Davis Owns and Operates a Convenience Store on the North

Multiple Choice

Davis owns and operates a convenience store on the north side of the city. He has always wanted to operate a sports bar. When he hears of a new shopping center development in the south part of the city, he contacts the developer and begins negotiations to open his dream enterprise. If negotiations are successful and Davis incurs $40,000 in start-up costs to open his new I. business, he can deduct up to $5,000 of the start-up costs and must capitalize the costs of investigation and start-up exceeding $5,000. II. If Davis decides not to open his bar and restaurant, the investigation expenses are fully deductible.

A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.