Question 1

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 2

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

Accepted Answer

A) True 
 B)False

Question 3

Sam operates a small chain of pizza outlets in Fort Collins,Colorado.In November of this year Sam decided to attend a two-day management training course.Sam could choose to attend the course in Denver or Los Angeles.Sam decided to attend the course in Los Angeles and take an eight-day vacation immediately after the course.Sam reported the following expenditures from the trip:
   What amount of travel expenditures can Sam deduct?

Accepted Answer

$3,070 = 2,500 + (2 × $120)+ (2 × $90)+

Question 4

George operates a business that generated revenues of $50 million and allocable taxable income of $1.25 million.Included in the computation of allocable taxable income were deductible expenses of $240,000 of business interest and $250,000 of depreciation.What is the maximum business interest deduction that George will be eligible to claim this year?

Accepted Answer

A) $375,000 
B) $522,200 
C) $1,500,000 
D) $300,000 
E) $228,000 
A) $375,000 
B) $522,200 
C) $1,500,000 
D) $300,000 
E) $228,000

Question 5

Ranger Athletic Equipment uses the accrual method and reports on a calendar year.Ranger provides two-year warranties on all sales of equipment.This year Ranger estimated warranty expense for book purposes,and he accrued $1 million of warranty expenses.However,during the year Ranger only spent $400,000 repairing equipment under the warranty.What can Ranger deduct for warranty expense on the tax return for this year?

Accepted Answer

$400,000 The accrued $1 million warranty

Question 6

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 7

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

Accepted Answer

A) True 
 B)False

Question 8

In order to deduct a portion of the cost of a business meal,which of the following conditions must be met?

Accepted Answer

A) A client (not a supplier or vendor)must be present at the meal. 
B) The taxpayer or an employee must be present at the meal. 
C) The meal must occur on the taxpayer's business premises. 
D) None of these choices is a condition for the deduction. 
E) All of the choices are conditions for a deduction. 
A) A client (not a supplier or vendor)must be present at the meal. 
B) The taxpayer or an employee must be present at the meal. 
C) The meal must occur on the taxpayer's business premises. 
D) None of these choices is a condition for the deduction. 
E) All of the choices are conditions for a deduction.

Question 9

Bob operates a clothing business using the accrual method over a calendar year.In October of last year,Bob contracted with his father,Tim,for consulting advice.Tim is a cash-basis calendar-year taxpayer and he billed Bob for $6,000 of consulting fees.This amount was comparable to amounts charged by other consultants (a reasonable amount).Bob paid $2,500 of the consulting fee by December 31st of last year,but the remaining $3,500 was not paid until January of this year.When can Bob deduct the consulting fee?

Accepted Answer

$2,500 is deductible last year and $3,50

Question 10

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 11

Which of the following expenditures is NOT likely to be allowed as a current deduction for a landscaping and nursery business?

Accepted Answer

A) Cost of fertilizer 
B) Accounting fees 
C) Cost of a greenhouse 
D) Cost of uniforms for employees 
E) A cash settlement for trade name infringement 
A) Cost of fertilizer 
B) Accounting fees 
C) Cost of a greenhouse 
D) Cost of uniforms for employees 
E) A cash settlement for trade name infringement

Question 12

Uniform capitalization of indirect inventory costs is required for most very large taxpayers.

Accepted Answer

A) True 
 B)False

Question 13

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

Question 14

When a taxpayer borrows money and invests the loan proceeds in municipal bonds,the interest paid by the taxpayer on the debt will not be deductible.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Only half the cost of a business meal is deductible even if the meal is extravagant.

Accepted Answer

A) True 
 B)False

Question 17

Murphy uses the accrual method and reports on a calendar year.This year Murphy signed a binding contract to provide consulting services to Kirby beginning next year.Murphy incurred $15,000 to train his staff for this particular project.In addition,Murphy estimates that he will incur another $60,000 to complete the Kirby contract.What amount,if any,can Murphy deduct this year for the services expected to be rendered next year?

Accepted Answer

$15,000.Unless the services ar

Question 18

Marilyn operates a day care center as a cash-method sole proprietorship.On August 1st of this year Marilyn received a prepayment of $4,000 for child care services to be rendered evenly over the next 20 months.How much income must Marilyn recognize this year if she is attempting to minimize her tax burden?

Accepted Answer

$4,000.Prepayments a

Question 19

Crystal operates a business that provides typing and delivery services.This year Crystal spent $2,500 to purchase special shirts that identify her employees and provide some notoriety for her business.The shirts are especially colorful and include logos on the front pocket and the back.Besides salary payments,Crystal also compensates her employees by offering to pay whole life insurance premiums for any that want to provide insurance coverage for their beneficiaries.This year Crystal paid $5,000 in life insurance premiums.What amount of these payments can Crystal deduct? Crystal is on the cash method and calendar year.

Accepted Answer

$7,500.Uniforms are deductible if not ad

Question 20

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 per

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

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

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

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

In order to deduct a portion of the cost of a business meal,which of the following conditions must be met?

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

Which of the following expenditures is NOT likely to be allowed as a current deduction for a landscaping and nursery business?

Uniform capitalization of indirect inventory costs is required for most very large taxpayers.

When a taxpayer borrows money and invests the loan proceeds in municipal bonds,the interest paid by the taxpayer on the debt will not be deductible.

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

Only half the cost of a business meal is deductible even if the meal is extravagant.

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 Deductions

Investments

Individual Income Tax Computation and Tax Credits

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

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 Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 9: Business Income,deductions,and Accounting Methods

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

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

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

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

In order to deduct a portion of the cost of a business meal,which of the following conditions must be met?

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

Which of the following expenditures is NOT likely to be allowed as a current deduction for a landscaping and nursery business?

Uniform capitalization of indirect inventory costs is required for most very large taxpayers.

When a taxpayer borrows money and invests the loan proceeds in municipal bonds,the interest paid by the taxpayer on the debt will not be deductible.

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

Only half the cost of a business meal is deductible even if the meal is extravagant.

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 Deductions

Investments

Individual Income Tax Computation and Tax Credits

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

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 Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters