Joe operates a business that locates and purchases specialized assets for clients, among other activities. Joe uses the accrual method of accounting but he doesn’t keep any significant inventories of the specialized assets that he sells. Joe reported the following financial information for his business activities during year 0. Determine the effect of each of the following transactions on the taxable business income. Required: Joe has signed a contract to sell gadgets to the city. The contract provides that sales of gadgets are dependent upon a test sample of gadgets operating successfully. In December, Joe delivers $13,950 worth of gadgets to the city that will be tested in March. Joe purchased the gadgets especially for this contract and paid $9,750. Joe paid $305 for entertaining a visiting out-of-town client. The client didn’t discuss business with Joe during this visit, but Joe wants to maintain good relations to encourage additional business next year. On November 1, Joe paid $650 for premiums providing for $65,000 of "key man" insurance on the life of Joe’s accountant over the next 12 months.