John, a rental car dealer on Miami Beach, is considering opening a beauty salon in San Francisco.After spending $8,000 investigating such possibilities in San Francisco, John decides not to open the salon.As a consequence, the $8,000 is:
A)Capitalized and amortized over 189 months
B)Capitalized and deductible over the life of the business
C)Deduct $5,000 and amortize the balance over 180 months
D)Not deductible

Question

Quizplus · Accepted Answer

The $8,000 spent by John on investigating the possibility of opening a beauty salon in San Francisco is considered a sunk cost since he decided not to proceed with the business. Sunk costs are past costs that cannot be recovered and are not deductible for tax purposes.

John, a Rental Car Dealer on Miami Beach, Is Considering