Question 1

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 2

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 3

Blackwell Manufacturing uses the accrual method and reports on a calendar year.This year a customer was injured when visiting the Blackwell factory.The customer sued the company for $500,000,and the case is still being litigated.However,Blackwell's attorney expects that the company will pay at least $250,000 to settle the claim.What amount,if any,can Blackwell deduct for the expected claim settlement this year?

Accepted Answer

Zero Because tort liabilities

Question 4

A fiscal tax year can end on the last day of any month other than December.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Which of the following is likely to be a fully deductible business expense?

Accepted Answer

A) Salaries in excess of the industry average paid to attract talented employees. 
B) The cost of employee uniforms that can be adapted to ordinary personal wear. 
C) A speeding fine paid by a trucker who was delivering a rush order. 
D) The cost of a three-year subscription to a business publication. 
E) None of the choices are likely to be deductible. 
A) Salaries in excess of the industry average paid to attract talented employees. 
B) The cost of employee uniforms that can be adapted to ordinary personal wear. 
C) A speeding fine paid by a trucker who was delivering a rush order. 
D) The cost of a three-year subscription to a business publication. 
E) None of the choices are likely to be deductible.

Question 7

Shelley is self-employed in Texas and recently attended a two-day business conference in New Jersey.After Shelley attended the conference,she had dinner with an old friend who lived nearby.Shelly documented her expenditures (described below).What amount can Shelley deduct?

Accepted Answer

A) $2,850. 
B) $2,740. 
C) $1,850 if Shelley itemizes the deductions. 
D) All of these expenses are deductible but only if Shelley attends a conference in Texas. 
E) None of the expenses are deductible because Shelly visited her friend. 
A) $2,850. 
B) $2,740. 
C) $1,850 if Shelley itemizes the deductions. 
D) All of these expenses are deductible but only if Shelley attends a conference in Texas. 
E) None of the expenses are deductible because Shelly visited her friend.

Question 8

Todd operates a business using the cash basis of accounting.At the end of last year,Todd was granted permission to switch his sales on account to the accrual method.Last year Todd made $420,000 of sales on account and $64,000 was uncollected at the end of the year.What is Todd's §481 adjustment for this year?

Accepted Answer

A) Increase income by $420,000 
B) Increase income by $16,000 
C) Increase expenses by $64,000 
D) Increase expenses by $420,000 
E) Todd has no §481 adjustment this year. 
A) Increase income by $420,000 
B) Increase income by $16,000 
C) Increase expenses by $64,000 
D) Increase expenses by $420,000 
E) Todd has no §481 adjustment this year.

Question 9

Jones operates an upscale restaurant and he pays experienced cooks $35,000 per year.This year he hired his son as an apprentice cook.Jones agreed to pay his son $40,000 per year.Which of the following is a true statement about this transaction?

Accepted Answer

A) Jones will be allowed to deduct $40,000 only if his son eventually develops into an expert cook. 
B) Jones will be allowed to accrue $40,000 only if he pays his son in cash. 
C) Jones will be allowed to deduct $35,000 as compensation and another $5,000 can be deducted as an employee gift. 
D) Jones is not entitled to any business deduction until the son is an experienced cook. 
E) None of the choices are true. 
A) Jones will be allowed to deduct $40,000 only if his son eventually develops into an expert cook. 
B) Jones will be allowed to accrue $40,000 only if he pays his son in cash. 
C) Jones will be allowed to deduct $35,000 as compensation and another $5,000 can be deducted as an employee gift. 
D) Jones is not entitled to any business deduction until the son is an experienced cook. 
E) None of the choices are true.

Question 10

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 11

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 12

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 13

Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?

Accepted Answer

A) Selling expenditures 
B) Cost of manufacturing labor 
C) Compensation of managers who supervise production 
D) Cost of raw materials 
E) All of the choices are subject to capitalization under the UNICAP rules 
A) Selling expenditures 
B) Cost of manufacturing labor 
C) Compensation of managers who supervise production 
D) Cost of raw materials 
E) All of the choices are subject to capitalization under the UNICAP rules

Question 14

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 15

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 16

Even a cash-method taxpayer must consistently use accounting methods that "clearly reflect income" for tax purposes.

Accepted Answer

A) True 
 B)False

Question 17

Dick pays insurance premiums for his employees.What type of insurance premium is not deductible as compensation paid to the employee?

Accepted Answer

A) Health insurance with benefits payable to the employee. 
B) Whole life insurance with benefits payable to the employee's dependents. 
C) Group-term life insurance with benefits payable to the employee's dependents. 
D) Key-employee life insurance with benefits payable to Dick. 
E) All of the choices are deductible by Dick. 
A) Health insurance with benefits payable to the employee. 
B) Whole life insurance with benefits payable to the employee's dependents. 
C) Group-term life insurance with benefits payable to the employee's dependents. 
D) Key-employee life insurance with benefits payable to Dick. 
E) All of the choices are deductible by Dick.

Question 18

The phase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business.

Accepted Answer

A) True 
 B)False

Question 19

The IRS would most likely apply the arm's length transaction test to determine which of the following?

Accepted Answer

A) Whether an expenditure is related to a business activity. 
B) Whether an expenditure will be likely to produce income. 
C) Timeliness of an expenditure. 
D) Reasonableness of an expenditure. 
E) All of the choices are correct. 
A) Whether an expenditure is related to a business activity. 
B) Whether an expenditure will be likely to produce income. 
C) Timeliness of an expenditure. 
D) Reasonableness of an expenditure. 
E) All of the choices are correct.

Question 20

Joe is a self-employed electrician who operates his business on the accrual method.This year Joe purchased a shop for his business,and for the first time at year-end he received a bill for $4,500 of property taxes on his shop.Joe didn't pay the taxes until after year-end but prior to filing his tax return.Which of the following is a true statement?

Accepted Answer

A) If he elects to treat the taxes as a recurring item,Joe can accrue and deduct $4,500 of taxes on the shop this year. 
B) The taxes are a payment liability. 
C) The taxes would not be deductible if Joe's business was on the cash method. 
D) Unless Joe makes an election,the taxes are not deductible this year. 
E) All of the choices are true. 
A) If he elects to treat the taxes as a recurring item,Joe can accrue and deduct $4,500 of taxes on the shop this year. 
B) The taxes are a payment liability. 
C) The taxes would not be deductible if Joe's business was on the cash method. 
D) Unless Joe makes an election,the taxes are not deductible this year. 
E) All of the choices are true.

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

A fiscal tax year can end on the last day of any month other than December.

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

Which of the following is likely to be a fully deductible business expense?

Shelley is self-employed in Texas and recently attended a two-day business conference in New Jersey.After Shelley attended the conference,she had dinner with an old friend who lived nearby.Shelly documented her expenditures (described below).What amount can Shelley deduct?

Jones operates an upscale restaurant and he pays experienced cooks $35,000 per year.This year he hired his son as an apprentice cook.Jones agreed to pay his son $40,000 per year.Which of the following is a true statement about this transaction?

Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?

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

Even a cash-method taxpayer must consistently use accounting methods that "clearly reflect income" for tax purposes.

Dick pays insurance premiums for his employees.What type of insurance premium is not deductible as compensation paid to the employee?

The phase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business.

The IRS would most likely apply the arm's length transaction test to determine which of the following?

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

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

A fiscal tax year can end on the last day of any month other than December.

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

Which of the following is likely to be a fully deductible business expense?

Shelley is self-employed in Texas and recently attended a two-day business conference in New Jersey.After Shelley attended the conference,she had dinner with an old friend who lived nearby.Shelly documented her expenditures (described below).What amount can Shelley deduct?

Jones operates an upscale restaurant and he pays experienced cooks $35,000 per year.This year he hired his son as an apprentice cook.Jones agreed to pay his son $40,000 per year.Which of the following is a true statement about this transaction?

Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?

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

Even a cash-method taxpayer must consistently use accounting methods that "clearly reflect income" for tax purposes.

Dick pays insurance premiums for his employees.What type of insurance premium is not deductible as compensation paid to the employee?

The phase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business.

The IRS would most likely apply the arm's length transaction test to determine which of the following?

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