Question 1

Which of the following is a true statement?

Accepted Answer

A)  Interest expense is not deductible if the loan is used to purchase municipal bonds. 
B)  Insurance premiums are not deductible if paid for "key-employee" life insurance. 
C)  One-half of the cost of business meals is not deductible. 
D)  All of these choices are true. 
E)  None of the choices are true. 
A)  Interest expense is not deductible if the loan is used to purchase municipal bonds. 
B)  Insurance premiums are not deductible if paid for "key-employee" life insurance. 
C)  One-half of the cost of business meals is not deductible. 
D)  All of these choices are true. 
E)  None of the choices are true.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Shadow Services uses the accrual method and reports on a calendar year. This year Shadow agreed to a uniform-cleaning contract with Odie Cleaning. Under the contract Odie bills Shadow for cleaning services as the services are provided. At year-end Shadow paid Odie $2,350 for the services rendered during the year. In addition, Shadow paid Odie $700 for cleaning services expected in January of next year. What amount, if any, can Shadow deduct for the cleaning services this year?

Accepted Answer

$3,050.
Shadow can deduct amou

Question 4

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.

Question 5

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 6

The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary."

Accepted Answer

A) True 
 B)False

Question 7

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 8

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 9

A loss deduction from a casualty of a business asset is only available if the asset is completely destroyed.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Ed is a self-employed heart surgeon who lives in Michigan and has incurred the following reasonable expenses. How much can Ed deduct? $1,000 in airfare to repair investment rental property in Colorado.
$500 in meals while attending a medical convention in New York.
$300 for tuition for an investment seminar, "How to pick stocks."
$100 for tickets to a football game with hospital administrators to celebrate successful negotiation of a surgical contract earlier in the day.
The correct answer is ________.

Accepted Answer

A)  $1,250 "for AGI" 
B)  $1,300 "for AGI" and $300 "from AGI" 
C)  $480 "for AGI" 
D)  $80 "for AGI" and $1,300 "from AGI" 
E)  None of the choices are correct. 
A)  $1,250 "for AGI" 
B)  $1,300 "for AGI" and $300 "from AGI" 
C)  $480 "for AGI" 
D)  $80 "for AGI" and $1,300 "from AGI" 
E)  None of the choices are correct.

Question 12

The full-inclusion method requires cash-basis taxpayers to include prepayments for goods or services into realized income.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Mike operates a fishing outfitter as an accrual-method sole proprietorship. On March 1st of this year Mike received $15,000 for three outfitting trips. This is the first time Mike agreed to such a payment and he is obligated to outfit one trip per year for the next three summers, beginning this year. How much income must Mike recognize in each of the next three years if he is attempting to minimize his tax burden?

Accepted Answer

Mike can elect to recognize $5,000 this

Question 15

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 16

Joe operates a plumbing business that uses the accrual method and reports on a calendar year. This year Joe signed a $50,000 binding contract with Brian. Under the contract Brian will provide Joe with up to 2,000 hours of vehicle repairs at $25 per hour. This year Brian provided 200 hours of repair services and billed Joe for $5,000. At year-end Joe had not paid Brian for the services. What amount, if any, can Joe deduct for the repair services this year?

Accepted Answer

$5,000.
The all-events test is satisfied

Question 17

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 18

Adjusted taxable income for calculating the business interest limitation is defined as taxable income of the taxpayer computed without regard to any item of income, gain, deduction, or loss that is not properly allocable to a trade or business.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Ajax Computer Company is an accrual-method calendar-year taxpayer. Ajax has never advertised in the national media prior to this year. In November of this year, however, Ajax paid $1 million for television advertising time during a "super" sporting event scheduled to take place in early February of next year. In addition, in November of this year the company paid $500,000 for a one-time advertising blitz during a professional golf tournament in April of next year. What amount of these payments, if any, can Ajax deduct this year?

Accepted Answer

A)  $1 million 
B)  $500,000 
C)  $1.5 million 
D)  $1.5 million only if the professional golf tournament is played before April 15 
E)  No deduction can be claimed this year 
A)  $1 million 
B)  $500,000 
C)  $1.5 million 
D)  $1.5 million only if the professional golf tournament is played before April 15 
E)  No deduction can be claimed this year

Which of the following is a true statement?

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

The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary."

Individual proprietors report their business income and deductions on:

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

A loss deduction from a casualty of a business asset is only available if the asset is completely destroyed.

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

The full-inclusion method requires cash-basis taxpayers to include prepayments for goods or services into realized income.

Adjusted taxable income for calculating the business interest limitation is defined as taxable income of the taxpayer computed without regard to any item of income, gain, deduction, or loss that is not properly allocable to a trade or business.

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

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 1: Business Income, Deductions, and Accounting Methods

Which of the following is a true statement?

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

The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary."

Individual proprietors report their business income and deductions on:

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

A loss deduction from a casualty of a business asset is only available if the asset is completely destroyed.

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

The full-inclusion method requires cash-basis taxpayers to include prepayments for goods or services into realized income.

Adjusted taxable income for calculating the business interest limitation is defined as taxable income of the taxpayer computed without regard to any item of income, gain, deduction, or loss that is not properly allocable to a trade or business.

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

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters