Question 1

Patrick has a business net operating loss of $70,000 in 2013.Patrick's business did well in 2011 and in 2012.Which of the following is true?

Accepted Answer

A) Patrick may offset income he generated in 2011 and 2012 with 2013's net operating loss by carrying the net operating loss back to each of those tax years.The remaining net operating loss can be carried forward and used to offset future taxable income. 
B) Patrick may use the net operating loss to offset income from any year he chooses. 
C) Net operating losses can offset only future income. 
D) Patrick may offset the income he made in 2012 with 2013's net operating loss.The remaining net operating loss can be used to offset future gains. 
E) None of the above. 
A) Patrick may offset income he generated in 2011 and 2012 with 2013's net operating loss by carrying the net operating loss back to each of those tax years.The remaining net operating loss can be carried forward and used to offset future taxable income. 
B) Patrick may use the net operating loss to offset income from any year he chooses. 
C) Net operating losses can offset only future income. 
D) Patrick may offset the income he made in 2012 with 2013's net operating loss.The remaining net operating loss can be used to offset future gains. 
E) None of the above.

Question 2

Anna is a self-employed newspaper columnist who does her work exclusively from a home office.Anna had a bad year and her taxable income from her business is only $2,000 before the home office expenses this year.Her office takes up 250 square feet of her 1,000 square foot apartment.The total expenses for her apartment are $8,000 for rent,$1,000 for utilities,$200 of renter's insurance and $800 for pest control and other maintenance.What is Anna's home office deduction? Please show your calculations.

Accepted Answer

$2,000.The total costs of her apartment

Question 3

Mikey is a self-employed computer game software designer.He takes a week-long trip to Maui, primarily for business.He takes 2 personal days at the beach.How should he treat the expenses relat ed to this trip?

Accepted Answer

A) None of the expenses are deductible since there was an element of personal enjoyment in the trip. 
B) 100 percent of the trip should be deducted as a business expense since the trip was primarily for business. 
C) 50 percent of the trip should be deducted as a business expense. 
D) The cost of all of the airfare and the expenses related to the business days should be deducted,while the expenses related to the personal days are not deductible. 
A) None of the expenses are deductible since there was an element of personal enjoyment in the trip. 
B) 100 percent of the trip should be deducted as a business expense since the trip was primarily for business. 
C) 50 percent of the trip should be deducted as a business expense. 
D) The cost of all of the airfare and the expenses related to the business days should be deducted,while the expenses related to the personal days are not deductible.

Question 4

Splashy Fish Store allows qualified customers to purchase items on credit.During 2013,Lisa,the owner of the store,determines that $3,500 of accounts receivable are not collectible.Which of the following statements is true with respect to Lisa's deduction for the uncollectible accounts receivable?

Accepted Answer

A) Lisa is not allowed a deduction for the uncollectible accounts if she has not previously included the income arising from the accounts in taxable income. 
B) Any deduction for the uncollectible accounts receivable will be treated as a short-term capital loss. 
C) Only $3,000 of the uncollectible accounts receivable may be deducted in the current year. 
D) All of the above statements are true. 
E) Two of the above statements are true. 
A) Lisa is not allowed a deduction for the uncollectible accounts if she has not previously included the income arising from the accounts in taxable income. 
B) Any deduction for the uncollectible accounts receivable will be treated as a short-term capital loss. 
C) Only $3,000 of the uncollectible accounts receivable may be deducted in the current year. 
D) All of the above statements are true. 
E) Two of the above statements are true.

Question 5

When a taxpayer uses the FIFO inventory valuation method,the assumption on which the method is based is that the inventory on hand at the end of the year consists of the most recently acquired items.

Accepted Answer

A) True 
 B)False

Question 6

The cost of transportation from New York to London for a trip that is for both business and pleasure may be deducted in full as a travel expense.

Accepted Answer

A) True 
 B)False

Question 7

In which of the following situations may the taxpayer take an education expense on Schedule C?

Accepted Answer

A) John,a plumber by trade,is taking classes to qualify as an electrician so he may become a more well-rounded plumber. 
B) Henry,an administrative assistant,is taking an advanced Word computer program class through an adult school program. 
C) Barbie is flying on numerous commercial airplanes in order to observe the flight attendants so that she may improve her public relations skills. 
D) Ann Marie is taking a review course in order to pass the certified financial planner examination. 
A) John,a plumber by trade,is taking classes to qualify as an electrician so he may become a more well-rounded plumber. 
B) Henry,an administrative assistant,is taking an advanced Word computer program class through an adult school program. 
C) Barbie is flying on numerous commercial airplanes in order to observe the flight attendants so that she may improve her public relations skills. 
D) Ann Marie is taking a review course in order to pass the certified financial planner examination.

Question 8

If an employee is transferred to a distant location for an indefinite period of time,the new location typically will be considered the employee's new tax home.

Accepted Answer

A) True 
 B)False

Question 9

Janine is a sole proprietor owning a small specialty store.The business records show that the cost of the store's individual inventory items has been steadily increasing.The cost of the end of the year inventory is $125,000 and the cost of the beginning of the year inventory was $150,000.Janine uses the LIFO method of inventory valuation.Which of the following statements is true?

Accepted Answer

A) Janine purchased more inventory during the year than she sold during the same one-year period. 
B) Janine would have a higher net income if she used the FIFO method of inventory valuation instead of the LIFO method. 
C) Janine has apparently increased the volume of items in her ending inventory as compared to the number of items in her beginning inventory. 
D) Since the cost of the store's inventory items is increasing,Janine will have a smaller cost of goods sold amount on a LIFO basis than on a FIFO basis. 
E) None of the above. 
A) Janine purchased more inventory during the year than she sold during the same one-year period. 
B) Janine would have a higher net income if she used the FIFO method of inventory valuation instead of the LIFO method. 
C) Janine has apparently increased the volume of items in her ending inventory as compared to the number of items in her beginning inventory. 
D) Since the cost of the store's inventory items is increasing,Janine will have a smaller cost of goods sold amount on a LIFO basis than on a FIFO basis. 
E) None of the above.

Question 10

Peter is a self-employed attorney.He gives the following information about his business to his CPA for use in preparing his 2013 tax return: Income
Fees from law practice $\quad \$ 153,000$
Expenses
$\begin{array}{ll}\text { Malpractice insurance }&\$800\
\text { Office rent } & 12,000 \
\text { Office supplies } & 5,500 \
\text { Travel expense } & 2,000 \
\text { Meals and entertainment } & 6,500 \
\text { Paralegal wages } & 25,500 \
\text { Country club dues (Peter uses the club for business entertainment) } & 2,500
\end{array}$ Peter also drove his car 5,034 miles for business and used the standard mileage method for computing transportation costs.How much will Peter show on his Schedule C for 2013 for: 
a.Income
b.Tax deductible expenses
c.Taxable income

Accepted Answer

The answer of Peter is a self-employed attorney.He gives the...

Question 11

Choose the correct statement:

Accepted Answer

A) If a taxpayer does a lot of business travel,the taxpayer may deduct the amount paid for an airline club membership. 
B) Membership dues to a golf club are deductible as long as there is a business purpose. 
C) In order to be deductible,dues and subscriptions must be related to the taxpayer's work. 
D) If a financial planner becomes certified,then he/she may not deduct the CFP dues because it is not necessary to be certified in order to engage in the business of being a financial planner. 
A) If a taxpayer does a lot of business travel,the taxpayer may deduct the amount paid for an airline club membership. 
B) Membership dues to a golf club are deductible as long as there is a business purpose. 
C) In order to be deductible,dues and subscriptions must be related to the taxpayer's work. 
D) If a financial planner becomes certified,then he/she may not deduct the CFP dues because it is not necessary to be certified in order to engage in the business of being a financial planner.

