Question 1

Individual proprietors report their business income and deductions on:

Accepted Answer

A) Form 1065. 
B) Form 1120S. 
C) Schedule C. 
D) Schedule A. 
E) Form 1041. 
A) Form 1065. 
B) Form 1120S. 
C) Schedule C. 
D) Schedule A. 
E) Form 1041.

Question 2

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

Accepted Answer

A) True 
 B)False

Question 3

Clyde operates a sole proprietorship using the cash method.This year Clyde made the following expenditures: $480 to U.S.Bank for 12 months of interest accruing on a business loan from September 1 of this year through August 31 of next year even though only $160 of interest accrued this year.
$600 for 12 months of property insurance beginning on July 1 of this year.
What is the maximum amount Clyde can deduct this year?

Accepted Answer

A) $760 
B) $600 
C) $480 
D) $160 
E) $360 
A) $760 
B) $600 
C) $480 
D) $160 
E) $360

Question 4

This year Clark leased a car to drive between his office and various work sites.Clark carefully recorded that he drove the car 23,000 miles this year and paid $7,200 of operating expenses ($2,700 for gas, oil, and repairs, and $4,500 for lease payments).What amount of these expenses may Clark deduct as business expenses?

Accepted Answer

A) $7,200 
B) Clark cannot deduct these costs because taxpayers must use the mileage method to determine any transportation deduction. 
C) $4,500 
D) $2,700 
E) Clark is not entitled to any deduction if he used the car for any personal trips. 
A) $7,200 
B) Clark cannot deduct these costs because taxpayers must use the mileage method to determine any transportation deduction. 
C) $4,500 
D) $2,700 
E) Clark is not entitled to any deduction if he used the car for any personal trips.

Question 5

Which of the following is a true statement about travel that has both business and personal aspects?

Accepted Answer

A) Transportation costs are always fully deductible. 
B) Meals are not deductible for this type of travel. 
C) Only half of the cost of meals and transportation is deductible. 
D) The deduction for the cost of lodging and incidental expenditures is limited to those amounts incurred during the business portion of the travel. 
E) None of the choices are correct. 
A) Transportation costs are always fully deductible. 
B) Meals are not deductible for this type of travel. 
C) Only half of the cost of meals and transportation is deductible. 
D) The deduction for the cost of lodging and incidental expenditures is limited to those amounts incurred during the business portion of the travel. 
E) None of the choices are correct.

Question 6

Uniform capitalization of indirect inventory costs is required for most very large taxpayers.

Accepted Answer

A) True 
 B)False

Question 7

Adjusted taxable income is defined as follows for purposes of the business interest limitation:

Accepted Answer

A) taxable income allocable to the business computed without regard to interest income; depreciation, amortization, or depletion; interest expense; and net operating loss deductions. 
B) 30 percent of revenue after deducting depreciation and interest expense. 
C) Taxable income allocable to debt invested in the business. 
D) Interest income after deducting 30 percent of all deductible expenses. 
E) None of the choices are correct. 
A) taxable income allocable to the business computed without regard to interest income; depreciation, amortization, or depletion; interest expense; and net operating loss deductions. 
B) 30 percent of revenue after deducting depreciation and interest expense. 
C) Taxable income allocable to debt invested in the business. 
D) Interest income after deducting 30 percent of all deductible expenses. 
E) None of the choices are correct.

Question 8

Which of the following is a true statement about accounting for business activities?

Accepted Answer

A) An overall accounting method can only be adopted with the permission of the commissioner. 
B) An overall accounting method is initially adopted on the first return filed for the business. 
C) The cash method can only be adopted by individual taxpayers. 
D) The accrual method can only be adopted by corporate taxpayers. 
E) None of the choices are true. 
A) An overall accounting method can only be adopted with the permission of the commissioner. 
B) An overall accounting method is initially adopted on the first return filed for the business. 
C) The cash method can only be adopted by individual taxpayers. 
D) The accrual method can only be adopted by corporate taxpayers. 
E) None of the choices are true.

Question 9

Which of the following is a payment liability?

Accepted Answer

A) Tort claims 
B) Refunds 
C) Insurance premiums 
D) Real estate taxes 
E) All of the choices are correct 
A) Tort claims 
B) Refunds 
C) Insurance premiums 
D) Real estate taxes 
E) All of the choices are correct

Question 10

A business generally adopts a fiscal or calendar year by using that year-end on the first tax return for the business.

Accepted Answer

A) True 
 B)False

Question 11

Crystal operates a business that provides typing and delivery services.This year Crystal spent $2,500 to purchase special shirts that identify her employees and provide some notoriety for her business.The shirts are especially colorful and include logos on the front pocket and the back.Besides salary payments, Crystal also compensates her employees by offering to pay whole life insurance premiums for any that want to provide insurance coverage for their beneficiaries.This year Crystal paid $5,000 in life insurance premiums.What amount of these payments can Crystal deduct? Crystal is on the cash method and calendar year.

Accepted Answer

$7,500.
Uniforms are deductible if not a

Question 12

Reasonable in amount means that expenditures can be exorbitant as long as the activity is motivated by profit.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is a true statement about a request for a change in accounting method?

Accepted Answer

A) Some requests are automatically granted. 
B) Most requests require the permission of the commissioner. 
C) Many requests require payment of a fee and a good business purpose for the change. 
D) Form 3115 is typically required to be filed with a request for change in accounting method. 
E) All of the choices are true. 
A) Some requests are automatically granted. 
B) Most requests require the permission of the commissioner. 
C) Many requests require payment of a fee and a good business purpose for the change. 
D) Form 3115 is typically required to be filed with a request for change in accounting method. 
E) All of the choices are true.

Question 14

Ronald is a cash-method taxpayer who made the following expenditures this year.Which expenditure is completely deductible in this period as a business expense?

Accepted Answer

A) $4,000 for rent on his office, which covers the next 24 months. 
B) $3,000 for a new watch for the mayor to keep "good relations" with city hall. 
C) $2,500 for professional hockey tickets distributed to a customer to generate "goodwill" for his business. 
D) $55 to collect an account receivable from a customer who has failed to pay for services rendered. 
E) None of the choices are completely deductible. 
A) $4,000 for rent on his office, which covers the next 24 months. 
B) $3,000 for a new watch for the mayor to keep "good relations" with city hall. 
C) $2,500 for professional hockey tickets distributed to a customer to generate "goodwill" for his business. 
D) $55 to collect an account receivable from a customer who has failed to pay for services rendered. 
E) None of the choices are completely deductible.

Question 15

Alvin is a self-employed sound technician who reports on the cash method and calendar year.Alvin has a shop in Austin, Texas, but he spends much of his time away from his shop traveling to and from various concerts around the country.Alvin leases a truck to move his equipment around the country and this year he spent $12,000 in lease payments and paid $18,000 for gas, oil, and repairs.Alvin keeps records of his personal use of the truck and he estimates that 6,000 of the total 36,000 miles put on the truck this year were for personal trips.What amount of these expenses may Alvin deduct as business expenses?

Accepted Answer

$25,000 = (30/36 × [$18,000 +

Question 16

David purchased a deli shop on February 1st of last year and began to operate it as a sole proprietorship.David reports his personal taxes using the cash method over a calendar year, and he wants to use the cash method and fiscal year for his sole proprietorship.He has summarized his receipts and expenses through January 31st of this year as follows:
 $\begin{array}{l}
&\text { Receipts } & \text { Expenses } \
\text { February through December last year }&\$ 112,000 & \$ 84,500 \
\text { January this year }&10,400 & 6,200
\end{array}$ What income should David report from his sole proprietorship?

Accepted Answer

$27,500 = $112,000 − $84,500.

Question 17

Danny owns an electronics outlet in Dallas.This year he paid $600 to register for a four-day course in management in Chicago.Danny paid $800 in airfare and $1,000 for five nights' lodging.After the course, Danny spent the last day sightseeing.During the trip, Danny also paid $140 a day for meals, and $80 a day for a rental car.What amount of these travel expenditures may Danny deduct as business expenses?

Accepted Answer

$2,800 = $600 + $800 + (4 nights × $200)

Question 18

When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the taxpayer on the debt will not be deductible.

Accepted Answer

A) True 
 B)False

Question 19

Taxpayers must maintain written contemporaneous records of business purpose when traveling in order to claim a deduction for the expenditures.

Accepted Answer

A) True 
 B)False

Question 20

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?

Accepted Answer

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 is not entitled to any business deduction until the son is an experienced cook. 
E) None of the choices are true. 
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 is not entitled to any business deduction until the son is an experienced cook. 
E) None of the choices are true.

Individual proprietors report their business income and deductions on:

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

Which of the following is a true statement about travel that has both business and personal aspects?

Uniform capitalization of indirect inventory costs is required for most very large taxpayers.

Adjusted taxable income is defined as follows for purposes of the business interest limitation:

Which of the following is a true statement about accounting for business activities?

Which of the following is a payment liability?

A business generally adopts a fiscal or calendar year by using that year-end on the first tax return for the business.

Reasonable in amount means that expenditures can be exorbitant as long as the activity is motivated by profit.

Which of the following is a true statement about a request for a change in accounting method?

Ronald is a cash-method taxpayer who made the following expenditures this year.Which expenditure is completely deductible in this period as a business expense?

When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the taxpayer on the debt will not be deductible.

Taxpayers must maintain written contemporaneous records of business purpose when traveling in order to claim a deduction for the expenditures.

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?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Filters

Exam 9: Business Income, Deductions, and Accounting Methods

Individual proprietors report their business income and deductions on:

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

Which of the following is a true statement about travel that has both business and personal aspects?

Uniform capitalization of indirect inventory costs is required for most very large taxpayers.

Adjusted taxable income is defined as follows for purposes of the business interest limitation:

Which of the following is a true statement about accounting for business activities?

Which of the following is a payment liability?

A business generally adopts a fiscal or calendar year by using that year-end on the first tax return for the business.

Reasonable in amount means that expenditures can be exorbitant as long as the activity is motivated by profit.

Which of the following is a true statement about a request for a change in accounting method?

Ronald is a cash-method taxpayer who made the following expenditures this year.Which expenditure is completely deductible in this period as a business expense?

When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the taxpayer on the debt will not be deductible.

Taxpayers must maintain written contemporaneous records of business purpose when traveling in order to claim a deduction for the expenditures.

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?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Filters