Question 1

Qualified production activities income is defined as follows for purposes of the domestic production activities deduction:

Accepted Answer

A)  revenue from selling or leasing property the taxpayer manufactured in the United States. 
B)  6 percent of revenue from selling or leasing property the taxpayer manufactured in the United States. 
C)  net income from selling or leasing property the taxpayer manufactured in the United States. 
D)  revenue from selling or leasing property the taxpayer manufactured in the United States but the revenue was less than 50 percent of qualifying wages used in the production. 
E)  None of the choices are correct. 
A)  revenue from selling or leasing property the taxpayer manufactured in the United States. 
B)  6 percent of revenue from selling or leasing property the taxpayer manufactured in the United States. 
C)  net income from selling or leasing property the taxpayer manufactured in the United States. 
D)  revenue from selling or leasing property the taxpayer manufactured in the United States but the revenue was less than 50 percent of qualifying wages used in the production. 
E)  None of the choices are correct.

Question 2

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 minimizehis tax burden?

Accepted Answer

Mike can elect to recognize $5,000 this

Question 3

Danny owns an electronics outlet in Dallas. This year he paid $600 to register for a four-day course in management in Chicago. Danny paid $800 in airfare and $1,000 for five nights lodging. After the course, Danny spent the last day sightseeing. During the trip, Danny also paid $140 a day for meals, and $80 a day for a rental car. What amount of these travel expenditures may Danny deduct asbusiness expenses?

Accepted Answer

$2,800 = $600 + $800 + (4 nights × $200)

Question 4

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 forbook 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 5

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 advertising time during a professional golftournament which will occur once in April of next year. What amount of these payments, if any, can Ajax deduct this year?

Accepted Answer

A)  $1.5 million. 
B)  $500,000. 
C)  $1 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)  $1.5 million. 
B)  $500,000. 
C)  $1 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 6

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 thecompany 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 7

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

Accepted Answer

A)  appropriate and measurable. 
B)  minimized. 
C)  personal and justifiable. 
D)  ordinary and necessary. 
E)  incurred for the production of investment income. 
A)  appropriate and measurable. 
B)  minimized. 
C)  personal and justifiable. 
D)  ordinary and necessary. 
E)  incurred for the production of investment income.

Question 8

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

Accepted Answer

A)  sales of inventory. 
B)  payments of debt. 
C)  services. 
D)  purchases of machinery. 
E)  sales of securities by an investor. 
A)  sales of inventory. 
B)  payments of debt. 
C)  services. 
D)  purchases of machinery. 
E)  sales of securities by an investor.

Question 9

Which of the following is a true statement about travel that has both business and personal aspects?

Accepted Answer

A)  The cost of lodging, and incidental expenditures is limited to those incurred during the business portion of the travel. 
B)  Only half of the cost of meals and transportation is deductible. 
C)  Meals are not deductible for this type of travel. 
D)  Transportation costs are always fully deductible. 
E)  None of the choices are correct. 
A)  The cost of lodging, and incidental expenditures is limited to those incurred during the business portion of the travel. 
B)  Only half of the cost of meals and transportation is deductible. 
C)  Meals are not deductible for this type of travel. 
D)  Transportation costs are always fully deductible. 
E)  None of the choices are correct.

Question 10

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 11

John is a self-employed computer consultant who lives and works in Dallas. John paid for thefollowing activities in conjunction with his business. Which is not deductible in any amount?
•Dinner with a potential client where the client's business was discussed.
• A trip to Houston to negotiate a contract.
•A seminar in Houston on new developments in the software industry.
•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)  4 only. 
D)  3 only. 
E)  None of the choices are correct. 
A)  1 only. 
B)  2 only. 
C)  4 only. 
D)  3 only. 
E)  None of the choices are correct.

Question 12

The domestic production activities deduction cannot exceed 50 percent of the wages paid to employees engaged in domestic manufacturing activities during the year.

Accepted Answer

A) True 
 B)False

Question 13

Clyde operates a sole proprietorship using the cash method. This year Clyde made the follow5i5n)g expenditures:$480 to U.S. Bank for 12 months of interest accruing on a business loan from September 1st of this year through August 31st of next year.$600 for 12 months of property insurance beginning on July 1 of this year.What is the maximum amount Clyde can deduct this year?

Accepted Answer

A)  $760. 
B)  $360. 
C)  $160. 
D)  $480. 
E)  $600. 
A)  $760. 
B)  $360. 
C)  $160. 
D)  $480. 
E)  $600.

Question 14

The 12-month rule allows taxpayers to deduct the entire amount of certain prepaid business expenses.

Accepted Answer

A) True 
 B)False

Question 15

Mike started a calendar year business on September 1st of this year by paying 12 months 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)  $4,000 under the cash method and $4,000 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 zero under the accrual method. 
E)  $12,000 under the cash method and $12,000 under the accrual method. 
A)  $4,000 under the cash method and $4,000 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 zero under the accrual method. 
E)  $12,000 under the cash method and $12,000 under the accrual method.

Question 16

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

Accepted Answer

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

Question 17

Big Homes Corporation is an accrual method calendar year taxpayer that manufactures and sells modular homes. This year for the first time Big Homes was forced to offer a rebate on the purchase of new homes. At year end, Big Homes had paid $12,000 inrebates and was liable for an additional $7,500 in rebates to buyers. What amount of the rebates, if any, can Big Homes deduct this year?

Accepted Answer

A)  $12,000 because rebates are payment liabilities. 
B)  $19,500 if this amount is not material, Big Homes expects to continue the practice of offering rebates in future years, and Big Homes expects to pay the accrued rebates before filing their tax return for this year. 
C)  $12,000 because the $7,500 liability is not fixed and determinable. 
D)  $19,500 because Big Homes is an accrual method taxpayer. 
E)  Big Homes is not entitled to a deduction because rebates are against public policy. 
A)  $12,000 because rebates are payment liabilities. 
B)  $19,500 if this amount is not material, Big Homes expects to continue the practice of offering rebates in future years, and Big Homes expects to pay the accrued rebates before filing their tax return for this year. 
C)  $12,000 because the $7,500 liability is not fixed and determinable. 
D)  $19,500 because Big Homes is an accrual method taxpayer. 
E)  Big Homes is not entitled to a deduction because rebates are against public policy.

Question 18

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

Accepted Answer

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

Question 19

Paris operates a talent agency as a sole proprietorship, and this year she incurred the followingexpenses in operating her talent agency. What is the total deductible amount of these expenditures?$1,000 dinner 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)  $1,200. 
B)  $450. 
C)  $800. 
D)  $1,100. 
E)  $900. 
A)  $1,200. 
B)  $450. 
C)  $800. 
D)  $1,100. 
E)  $900.

Question 20

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

Qualified production activities income is defined as follows for purposes of the domestic production activities deduction:

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

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

Which of the following is a true statement about travel that has both business and personal aspects?

The domestic production activities deduction cannot exceed 50 percent of the wages paid to employees engaged in domestic manufacturing activities during the year.

The 12-month rule allows taxpayers to deduct the entire amount of certain prepaid business expenses.

Mike started a calendar year business on September 1st of this year by paying 12 months 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?

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

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

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

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, 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 US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 9: Business Income, Deductions, and Accounting Methods

Qualified production activities income is defined as follows for purposes of the domestic production activities deduction:

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

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

Which of the following is a true statement about travel that has both business and personal aspects?

The domestic production activities deduction cannot exceed 50 percent of the wages paid to employees engaged in domestic manufacturing activities during the year.

The 12-month rule allows taxpayers to deduct the entire amount of certain prepaid business expenses.

Mike started a calendar year business on September 1st of this year by paying 12 months 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?

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

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

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

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, 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 US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters