Question 1

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

Accepted Answer

A) True 
 B)False

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 professionalliability 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

Which of the following is a true statement about impermissible accounting methods?

Accepted Answer

A)  An impermissible method may never be used by a taxpayer. 
B)  Cash method accounting is an impermissible method for partnerships and Subchapter S electing corporations. 
C)  An impermissible method is adopted by using the method to report results for two consecutive years. 
D)  There is no accounting method that is impermissible. 
E)  None of the choices are true. 
A)  An impermissible method may never be used by a taxpayer. 
B)  Cash method accounting is an impermissible method for partnerships and Subchapter S electing corporations. 
C)  An impermissible method is adopted by using the method to report results for two consecutive years. 
D)  There is no accounting method that is impermissible. 
E)  None of the choices are true.

Question 4

Sandy Bottoms Corporation generated taxable income (before the domestic manufacturingdeduction) of $3 million this year. The total income included $2,350,000 of qualified production activities income. The company paid $460,000 in W-2 wages to generate the qualified production activity income. What is Sandy Bottom's domestic manufacturing deduction for the year?

Accepted Answer

$211,500 = 9% × $2,3

Question 5

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

Accepted Answer

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

Question 6

Which of the following is a payment liability?

Accepted Answer

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

Question 7

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 8

Employees cannot deduct the cost of uniforms if the uniforms are also appropriate fornormal wear.

Accepted Answer

A) True 
 B)False

Question 9

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 andfrom 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 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 thewarehouse. The rent and insurance covers the next 12 months. What is Brad's deduction for the rent and insurance?

Accepted Answer

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

Question 12

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)  $55 to collect an account receivable from a customer who has failed to pay for services rendered. 
B)  $4,000 for rent on his office that covers the next 24 months. 
C)  $2,500 for professional hockey tickets distributed to a customer to generate "goodwill" for his business. 
D)  $3,000 for a new watch for the mayor to keep "good relations" with city hall. 
E)  None of the choices are completely deductible. 
A)  $55 to collect an account receivable from a customer who has failed to pay for services rendered. 
B)  $4,000 for rent on his office that covers the next 24 months. 
C)  $2,500 for professional hockey tickets distributed to a customer to generate "goodwill" for his business. 
D)  $3,000 for a new watch for the mayor to keep "good relations" with city hall. 
E)  None of the choices are completely deductible.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is a true statement?

Accepted Answer

A)  An employer can only deduct half of any meals provided to employees. 
B)  The cost of business meals must be reasonable. 
C)  A taxpayer can only deduct a meal for a client if business is discussed during the meal. 
D)  Meals are never deductible as a business expense. 
E)  None of the choices are true. 
A)  An employer can only deduct half of any meals provided to employees. 
B)  The cost of business meals must be reasonable. 
C)  A taxpayer can only deduct a meal for a client if business is discussed during the meal. 
D)  Meals are never deductible as a business expense. 
E)  None of the choices are true.

Question 15

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 16

Ed is a self-employed heart surgeon who has incurred the following reasonable expenses. Ho4w6)much can Ed deduct?$1,000 in airfare to repair investment rental property in Colorado.$500 in meals while attending a medical convention in New York.$300 for tuition for an investment seminar "How to pick stocks."$100 for tickets to a football game with hospital administrators to celebrate successful negotiation of a surgical contract earlier in the day.The correct answer is ________.

Accepted Answer

A)  $1,300 "for AGI" 
B)  $480 "for AGI" 
C)  $1,300 "for AGI" and $300 "from AGI" 
D)  $80 "for AGI" and $1,300 "from AGI" 
E)  None of the choices are correct. 
A)  $1,300 "for AGI" 
B)  $480 "for AGI" 
C)  $1,300 "for AGI" and $300 "from AGI" 
D)  $80 "for AGI" and $1,300 "from AGI" 
E)  None of the choices are correct.

Question 17

(described below). What amount can Shelley deduct as an employee business expense (before considering any miscellaneous itemized deduction limitations)?

Accepted Answer

A)  $2,740 
B)  $1,850 if Shelley's AGI is $50,000 
C)  $2,850 
D)  All of the expenses are deductible if Shelley is reimbursed under an accountable plan. 
E)  None of the expenses are deductible - only employers can deduct travel expenses. 
A)  $2,740 
B)  $1,850 if Shelley's AGI is $50,000 
C)  $2,850 
D)  All of the expenses are deductible if Shelley is reimbursed under an accountable plan. 
E)  None of the expenses are deductible - only employers can deduct travel expenses.

Question 18

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

Accepted Answer

A)  A tax year can end on any of these days. 
B)  December 31st. 
C)  The last Friday of the last week of June. 
D)  January 31st. 
E)  December 15th. 
A)  A tax year can end on any of these days. 
B)  December 31st. 
C)  The last Friday of the last week of June. 
D)  January 31st. 
E)  December 15th.

Question 19

Bill operates a proprietorship using the cash method of accounting, and this year he received54th) e following payments:
•$100 in cash from a customer for services rendered this year$100 in cash from a customer for services rendered this year.
•a promise to pay $200 from a customer 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.

Accepted Answer

A)  $300. 
B)  $520. 
C)  $270. 
D)  $350. 
E)  $100. 
A)  $300. 
B)  $520. 
C)  $270. 
D)  $350. 
E)  $100.

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

Which of the following is a true statement about impermissible accounting methods?

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

Which of the following is a payment liability?

Employees cannot deduct the cost of uniforms if the uniforms are also appropriate fornormal wear.

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

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 thewarehouse. The rent and insurance covers the next 12 months. What is Brad's deduction for the rent and insurance?

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?

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

Which of the following is a true statement?

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

(described below). What amount can Shelley deduct as an employee business expense (before considering any miscellaneous itemized deduction limitations)?

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

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

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

Which of the following is a true statement about impermissible accounting methods?

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

Which of the following is a payment liability?

Employees cannot deduct the cost of uniforms if the uniforms are also appropriate fornormal wear.

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

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 thewarehouse. The rent and insurance covers the next 12 months. What is Brad's deduction for the rent and insurance?

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?

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

Which of the following is a true statement?

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

(described below). What amount can Shelley deduct as an employee business expense (before considering any miscellaneous itemized deduction limitations)?

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

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