Question 1

Which of the following is a true statement?

Accepted Answer

A) Meals, lodging, and incidental expenditures are deductible if the taxpayer is away from home overnight while traveling. 
B) Meals are deductible for an employee who is forced to work during the lunch hour. 
C) When a taxpayer travels solely for business purposes, only half of the costs of travel are deductible. 
D) If travel has both business and personal aspects, the cost of transportation is always deductible but the deductibility of lodging depends upon whether business is conducted that day. 
E) None of the choices are true because business travel is not deductible. 
A) Meals, lodging, and incidental expenditures are deductible if the taxpayer is away from home overnight while traveling. 
B) Meals are deductible for an employee who is forced to work during the lunch hour. 
C) When a taxpayer travels solely for business purposes, only half of the costs of travel are deductible. 
D) If travel has both business and personal aspects, the cost of transportation is always deductible but the deductibility of lodging depends upon whether business is conducted that day. 
E) None of the choices are true because business travel is not deductible.

Question 2

Sandy Bottoms Corporation generated taxable income (before depreciation, interest expense, and any tax loss carryovers)of $3 million this year.Taxable income included $75,000,000 of revenue and $350,000 of interest income.What is Sandy Bottoms's domestic maximum interest expense deduction for the year?

Accepted Answer

$1,145,000 = $350,000 + [30% × ($3,000,0

Question 3

Which of the following business expense deductions is most likely to be unreasonable in amount?

Accepted Answer

A) Compensation paid to the taxpayer's spouse in excess of salary payments to other employees. 
B) Amounts paid to a subsidiary corporation for services where the amount is in excess of the cost of comparable services by competing corporations. 
C) Cost of a meal with a former client when there is no possibility of any future benefits from a relation with that client. 
D) All of the choices are likely to be unreasonable in amount. 
E) None of the choices are likely to be unreasonable in amount. 
A) Compensation paid to the taxpayer's spouse in excess of salary payments to other employees. 
B) Amounts paid to a subsidiary corporation for services where the amount is in excess of the cost of comparable services by competing corporations. 
C) Cost of a meal with a former client when there is no possibility of any future benefits from a relation with that client. 
D) All of the choices are likely to be unreasonable in amount. 
E) None of the choices are likely to be unreasonable in amount.

Question 4

Rock Island Corporation generated taxable income (before deductions for depreciation, interest expense, and net operating loss carryovers)of $1 million this year.Taxable income was computed on $50 million of revenues and included $50,000 of interest income.The company paid $450,000 in interest expense.What is Rock Island's maximum business interest deduction for the year?

Accepted Answer

$335,000 = $50,000 + [30% × ($1,000,000

Question 5

The all-events test for income determines the period in which income will be recognized for tax purposes.

Accepted Answer

A) True 
 B)False

Question 6

Todd operates a business using the cash basis of accounting.At the end of last year, Todd was granted permission to switch his sales on account to the accrual method.Last year Todd made $420,000 of sales on account and $64,000 was uncollected at the end of the year.What is Todd's §481 adjustment for this year?

Accepted Answer

A) Increase income by $420,000 
B) Increase income by $16,000 
C) Increase expenses by $64,000 
D) Increase expenses by $420,000 
E) Todd has no §481 adjustment this year. 
A) Increase income by $420,000 
B) Increase income by $16,000 
C) Increase expenses by $64,000 
D) Increase expenses by $420,000 
E) Todd has no §481 adjustment this year.

Question 7

Illegal bribes and kickbacks are not deductible as business expenses but fines imposed by a governmental unit are deductible as long as the fines are incurred in the ordinary course of business.

Accepted Answer

A) True 
 B)False

Question 8

Brad operates a storage business on the accrual method.On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse.The rent and insurance cover the next 12 months.What is Brad's deduction for the rent and insurance?

Accepted Answer

A) $48,000 for the rent and $18,000 for the insurance. 
B) $24,000 for the rent and $18,000 for the insurance. 
C) $24,000 for the rent and $9,000 for the insurance. 
D) $48,000 for the rent and $9,000 for the insurance. 
E) None of the choices are true. 
A) $48,000 for the rent and $18,000 for the insurance. 
B) $24,000 for the rent and $18,000 for the insurance. 
C) $24,000 for the rent and $9,000 for the insurance. 
D) $48,000 for the rent and $9,000 for the insurance. 
E) None of the choices are true.

Question 9

Mike started a calendar-year business on September 1st of this year by paying 12 months of rent on his shop at $1,000 per month.What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?

Accepted Answer

A) $12,000 under the cash method and $12,000 under the accrual method. 
B) $4,000 under the cash method and $12,000 under the accrual method. 
C) $12,000 under the cash method and $4,000 under the accrual method. 
D) $4,000 under the cash method and $4,000 under the accrual method. 
E) $4,000 under the cash method and zero under the accrual method. 
A) $12,000 under the cash method and $12,000 under the accrual method. 
B) $4,000 under the cash method and $12,000 under the accrual method. 
C) $12,000 under the cash method and $4,000 under the accrual method. 
D) $4,000 under the cash method and $4,000 under the accrual method. 
E) $4,000 under the cash method and zero under the accrual method.

Question 10

Taffy Products uses the accrual method and reports on a calendar year.On July 1st of this year Taffy paid $48,000 for warehouse rent and $18,000 for insurance on the contents of its warehouse.The rent and insurance cover the next 12 months.What amount, if any, can Taffy deduct for rent and insurance this year?

Accepted Answer

$42,000 = $24,000 + $18,000.
Economic pe

Question 11

Which of the following is a true statement about impermissible accounting methods?

Accepted Answer

A) An impermissible method is adopted by using the method to report results for two consecutive years. 
B) An impermissible method may never be used by a taxpayer. 
C) Cash-method accounting is an impermissible method for partnerships and Subchapter S- electing corporations. 
D) There is no accounting method that is impermissible. 
E) None of the choices are true. 
A) An impermissible method is adopted by using the method to report results for two consecutive years. 
B) An impermissible method may never be used by a taxpayer. 
C) Cash-method accounting is an impermissible method for partnerships and Subchapter S- electing corporations. 
D) There is no accounting method that is impermissible. 
E) None of the choices are true.

Question 12

Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following expenditures is most likely to be deductible for a construction business?

Accepted Answer

A) A fine for a zoning violation. 
B) A tax underpayment penalty. 
C) An "under the table" payment to a government representative to obtain a better price for raw materials. 
D) A contribution to the mayor's political campaign fund. 
E) An arm's length payment to a related party for emergency repairs of a sewage line. 
A) A fine for a zoning violation. 
B) A tax underpayment penalty. 
C) An "under the table" payment to a government representative to obtain a better price for raw materials. 
D) A contribution to the mayor's political campaign fund. 
E) An arm's length payment to a related party for emergency repairs of a sewage line.

Question 14

Colbert operates a catering service on the accrual method.In November of year 1 Colbert received a payment of $9,000 for 18 months of catering services to be rendered from December 1st of year 1 through May 31st of year 3.When must Colbert recognize the income if his accounting methods are selected to minimize income recognition?

Accepted Answer

A) $500 is recognized in year 1, $6,000 in year 2, and $2,500 in year 3. 
B) $500 is recognized in year 1 and $8,500 in year 2. 
C) $9,000 is recognized in year 3. 
D) $2,500 is recognized in year 1 and $6,500 in year 2. 
E) $9,000 is recognized in year 1. 
A) $500 is recognized in year 1, $6,000 in year 2, and $2,500 in year 3. 
B) $500 is recognized in year 1 and $8,500 in year 2. 
C) $9,000 is recognized in year 3. 
D) $2,500 is recognized in year 1 and $6,500 in year 2. 
E) $9,000 is recognized in year 1.

Question 15

Ralph borrowed $4 million and used the proceeds in his Internet business.The interest on this debt is not subject to an interest limitation if Ralph's business has average annual gross receipts of $26 million or less for the prior three taxable years.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following cannot be selected as a valid tax year-end?

Accepted Answer

A) December 31st 
B) January 31st 
C) The last Friday of the last week of June. 
D) December 15th 
E) A tax year can end on any of these days 
A) December 31st 
B) January 31st 
C) The last Friday of the last week of June. 
D) December 15th 
E) A tax year can end on any of these days

Question 17

Sole proprietorships must use the same tax year as the proprietor of the business.

Accepted Answer

A) True 
 B)False

Question 18

The phase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business.

Accepted Answer

A) True 
 B)False

Question 19

Riley operates a plumbing business, and this year the three-year-old van he used in the business was destroyed in a traffic accident.The van was originally purchased for $20,000 and the adjusted basis was $5,800 at the time of the accident.Although the van was worth $6,000 at the time of accident, insurance only paid Riley $1,200 for the loss.What is the amount of Riley's casualty loss deduction?

Accepted Answer

A) $6,000. 
B) $14,000. 
C) $5,800. 
D) $4,600. 
E) $5,300. 
A) $6,000. 
B) $14,000. 
C) $5,800. 
D) $4,600. 
E) $5,300.

Which of the following is a true statement?

Which of the following business expense deductions is most likely to be unreasonable in amount?

The all-events test for income determines the period in which income will be recognized for tax purposes.

Illegal bribes and kickbacks are not deductible as business expenses but fines imposed by a governmental unit are deductible as long as the fines are incurred in the ordinary course of business.

Brad operates a storage business on the accrual method.On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse.The rent and insurance cover the next 12 months.What is Brad's deduction for the rent and insurance?

Mike started a calendar-year business on September 1^st of this year by paying 12 months of rent on his shop at $1,000 per month.What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?

Which of the following is a true statement about impermissible accounting methods?

Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

Which of the following expenditures is most likely to be deductible for a construction business?

Ralph borrowed $4 million and used the proceeds in his Internet business.The interest on this debt is not subject to an interest limitation if Ralph's business has average annual gross receipts of $26 million or less for the prior three taxable years.

Which of the following cannot be selected as a valid tax year-end?

Sole proprietorships must use the same tax year as the proprietor of the business.

The phase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business.

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

Which of the following is a true statement?

Which of the following business expense deductions is most likely to be unreasonable in amount?

The all-events test for income determines the period in which income will be recognized for tax purposes.

Illegal bribes and kickbacks are not deductible as business expenses but fines imposed by a governmental unit are deductible as long as the fines are incurred in the ordinary course of business.

Brad operates a storage business on the accrual method.On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse.The rent and insurance cover the next 12 months.What is Brad's deduction for the rent and insurance?

Mike started a calendar-year business on September 1st of this year by paying 12 months of rent on his shop at $1,000 per month.What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?

Which of the following is a true statement about impermissible accounting methods?

Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

Which of the following expenditures is most likely to be deductible for a construction business?

Ralph borrowed $4 million and used the proceeds in his Internet business.The interest on this debt is not subject to an interest limitation if Ralph's business has average annual gross receipts of $26 million or less for the prior three taxable years.

Which of the following cannot be selected as a valid tax year-end?

Sole proprietorships must use the same tax year as the proprietor of the business.

The phase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business.

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

Mike started a calendar-year business on September 1^st of this year by paying 12 months of rent on his shop at $1,000 per month.What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?