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

Anne is a self-employed electrician who reports her business income using the accrual method over a calendar year.On September 1st of this year Anne paid $2,280 of interest on a loan.The interest accrues evenly over 19 months ($120 per month)from June 1st of this year through December 31st of next year.In addition,on September 1st Anne also paid $2,700 for 18 months of professional liability insurance ($150 per month).What amount of interest and insurance can Anne deduct this year?

Accepted Answer

$1,440 = $840 interest ($120 × 7 months-

Question 3

Gabby operates a pizza delivery service.This year she paid delivery personnel $18,000 in salary.She carefully documented the business use of the auto (11,700 miles this year)and her $7,350 of vehicle expenses (for gas,oil,repairs,and auto lease payments).What amount of these expenses may Gabby deduct as business expenses? Gabby is on the cash method and calendar year.

Accepted Answer

$25,350.$25,350 = $18,000 sala

Question 4

Smith operates a roof repair business.This year Smith's business generated cash receipts of $32,000 and Smith made the following expenditures associated with his business:
   The education expense was for a two-week,nighttime course in business management.Smith believes the expenditure should qualify as an ordinary and necessary business expense.What net income should Smith report from his business? Smith is on the cash method and calendar year.

Accepted Answer

$20,940 = $32,000 −

Question 5

Which of the following is an explanation for why insurance premiums on a key employee are not deductible?

Accepted Answer

A) A deduction for the insurance premium would offset taxable income without the potential for the proceeds generating taxable income. 
B) The federal government does not want to subsidize insurance companies. 
C) It is impractical to trace insurance premiums to the receipt of proceeds. 
D) Congress presumes that all expenses are not deductible unless specifically allowed in the Internal Revenue Code. 
E) This rule was grandfathered from a time when the Internal Revenue Code disallowed all insurance premiums deductions. 
A) A deduction for the insurance premium would offset taxable income without the potential for the proceeds generating taxable income. 
B) The federal government does not want to subsidize insurance companies. 
C) It is impractical to trace insurance premiums to the receipt of proceeds. 
D) Congress presumes that all expenses are not deductible unless specifically allowed in the Internal Revenue Code. 
E) This rule was grandfathered from a time when the Internal Revenue Code disallowed all insurance premiums deductions.

Question 6

Alvin is a self-employed sound technician who reports on the cash method and calendar year.Alvin has a shop in Austin,Texas,but he spends much of his time away from his shop traveling to and from various concerts around the country.Alvin leases a truck to move his equipment around the country and this year he spent $12,000 in lease payments and paid $18,000 for gas,oil,and repairs.Alvin keeps records of his personal use of the truck and he estimates that 6,000 of the total 36,000 miles put on the truck this year were for personal trips.What amount of these expenses may Alvin deduct as business expenses?

Accepted Answer

$25,000 = (30/36 × [$18,000 +

Question 7

Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

Accepted Answer

A) Spouse when the taxpayer is an individual. 
B) A partner when the taxpayer is a partnership. 
C) Brother when the taxpayer is an individual. 
D) A minority shareholder when the taxpayer is a corporation. 
E) All of these are related parties. 
A) Spouse when the taxpayer is an individual. 
B) A partner when the taxpayer is a partnership. 
C) Brother when the taxpayer is an individual. 
D) A minority shareholder when the taxpayer is a corporation. 
E) All of these are related parties.

Question 8

Manley operates a law practice on the accrual method and calendar year.At the beginning of the year Manley's firm had an allowance for doubtful accounts with a balance of $15,000.At the end of the year,Manley recorded bad debt expense of $23,000 and the balance of doubtful accounts had increased to $18,000.What is Manley's deduction for bad debt expense this year?

Accepted Answer

A) $23,000 
B) $3,000 
C) $26,000 
D) $5,000 
E) $20,000 
A) $23,000 
B) $3,000 
C) $26,000 
D) $5,000 
E) $20,000

Question 9

A short tax year can end on any day of any month other than December.

Accepted Answer

A) True 
 B)False

Question 10

Werner is the president and CEO of Acme,Inc.,and this year he took a prospective client to dinner.During the dinner Werner and the client discussed a proposed contract for over $6 million as well as personal matters.After dinner Werner took the client to a football game and no business was discussed.Werner paid $1,220 for an expensive (but not extravagant)dinner and spent $600 for tickets to the game.What is the deductible amount of these expenses?

Accepted Answer

$610 = 50% × ($1,220

Question 11

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 12

Brad operates a storage business on the accrual method.On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse.The rent and insurance cover the next 12 months.What is Brad's deduction for the rent and insurance?

Accepted Answer

A) $48,000 for the rent and $18,000 for the insurance. 
B) $24,000 for the rent and $18,000 for the insurance. 
C) $24,000 for the rent and $9,000 for the insurance. 
D) $48,000 for the rent and $9,000 for the insurance. 
E) None of the choices are true. 
A) $48,000 for the rent and $18,000 for the insurance. 
B) $24,000 for the rent and $18,000 for the insurance. 
C) $24,000 for the rent and $9,000 for the insurance. 
D) $48,000 for the rent and $9,000 for the insurance. 
E) None of the choices are true.

Question 13

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 14

Although expenses associated with illegal activities are not deductible,political contributions can be deducted as long as the donation is not made to a candidate for public office.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Don operates a taxi business,and this year one of his taxis was damaged in a traffic accident.The taxi was originally purchased for $32,000 and the adjusted basis was $2,000 at the time of the accident.The taxi was repaired at a cost of $2,500 and insurance reimbursed Don $700 of this cost.What is the amount of Don's casualty loss deduction?

Accepted Answer

A) $1,300. 
B) $2,500. 
C) $1,800. 
D) $2,000. 
E) Don is not eligible for a casualty loss deduction. 
A) $1,300. 
B) $2,500. 
C) $1,800. 
D) $2,000. 
E) Don is not eligible for a casualty loss deduction.

Question 17

Beth operates a plumbing firm.In August of last year she signed a contract to provide plumbing services for a renovation.Beth began the work that August and finished the work in December of last year.However,Beth didn't bill the client until January of this year and she didn't receive the payment until March when she received payment in full.When should Beth recognize income under the accrual method of accounting?

Accepted Answer

A) In August of last year 
B) In December of last year 
C) In January of this year 
D) In March of this year 
E) In April of this year 
A) In August of last year 
B) In December of last year 
C) In January of this year 
D) In March of this year 
E) In April of this year

Question 18

A business generally adopts a fiscal or calendar year by using that year-end on the first tax return for the business.

Accepted Answer

A) True 
 B)False

Question 19

Mike started a calendar-year business on September 1st of this year by paying 12 months of rent on his shop at $1,000 per month.What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?

Accepted Answer

A) $12,000 under the cash method and $12,000 under the accrual method. 
B) $4,000 under the cash method and $12,000 under the accrual method. 
C) $12,000 under the cash method and $4,000 under the accrual method. 
D) $4,000 under the cash method and $4,000 under the accrual method. 
E) $4,000 under the cash method and zero under the accrual method. 
A) $12,000 under the cash method and $12,000 under the accrual method. 
B) $4,000 under the cash method and $12,000 under the accrual method. 
C) $12,000 under the cash method and $4,000 under the accrual method. 
D) $4,000 under the cash method and $4,000 under the accrual method. 
E) $4,000 under the cash method and zero under the accrual method.

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

Which of the following is an explanation for why insurance premiums on a key employee are not deductible?

Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

A short tax year can end on any day of any month other than December.

Which of the following expenditures is completely deductible?

Brad operates a storage business on the accrual method.On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse.The rent and insurance cover the next 12 months.What is Brad's deduction for the rent and insurance?

Which of the following is a true statement?

Although expenses associated with illegal activities are not deductible,political contributions can be deducted as long as the donation is not made to a candidate for public office.

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.

A business generally adopts a fiscal or calendar year by using that year-end on the first tax return for the business.

Mike started a calendar-year business on September 1^st of this year by paying 12 months of rent on his shop at $1,000 per month.What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?

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

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

Which of the following is an explanation for why insurance premiums on a key employee are not deductible?

Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

A short tax year can end on any day of any month other than December.

Which of the following expenditures is completely deductible?

Brad operates a storage business on the accrual method.On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse.The rent and insurance cover the next 12 months.What is Brad's deduction for the rent and insurance?

Which of the following is a true statement?

Although expenses associated with illegal activities are not deductible,political contributions can be deducted as long as the donation is not made to a candidate for public office.

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.

A business generally adopts a fiscal or calendar year by using that year-end on the first tax return for the business.

Mike started a calendar-year business on September 1st of this year by paying 12 months of rent on his shop at $1,000 per month.What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?

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

Mike started a calendar-year business on September 1^st of this year by paying 12 months of rent on his shop at $1,000 per month.What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?