Jones operates an upscale restaurant and he pays experienced cooks $35,000 per year.This year he hired his son as an apprentice cook.Jones agreed to pay his son $40,000 per year.Which of the following is a true statement about this transaction?
A)Jones will be allowed to deduct $40,000 only if his son eventually develops into an expert cook.
B)Jones will be allowed to accrue $40,000 only if he pays his son in cash.
C)Jones will be allowed to deduct $35,000 as compensation and another $5,000 can be deducted as an employee gift.
D)Jones can only deduct $20,000 because an apprentice cook is only worth half as much as an experienced cook.
E)None of the choices are true.

Question

Quizplus · Accepted Answer

Jones cannot deduct the full $40,000 as it exceeds the reasonable compensation for an apprentice cook, which is typically less than an experienced cook's salary.

Jones Operates an Upscale Restaurant and He Pays Experienced Cooks