Answer:
a. Cash received from repair services, $28,000. Repair business
b. Interest paid on his home mortgage, $7,300.Personal expenses
c. Power jack hoist purchased at a cost of $12,000. Repair business
d. Electricity bills, $3,600. (Ed does not have separate electricity service to the garage.)Personal expenses
e. Checks received from customers that were returned by his bank, $1,600. Repair business
The bank charged Ed’s account $35 for processing the bad checks.Repair business
f. Telephone bill for phone in the garage, $420. (Ed has a separately listed phone in his house.)Repair business
g. Advertising in the local newspaper, $800.Repair business
h.Interest paid on home furniture loan, $600.Personal expenses
Explanation:
Under the entity concept, Ed must segregate the income and expenses associated with his auto repair business from those that are personal. The importance of this segregation is that all trade or business expenses are deductible for adjusted gross income, while most personal expenditures are not deductible.
c