Question 12

Richard operates a hair styling boutique out of his home.The boutique occupies 300 of the home's 1,200 square feet of floor space.Other information is as follows: $\begin{array}{lr}
\text { Gross income from the boutique } & \$ 10,000 \
\text { Supplies for the boutique } & \$ 2,000 \
\text { Depreciation on total residence } & \$ 12,000 \
\text { Utilities for total residence } & \$ 6,000
\end{array}$ What amount of income or loss from the boutique should Richard show on his return?

Accepted Answer

A) $10,000 loss 
B) $0 income or loss 
C) $3,500 income 
D) $5,000 income 
E) None of the above 
A) $10,000 loss 
B) $0 income or loss 
C) $3,500 income 
D) $5,000 income 
E) None of the above

Question 13

A deduction for a business bad debt is allowed to the extent that income related to the debt was previously included in taxable income.

Accepted Answer

A) True 
 B)False

Question 14

What income tax form does a self-employed sole proprietor usually use to report business income and expense?

Accepted Answer

A) Schedule C 
B) Schedule A,Miscellaneous Itemized Deductions 
C) Schedule B 
D) Form 2106,Employee Business Expenses 
E) None of the above 
A) Schedule C 
B) Schedule A,Miscellaneous Itemized Deductions 
C) Schedule B 
D) Form 2106,Employee Business Expenses 
E) None of the above

Question 15

Christine is a self-employed tax accountant who drives her car to visit clients occasionally throughout the year.She drives her car 1,000 miles for business,5,000 miles for commuting and 5,000 miles for personal use.Assuming that Christine uses the standard mileage method,how much is her auto expense for the year? Where in her tax return should Christine claim this deduction?

Accepted Answer

The business auto expense is $

Question 16

The cost of a blue wool suit for an accountant is a deductible expense.

Accepted Answer

A) True 
 B)False

Question 17

Taxpayers who make a combined business and pleasure trip:

Accepted Answer

A) Must allocate the travel cost between the business and pleasure parts of the trip if the travel is within the United States. 
B) Must allocate the travel cost between the business and pleasure parts of the trip if the travel is outside the United States. 
C) Can deduct the cost of meals,lodging,local transportation,and incidental expenses in full. 
D) Can take a tax deduction only for the personal part of the trip. 
A) Must allocate the travel cost between the business and pleasure parts of the trip if the travel is within the United States. 
B) Must allocate the travel cost between the business and pleasure parts of the trip if the travel is outside the United States. 
C) Can deduct the cost of meals,lodging,local transportation,and incidental expenses in full. 
D) Can take a tax deduction only for the personal part of the trip.

Question 18

Acme Corporation had the following expenses: 1. 1,000 pads of paper embossed with the company logo to hand out at
$\quad$ the Big Time Convention$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$750
2. Display racks to use at the convention center$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$200
3. An all-expense vacation for Susie's 25 years of service award$\quad$$\quad$$\quad$$2,500
4. A golden cone to recognize Wavne's on the job safety record$\quad$$\quad$$\quad$$\quad$$300 Acme has a qualified plan for the job awards.Calculate Acme's total deductions for the above expenses.

Accepted Answer

The answer of Acme Corporation had the following expenses: 1....

Question 19

The IRS has approved only two per diem methods to substantiate travel expenses,the high-low method and the meals and incidental expenses method.

Accepted Answer

A) True 
 B)False

Question 20

If an employer chooses a per diem method of substantiation for travel expenses,

Accepted Answer

A) The Regular Federal Rate method allows employees the same per diem rate no matter where they travel in the United States. 
B) The high-low method averages the high-cost locality and low-cost locality per diem rates to arrive at an average rate. 
C) The meals and incidental expenses method requires actual cost records to substantiate lodging expenses. 
D) Actual expense records substantiating the business reason for the trip and the dates of arrival and departure are not required. 
E) The employer need not use an accountable plan for reimbursing employees for travel expenses. 
A) The Regular Federal Rate method allows employees the same per diem rate no matter where they travel in the United States. 
B) The high-low method averages the high-cost locality and low-cost locality per diem rates to arrive at an average rate. 
C) The meals and incidental expenses method requires actual cost records to substantiate lodging expenses. 
D) Actual expense records substantiating the business reason for the trip and the dates of arrival and departure are not required. 
E) The employer need not use an accountable plan for reimbursing employees for travel expenses.

