Exam 6: Business Expenses

On October 1, 2019, Fine Brands Corporation (a cash-basis, calendar-year taxpayer) borrowed $200,000 from the bank at 9% annual interest.On December 30, 2019, Fine Brands paid $18,000 to the bank for the first year's interest on the loan.How much can Garcia deduct in 2019 for interest expense?

All of the following would normally result in timing (temporary) differences between tax and financial accounting except:

John and his family were living in New Jersey when he accepted a full-time job in Philadelphia.During the week, John lives in a rental apartment in Philadelphia that is within walking distance of his office; on weekends he drives home to be with his family in New Jersey where he also does a few hours of consulting work.Where is John's tax home?

Cleo spent $4,000 on organization costs for her business and $13,000 training staff.If the business is a calendar-year cash-basis business that starts operations on June 1, what is the current year's deduction for these expenses?

If an expense is reported on the tax return before it is reported on the financial accounting books

Tachibana Corporation has income per books before tax of $286,000.In computing income per books, Tachibana deducted $20,000 for business meal expenses, $3,000 for premiums on officers' life insurance policies (the corporation is the beneficiary for these policies), and $100 for fines.What is Tachibana Corporation's taxable income?

The UNICAP rules require inventory to include a prorated portion of advertising and distribution expenses.

To deduct a bad debt expense for tax purposes, the taxpayer must use:

Tom flew to Madrid on Wednesday; he had business meetings on Thursday and Friday.He visited museums on Saturday and Sunday and had meetings on Monday through Thursday and flew home on Friday.How many business days does Tom have for this trip for tax purposes?

A deferred tax liability can be the result of both timing and permanent differences between revenue recognition for tax and financial accounting.

Expenses of a hobby are deductible to the extent of the gross profit from the hobby, but only as miscellaneous itemized deductions before 2018 and after 2025.

Rachel owns a vacation condo in Colorado.During the year she rented it for 14 days for $2,800.Rachel and her family members used the condo for 65 days during the year and it was vacant the rest of the year.The total expenses for the year were: $8,000 interest expense, $2,000 property taxes, and $1,800 utilities.How much net rental income must Rachel report on her tax return for the year?

A deferred tax liability

Gigi's legal expenses for the year included $800 for writing her will, $300 for making a change to her partnership agreement, $6,000 to defend a liability claim against the partnership, and $900 to clear the title to her home when a dispute arose with a previous owner.Which of her legal expenses qualify as deductible?

Jacob Corporation decides to use the LIFO method of inventory valuation.Which of the following is true?

Cailey incurs $3,600 for business meals while traveling for her employer, Lewis Corporation.Cailey is reimbursed in full by Lewis under an accountable plan.What amounts can Cailey and Lewis deduct?

Which of the following taxes cannot be deducted by a business?

Clark Corporation has income per books before tax of $1,500,000.In computing income per books, Clark included $7,000 interest income from tax-exempt municipal bonds and deducted $10,000 for business meal expenses, $50,000 for depreciation expense using the straight-line method and $15,000 accrued for bad debt expense using the allowance method.It actually wrote off only $9,000 in bad debts this year and its tax depreciation expense was $80,000.What is Clark Corporation's taxable income?

Gina flew from Miami to San Diego for a business meeting.The meeting lasted four days and she stayed in San Diego for two additional days to do some sightseeing.With respect to the expenses of the trip, Gina should:

Which of the following employee meals is fully deductible by the employer?