Question 1

According to the Internal Revenue Code §162, deductible trade or business expenses must be which one of the following?

Accepted Answer

A)  Incurred for the production of investment income 
B)  Ordinary and necessary 
C)  Minimized 
D)  Appropriate and measurable 
E)  Personal and justifiable 
A)  Incurred for the production of investment income 
B)  Ordinary and necessary 
C)  Minimized 
D)  Appropriate and measurable 
E)  Personal and justifiable

Question 2

Bryon operates a consulting business and he usually works alone. However, during the summer Bryon will sometimes hire undergraduate students to collect data for his projects. This past summer Bryon hired Fred, the son of a prominent businessman, for a part-time summer job. The summer job usually pays about $17,000, but Bryon paid Fred $27,000 to gain favor with Fred's father. What amount of Fred's summer wages can Bryon deduct for tax purposes? Bryon is on the cash method and calendar year.

Accepted Answer

$17,000
Only $17,000 is deduct

Question 3

Kip started a wholesale store this year selling bulk peanut butter. In January of this year Kip purchased an initial five tubs of peanut butter for a total cost of $5,000. In July Kip purchased three tubs for a total cost of $6,000. Finally, in November Kip bought two tubs for a total cost of $1,000. Kip sold six tubs by year-end. What is Kip's ending inventory under the FIFO cost-flow method?

Accepted Answer

A)  $12,000 
B)  $6,000 
C)  $5,000 
D)  $2,500 
E)  $1,000 
A)  $12,000 
B)  $6,000 
C)  $5,000 
D)  $2,500 
E)  $1,000

Question 4

Holly took a prospective client to dinner, and after agreeing to a business deal, they went to the theater. Holly paid $290 for the meal and separately paid $250 for the theater tickets, amounts that were reasonable under the circumstances. What amount of these expenditures can Holly deduct as a business expense?

Accepted Answer

A)  $540 
B)  $270 
C)  $145 
D)  $125 
E)  None-the meals and entertainment are not deductible except during travel. 
A)  $540 
B)  $270 
C)  $145 
D)  $125 
E)  None-the meals and entertainment are not deductible except during travel.

Question 5

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 6

Which of the following expenditures is completely deductible?

Accepted Answer

A)  $1,000 spent on compensating your brother for a personal expense. 
B)  $50 spent on meals while traveling on business. 
C)  $2,000 spent by the employer on reimbursing an employee for entertainment. 
D)  All of these expenses are fully deductible. 
E)  None of these expenses can be deducted in full. 
A)  $1,000 spent on compensating your brother for a personal expense. 
B)  $50 spent on meals while traveling on business. 
C)  $2,000 spent by the employer on reimbursing an employee for entertainment. 
D)  All of these expenses are fully deductible. 
E)  None of these expenses can be deducted in full.

Question 7

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 8

Bill operates a proprietorship using the cash method of accounting, and this year he received the following payments: -$100 in cash from a customer for services rendered this year
-a promise from a customer to pay $200 for services rendered this year
-tickets to a football game worth $250 as payment for services performed last year
-a check for $170 for services rendered this year that Bill forgot to cash
How much income should Bill realize on Schedule C?

Accepted Answer

A)  $100 
B)  $300 
C)  $350 
D)  $270 
E)  $520 
A)  $100 
B)  $300 
C)  $350 
D)  $270 
E)  $520

Question 9

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 10

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 11

Paris operates a talent agency as a sole proprietorship, and this year she incurred the following expenses in operating her talent agency. What is the total deductible amount of these expenditures? $1,000 dinner and theater with a film producer where no business was discussed
$500 lunch with sister Nicky where no business was discussed
$700 business dinner with a client but Paris forgot to keep any records (oops!)
$900 tickets to the opera with a client following a business meeting

Accepted Answer

A)  $450. 
B)  $900. 
C)  $1,100. 
D)  $1,200. 
E)  $0. 
A)  $450. 
B)  $900. 
C)  $1,100. 
D)  $1,200. 
E)  $0.

Question 12

Which of the following types of transactions may not be accounted for using the cash method for small proprietorships?

Accepted Answer

A)  Sales of inventory 
B)  Services 
C)  Sales of securities by an investor 
D)  Payments of debt 
E)  All of the choices can be accounted for using the cash method. 
A)  Sales of inventory 
B)  Services 
C)  Sales of securities by an investor 
D)  Payments of debt 
E)  All of the choices can be accounted for using the cash method.

Question 13

All taxpayers must account for taxable income using a calendar year.

Accepted Answer

A) True 
 B)False

Question 14

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 15

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 16

Which of the following is a true statement about the limitation on business interest deductions?

Accepted Answer

A)  Interest disallowed by this limitation is carried back three years and then forward five years. 
B)  The limitation is calculated as a percentage of the taxpayer's total taxable income. 
C)  This limitation is not imposed on businesses with average annual gross receipts of $26 million or less for the prior three taxable years. 
D)  All of the choices are false. 
E)  All of the choices are true. 
A)  Interest disallowed by this limitation is carried back three years and then forward five years. 
B)  The limitation is calculated as a percentage of the taxpayer's total taxable income. 
C)  This limitation is not imposed on businesses with average annual gross receipts of $26 million or less for the prior three taxable years. 
D)  All of the choices are false. 
E)  All of the choices are true.

Question 17

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 18

A business can deduct the cost of uniforms supplied to employees.

Accepted Answer

A) True 
 B)False

Question 19

Jim operates his business on the accrual method and this year he received $4,000 for services that he intends to provide to his clients next year. Under what circumstances can Jim defer the recognition of the $4,000 of income until next year?

Accepted Answer

A)  Jim can defer the recognition of the income if he absolutely promises not to provide the services until next year. 
B)  Jim must defer the recognition of the income until the income is earned. 
C)  Jim can defer the recognition of the income if he has requested that the client not pay for the services until the services are provided. 
D)  Jim can elect to defer the recognition of the income if the income is not recognized for financial accounting purposes. 
E)  Jim can never defer the recognition of the prepayments of income. 
A)  Jim can defer the recognition of the income if he absolutely promises not to provide the services until next year. 
B)  Jim must defer the recognition of the income until the income is earned. 
C)  Jim can defer the recognition of the income if he has requested that the client not pay for the services until the services are provided. 
D)  Jim can elect to defer the recognition of the income if the income is not recognized for financial accounting purposes. 
E)  Jim can never defer the recognition of the prepayments of income.

According to the Internal Revenue Code §162, deductible trade or business expenses must be which one of the following?

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?

Which of the following expenditures is completely deductible?

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

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

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

Which of the following types of transactions may not be accounted for using the cash method for small proprietorships?

All taxpayers must account for taxable income using a calendar year.

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

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

Which of the following is a true statement about the limitation on business interest deductions?

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

A business can deduct the cost of uniforms supplied to employees.

Jim operates his business on the accrual method and this year he received $4,000 for services that he intends to provide to his clients next year. Under what circumstances can Jim defer the recognition of the $4,000 of income until next year?

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

According to the Internal Revenue Code §162, deductible trade or business expenses must be which one of the following?

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?

Which of the following expenditures is completely deductible?

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

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

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

Which of the following types of transactions may not be accounted for using the cash method for small proprietorships?

All taxpayers must account for taxable income using a calendar year.

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

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

Which of the following is a true statement about the limitation on business interest deductions?

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

A business can deduct the cost of uniforms supplied to employees.

Jim operates his business on the accrual method and this year he received $4,000 for services that he intends to provide to his clients next year. Under what circumstances can Jim defer the recognition of the $4,000 of income until next year?

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