafe work environment.

E

TEG paid Toris sister $27,000 for services that would have cost no more than $16,000 if Tori had hired

any other local business to perform the services. While Toris sister was very competent, she does not

command such a premium from any other clients.

F

On July 1, TEG paid $3,600 for an 18-month insurance policy for its business equipment. The policy

covers the period July 1of this year through December 31 of next year.

G

Tori lives 22 miles from the office. She carefully tracked her mileage and drove her truck 8,480 miles

between the office and home. She also drove an additional 9,700 miles between the office and traveling

to client sites. Tori did not use the truck for any other purposes. She did not keep track of the specific

expenses associated with the truck. However, while traveling to a client site, Tori received a $150

speeding ticket.

H

TEG leased additional office space in a building downtown. TEG paid rent of $18,000 for the year.

I

One of TEGs clients DRF was so impressed with the specialized analysis tools that it purchased in

March that it wanted to contract with TEG to continue to produce the tools for them for the next three

years. DRF paid TEG $264,000 ($110 per tool) on October 30 of this year, to produce 50 tools per

month for 48 months beginning on November 1 of this year. TEG delivered 50 tools on November 30

and again on December 30. TEG elects to use the deferral method to account for the transaction.

J

In November, Toris office was broken into and equipment valued at 6,000 was stolen. The tax basis of

the equipment was $3,500. Tori received $2,000 of insurance proceeds from the theft

K

TEG paid a total of $15,000 of wages to employees during the year and cost of goods sold was $19,000

L

TEG had a client who needed Tori to perform work in Arizona. Because Tori had never been to Arizona

before, she booked an extra day and night for sightseeing. Tori spent $400 for airfare and booked a hotel

for 3 nights ($120/night). (Tori stayed two days for business purposes and one day for personal

purposes.) She also rented a car for $45 per day. The client arranged for Toris meals while Tori was

doing business. TEG reimbursed Tori for all expenses.

M

In December, TEG agreed to a 12-month $8,000 contract with a marketing firm MBYM - to produce a

radio ad campaign. TEG paid $3,000 up front (in December of this year) and MBYM agreed that TEG

would owe the remaining $5,000 only if TEGs sales increased by 15 percent over the nine-month period

after the contract was signed.

N

TEG contributed $2,000 to support lobbyists who lobby for less environmental controls over certain

geological zones.

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