Question 1

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 2

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 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 amoun

Question 5

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 6

Judy is a self-employed musician who performs for a variety of events.This year Judy was fined $250 by the city for violating the city's noise ordinance with a relatively loud performance.As a consequence,Judy contributed $1,000 to a campaign committee formed to recall the city's mayor.Judy normally hires three part-time employees to help her schedule events and transport equipment.Judy paid a total of $33,000 to her employees through June of this year.In June Judy fired her part-time employees and hired her husband to replace them.However,Judy paid him $55,000 rather than $33,000.Judy is on the cash method and calendar year,and she wants to know what amount of these expenditures is deductible as business expenses.

Accepted Answer

$66,000.The fine and political contribut

Question 7

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 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

Which of the following is a payment liability?

Accepted Answer

A) Tort claims 
B) Refunds 
C) Insurance premiums 
D) Real estate taxes 
E) All of the choices are correct 
A) Tort claims 
B) Refunds 
C) Insurance premiums 
D) Real estate taxes 
E) All of the choices are correct

Question 10

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 11

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 12

Which of the following is a true statement about a request for a change in accounting method?

Accepted Answer

A) Some requests are automatically granted. 
B) Most requests require the permission of the commissioner. 
C) Many requests require payment of a fee and a good business purpose for the change. 
D) Form 3115 is typically required to be filed with a request for change in accounting method. 
E) All of the choices are true. 
A) Some requests are automatically granted. 
B) Most requests require the permission of the commissioner. 
C) Many requests require payment of a fee and a good business purpose for the change. 
D) Form 3115 is typically required to be filed with a request for change in accounting method. 
E) All of the choices are true.

Question 13

John is a self-employed computer consultant who lives and works in Dallas.John paid for the following activities in conjunction with his business.Which of the following expenditures is not deductible in any amount? 1.Dinner with a potential client where the client's business was discussed.
2)A trip to Houston to negotiate a contract.
3)A seminar in Houston on new developments in the software industry.
4)A trip to New York to visit a school chum who is also interested in computers.

Accepted Answer

A) 1 only. 
B) 2 only. 
C) 3 only. 
D) 4 only. 
E) None of the choices are correct. 
A) 1 only. 
B) 2 only. 
C) 3 only. 
D) 4 only. 
E) None of the choices are correct.

Question 14

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 15

Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Which of the following expenditures is most likely to be deductible for a construction business?

Accepted Answer

A) A fine for a zoning violation. 
B) A tax underpayment penalty. 
C) An "under the table" payment to a government representative to obtain a better price for raw materials. 
D) A contribution to the mayor's political campaign fund. 
E) An arm's length payment to a related party for emergency repairs of a sewage line. 
A) A fine for a zoning violation. 
B) A tax underpayment penalty. 
C) An "under the table" payment to a government representative to obtain a better price for raw materials. 
D) A contribution to the mayor's political campaign fund. 
E) An arm's length payment to a related party for emergency repairs of a sewage line.

Question 18

Which of the following is a true statement?

Accepted Answer

A) Meals,lodging,and incidental expenditures are deductible if the taxpayer is away from home overnight while traveling. 
B) Meals are deductible for an employee who is forced to work during the lunch hour. 
C) When a taxpayer travels solely for business purposes,only half of the costs of travel are deductible. 
D) If travel has both business and personal aspects,the cost of transportation is always deductible but the deductibility of lodging depends upon whether business is conducted that day. 
E) None of the choices are true because business travel is not deductible. 
A) Meals,lodging,and incidental expenditures are deductible if the taxpayer is away from home overnight while traveling. 
B) Meals are deductible for an employee who is forced to work during the lunch hour. 
C) When a taxpayer travels solely for business purposes,only half of the costs of travel are deductible. 
D) If travel has both business and personal aspects,the cost of transportation is always deductible but the deductibility of lodging depends upon whether business is conducted that day. 
E) None of the choices are true because business travel is not deductible.

Question 19

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 20

When does the all-events test under the accrual method require the recognition of income from the sale of goods?

Accepted Answer

A) when the title of the goods passes to the buyer. 
B) when the business receives payment. 
C) when payment is due from the buyer. 
D) the earliest of the other three dates. 
E) None of the choices are correct. 
A) when the title of the goods passes to the buyer. 
B) when the business receives payment. 
C) when payment is due from the buyer. 
D) the earliest of the other three dates. 
E) None of the choices are correct.

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

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

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

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 is a true statement about impermissible accounting methods?

Which of the following is a payment liability?

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

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

Which of the following is a true statement about a request for a change in accounting method?

Individual proprietors report their business income and deductions on:

Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

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

Which of the following expenditures is most likely to be deductible for a construction business?

Which of the following is a true statement?

When does the all-events test under the accrual method require the recognition of income from the sale of goods?

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

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

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

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

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 is a true statement about impermissible accounting methods?

Which of the following is a payment liability?

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

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

Which of the following is a true statement about a request for a change in accounting method?

Individual proprietors report their business income and deductions on:

Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

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

Which of the following expenditures is most likely to be deductible for a construction business?

Which of the following is a true statement?

When does the all-events test under the accrual method require the recognition of income from the sale of goods?

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