Expert Solutions

1. Judy is a self-employed musician who performs for a variety of events. This year Judy was fined $250
by the city for violating the city’s noise ordinance with a relatively loud performance. As a consequence Judy contributed $1,000 to a campaign committee formed to recall the city’s mayor. Judy normally hires three part-time employees to help her schedule events and transport equipment. Judy paid a total of $33,000 to her employees through June of this year. In June Judy fired her part-time employees and hired her husband to replace them. However, Judy paid him $55,000 rather than $33,000. Judy is on the cash method and calendar year, and she wants to know what amount of these expenditures is deductible as business expenses. Please show work

2. Sam operates a small chain of pizza outlets in Fort Collins, Colorado. In November of this year Sam
decided to attend a two-day management training course. Sam could choose to attend the course in
Denver or Los Angeles. Sam decided to attend the course in Los Angeles and take an eight-day vacation
immediately after the course. Sam reported the following expenditures from the trip:
Course: Tuition $ 2.500
Air Fair: 800
Hotel (10 nights) 1,200
Rental car (10 days) 900
Meals (10 days) 1,500
What amount of travel expenditures can Sam deduct? Please show work.

3. Blackwell Manufacturing uses the accrual method and reports on a calendar year. This year a
customer was injured when visiting the Blackwell factory. The customer sued the company for $500,000,
and the case is still being litigated. However, Blackwell’s attorney expects that the company will pay at
least $250,000 to settle the claim. What amount, if any, can Blackwell deduct for the expected claim
settlement this year?