Patrick has a business net operating loss of $70,000 in 2013.Patrick's business did well in 2011 and in 2012.Which of the following is true?

Mikey is a self-employed computer game software designer.He takes a week-long trip to Maui, primarily for business.He takes 2 personal days at the beach.How should he treat the expenses relat ed to this trip?

Splashy Fish Store allows qualified customers to purchase items on credit.During 2013,Lisa,the owner of the store,determines that $3,500 of accounts receivable are not collectible.Which of the following statements is true with respect to Lisa's deduction for the uncollectible accounts receivable?

When a taxpayer uses the FIFO inventory valuation method,the assumption on which the method is based is that the inventory on hand at the end of the year consists of the most recently acquired items.

The cost of transportation from New York to London for a trip that is for both business and pleasure may be deducted in full as a travel expense.

In which of the following situations may the taxpayer take an education expense on Schedule C?

If an employee is transferred to a distant location for an indefinite period of time,the new location typically will be considered the employee's new tax home.

Choose the correct statement:

A deduction for a business bad debt is allowed to the extent that income related to the debt was previously included in taxable income.

What income tax form does a self-employed sole proprietor usually use to report business income and expense?

The cost of a blue wool suit for an accountant is a deductible expense.

Taxpayers who make a combined business and pleasure trip:

The IRS has approved only two per diem methods to substantiate travel expenses,the high-low method and the meals and incidental expenses method.

If an employer chooses a per diem method of substantiation for travel expenses,

The Individual Income Tax Return

Gross Income and Exclusions

Business Income and Expenses, Part II

Itemized Deductions and Other Incentives

Credits and Special Taxes

Accounting Periods and Methods and Depreciation

Capital Gains and Losses

Withholding, Estimated Payments, and Payroll Taxes

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters

Exam 3: Business Income and Expenses, Part I

Patrick has a business net operating loss of $70,000 in 2013.Patrick's business did well in 2011 and in 2012.Which of the following is true?

Mikey is a self-employed computer game software designer.He takes a week-long trip to Maui, primarily for business.He takes 2 personal days at the beach.How should he treat the expenses relat ed to this trip?

Splashy Fish Store allows qualified customers to purchase items on credit.During 2013,Lisa,the owner of the store,determines that $3,500 of accounts receivable are not collectible.Which of the following statements is true with respect to Lisa's deduction for the uncollectible accounts receivable?

When a taxpayer uses the FIFO inventory valuation method,the assumption on which the method is based is that the inventory on hand at the end of the year consists of the most recently acquired items.

The cost of transportation from New York to London for a trip that is for both business and pleasure may be deducted in full as a travel expense.

In which of the following situations may the taxpayer take an education expense on Schedule C?

If an employee is transferred to a distant location for an indefinite period of time,the new location typically will be considered the employee's new tax home.

Choose the correct statement:

A deduction for a business bad debt is allowed to the extent that income related to the debt was previously included in taxable income.

What income tax form does a self-employed sole proprietor usually use to report business income and expense?

The cost of a blue wool suit for an accountant is a deductible expense.

Taxpayers who make a combined business and pleasure trip:

The IRS has approved only two per diem methods to substantiate travel expenses,the high-low method and the meals and incidental expenses method.

If an employer chooses a per diem method of substantiation for travel expenses,

The Individual Income Tax Return

Gross Income and Exclusions

Business Income and Expenses, Part II

Itemized Deductions and Other Incentives

Credits and Special Taxes

Accounting Periods and Methods and Depreciation

Capital Gains and Losses

Withholding, Estimated Payments, and Payroll Taxes

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters