Question 1

Which of the following would not be used to determine if an activity is a business or a hobby?

Accepted Answer

A) The time spent by the taxpayer in the business 
B) The number of relatives employed by the taxpayer 
C) The actual profits of the business 
D) The expertise of the taxpayer's consultants 
A) The time spent by the taxpayer in the business 
B) The number of relatives employed by the taxpayer 
C) The actual profits of the business 
D) The expertise of the taxpayer's consultants

Question 2

Nick owns a home in Daytona Beach, Florida where his wife and children live.He recently accepted a full-time job in Tampa.During the week, Nick lives in a rental apartment in Tampa and on weekends he drives home to be with his family in Daytona Beach.If Nick continues to maintain and pay all of the expenses of the residence in Daytona, where is Nick's tax home?

Accepted Answer

A) Daytona Beach 
B) Tampa 
C) He can choose either Daytona Beach or Tampa 
D) Nick has no tax home. 
A) Daytona Beach 
B) Tampa 
C) He can choose either Daytona Beach or Tampa 
D) Nick has no tax home.

Question 3

An accrual-basis taxpayer deducts an expense when the cash is paid even if the service for which the money is paid has not been rendered.

Accepted Answer

A) True 
 B)False

Question 4

Fabricio, Inc.is an accrual-basis corporation.It ages its receivables to calculate the addition to its reserve for bad debts.The following were reported during the current year: $\begin{array}{llcc}
  \text {  Credit sales} & \$300,000 \
 \text {Collections on credit sales  } &260,000\
 \text { Amount added to the reserve for bad debts } &25,000\
 \text { Begining balance in the reserve } &0\
 \text {Identifiable bad debts written off during the current year  } &18,000\
\end{array}$
 The amount deductible for bad debt expense on Fabricio's tax return for the current year is:

Accepted Answer

A) $18,000 
B) $25,000 
C) $40,000 
D) $43,000 
A) $18,000 
B) $25,000 
C) $40,000 
D) $43,000

Question 5

Which of the following may qualify as a deductible business expense?

Accepted Answer

A) Membership in the local Chamber of Commerce 
B) Athletic Booster Club membership 
C) Country Club dues 
D) Admiral's Club of American Airlines membership 
A) Membership in the local Chamber of Commerce 
B) Athletic Booster Club membership 
C) Country Club dues 
D) Admiral's Club of American Airlines membership

Question 6

Carlos, a self-employed construction contractor, contributed $5,000 to the re-election campaign of the local mayor in the hopes that his planned construction project will be approved.How much is Carlos's deduction for this political contribution?

Accepted Answer

A) $0 
B) $25 
C) $2,500 
D) $5,000 
A) $0 
B) $25 
C) $2,500 
D) $5,000

Question 7

Stephanie, a taxpayer in the 24% marginal tax bracket, borrows $100,000 at 7% interest to invest in 6% tax-exempt municipal bonds (annual loan interest expense is $7,000).What is Stephanie's interest expense deduction?

Accepted Answer

A) $0 
B) $1,000 
C) $6,000 
D) $7,000 
A) $0 
B) $1,000 
C) $6,000 
D) $7,000

Question 8

Inventory valuation under UNICAP does not include costs for

Accepted Answer

A) spoilage. 
B) warehousing. 
C) property taxes. 
D) income taxes. 
A) spoilage. 
B) warehousing. 
C) property taxes. 
D) income taxes.

Question 9

If an employer reimburses an employee for business meal expenses, the employer can only deduct 50 percent of the reimbursement.

Accepted Answer

A) True 
 B)False

Question 10

A taxpayer can elect to expense immediately or amortize all organization costs over a 15-year period.

Accepted Answer

A) True 
 B)False

Question 11

A cash basis taxpayer recognizes an expense when the cash is paid or the expense is charged to a credit card.

Accepted Answer

A) True 
 B)False

Question 12

On November 1, 2019, Hernandez Corporation (a cash-basis, calendar-year taxpayer) signed a 36-month lease with Taylor Realty Corporation for rental office space.The market rental rate for this office space is $2,000 per month but Hernandez was able to rent it for $1,900 per month by agreeing to prepay the rent for the entire 36-month period.How much can Hernandez deduct in 2019 rent expense?

Accepted Answer

A) $68,400 
B) $22,800 
C) $4,000 
D) $3,800 
A) $68,400 
B) $22,800 
C) $4,000 
D) $3,800

Question 13

A taxpayer may deduct a fine for illegal parking if:

Accepted Answer

A) No parking spaces are available 
B) Persons making deliveries to this business regularly receive parking tickets 
C) The fine does not exceed $50 
D) Fines are not deductible 
A) No parking spaces are available 
B) Persons making deliveries to this business regularly receive parking tickets 
C) The fine does not exceed $50 
D) Fines are not deductible

Question 14

Andrew's hobby is painting.During 2019, Andrew sold three of his paintings for a total of $2,200.His related expenses include $800 utilities, $1,200 supplies, and $400 in depreciation.Of these expenses incurred, how much can Andrew deduct in the current year?

Accepted Answer

A) $0 
B) $2,000 
C) $2,200 
D) $2,400 
A) $0 
B) $2,000 
C) $2,200 
D) $2,400

Question 15

Jordan is a self-employed tax attorney who frequently entertains his clients at his country club.Jordan's club expenses include the following: $\$ 6,000$ Annual dues
1,000 Initiation fees
2,000 Charges for personal meals with his family
4,000 Business meal expenses How much can Jordan deduct?

Accepted Answer

A) $2,000 
B) $5,000 
C) $8,000 
D) $9,000 
A) $2,000 
B) $5,000 
C) $8,000 
D) $9,000

Question 16

Deductible home office expenses include the following expenses except:

Accepted Answer

A) Allocated rent or mortgage interest 
B) Depreciation in excess of income from the business 
C) Office telephone and fax machine costs 
D) Supplies related to the home office 
A) Allocated rent or mortgage interest 
B) Depreciation in excess of income from the business 
C) Office telephone and fax machine costs 
D) Supplies related to the home office

Which of the following would not be used to determine if an activity is a business or a hobby?

An accrual-basis taxpayer deducts an expense when the cash is paid even if the service for which the money is paid has not been rendered.

Which of the following may qualify as a deductible business expense?

Carlos, a self-employed construction contractor, contributed $5,000 to the re-election campaign of the local mayor in the hopes that his planned construction project will be approved.How much is Carlos's deduction for this political contribution?

Stephanie, a taxpayer in the 24% marginal tax bracket, borrows $100,000 at 7% interest to invest in 6% tax-exempt municipal bonds (annual loan interest expense is $7,000).What is Stephanie's interest expense deduction?

Inventory valuation under UNICAP does not include costs for

If an employer reimburses an employee for business meal expenses, the employer can only deduct 50 percent of the reimbursement.

A taxpayer can elect to expense immediately or amortize all organization costs over a 15-year period.

A cash basis taxpayer recognizes an expense when the cash is paid or the expense is charged to a credit card.

A taxpayer may deduct a fine for illegal parking if:

Andrew's hobby is painting.During 2019, Andrew sold three of his paintings for a total of $2,200.His related expenses include $800 utilities, $1,200 supplies, and $400 in depreciation.Of these expenses incurred, how much can Andrew deduct in the current year?

Jordan is a self-employed tax attorney who frequently entertains his clients at his country club.Jordan's club expenses include the following: $\$ 6,000$ Annual dues 1,000 Initiation fees 2,000 Charges for personal meals with his family 4,000 Business meal expenses How much can Jordan deduct?

Deductible home office expenses include the following expenses except:

Introduction to Taxation

The Tax Practice Environment

Determining Gross Income

Employee Compensation

Deductions for Individuals and Tax Determination

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters

Exam 6: Business Expenses

Which of the following would not be used to determine if an activity is a business or a hobby?

An accrual-basis taxpayer deducts an expense when the cash is paid even if the service for which the money is paid has not been rendered.

Which of the following may qualify as a deductible business expense?

Carlos, a self-employed construction contractor, contributed $5,000 to the re-election campaign of the local mayor in the hopes that his planned construction project will be approved.How much is Carlos's deduction for this political contribution?

Stephanie, a taxpayer in the 24% marginal tax bracket, borrows $100,000 at 7% interest to invest in 6% tax-exempt municipal bonds (annual loan interest expense is $7,000).What is Stephanie's interest expense deduction?

Inventory valuation under UNICAP does not include costs for

If an employer reimburses an employee for business meal expenses, the employer can only deduct 50 percent of the reimbursement.

A taxpayer can elect to expense immediately or amortize all organization costs over a 15-year period.

A cash basis taxpayer recognizes an expense when the cash is paid or the expense is charged to a credit card.

A taxpayer may deduct a fine for illegal parking if:

Andrew's hobby is painting.During 2019, Andrew sold three of his paintings for a total of $2,200.His related expenses include $800 utilities, $1,200 supplies, and $400 in depreciation.Of these expenses incurred, how much can Andrew deduct in the current year?

Deductible home office expenses include the following expenses except:

Introduction to Taxation

The Tax Practice Environment

Determining Gross Income

Employee Compensation

Deductions for Individuals and Tax Determination

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters