On September 1, 2020, Lerner Ltd, purchased a franchise for $75,000. The franchise has a limited life of 10 years. Lerner Ltd. has a September 30 year end. The maximum tax deduction related to the franchise for the year ending September 30, 2020 is:

Question

Quizplus · Accepted Answer

The maximum tax deduction for the year ending September 30, 2020, is calculated based on the amortization of the franchise cost over its useful life. Since the franchise was purchased on September 1, 2020, and Lerner Ltd. has a September 30 year-end, only one month of amortization applies for the 2020 fiscal year. The annual amortization expense is $75,000 / 10 years = $7,500. For one month, this amounts to $7,500 / 12 = $625. However, the correct maximum tax deduction is not directly provided in the options, suggesting a possible typo in the question or answer choices. Given the provided choices, $925 (Option A) is the closest to the calculated monthly amortization of $625, but it should be noted that this does not accurately reflect the correct calculation based on the given data.

On September 1, 2020, Lerner Ltd, Purchased a Franchise for $75,000