Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

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 above 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 above three dates. 
E)  None of the choices are correct. D

Question 3

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. D

Question 4

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 salary plus $7

Question 5

Illegal bribes and kickbacks are not deductible as business expenses but fines imposed by a governmental unit are deductible as long as the fines are incurred in the ordinary course of business.

Accepted Answer

A) True 
 B)False

Question 6

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.

Question 7

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 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

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

Accepted Answer

A) True 
 B)False

Question 10

Which of the following expenditures is NOT likely to be allowed as a current deduction for a landscaping and nursery business?

Accepted Answer

A)  Cost of fertilizer 
B)  Accounting fees 
C)  Cost of a greenhouse 
D)  Cost of uniforms for employees 
E)  A cash settlement for trade name infringement 
A)  Cost of fertilizer 
B)  Accounting fees 
C)  Cost of a greenhouse 
D)  Cost of uniforms for employees 
E)  A cash settlement for trade name infringement

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Adjusted taxable income is defined as follows for purposes of the business interest limitation:

Accepted Answer

A)  taxable income allocable to the business computed without regard to interest income, and depreciation, amortization, or depletion, interest expense, and net operating loss deductions. 
B)  30 percent of revenue after deducting depreciation and interest expense. 
C)  Taxable income allocable to debt invested in the business. 
D)  Interest income after deducting 30 percent of all deductible expenses. 
E)  None of the choices are correct. 
A)  taxable income allocable to the business computed without regard to interest income, and depreciation, amortization, or depletion, interest expense, and net operating loss deductions. 
B)  30 percent of revenue after deducting depreciation and interest expense. 
C)  Taxable income allocable to debt invested in the business. 
D)  Interest income after deducting 30 percent of all deductible expenses. 
E)  None of the choices are correct.

Question 13

Which of the following expenses are 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 14

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 15

Colbert operates a catering service on the accrual method. In November of year 1 Colbert received a payment of $9,000 for 18 months of catering services to be rendered from December 1ˢᵗ of year 1 through May 31ˢᵗ year 3. When must Colbert recognize the income if his accounting methods are selected to minimize income recognition?

Accepted Answer

A)  $500 is recognized in year 1, $6,000 in year 2, and $2,500 in year 3. 
B)  $500 is recognized in year 1 and $8,500 in year 2. 
C)  $9,000 is recognized in year 3. 
D)  $2,500 is recognized in year 1 and $6,500 in year 2. 
E)  $9,000 is recognized in year 1. 
A)  $500 is recognized in year 1, $6,000 in year 2, and $2,500 in year 3. 
B)  $500 is recognized in year 1 and $8,500 in year 2. 
C)  $9,000 is recognized in year 3. 
D)  $2,500 is recognized in year 1 and $6,500 in year 2. 
E)  $9,000 is recognized in year 1.

Question 16

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 17

Shelley is employed in Texas and recently attended a two-day business conference at the request of her employer. Shelley spent the entire time at the conference and documented her expenditures (described below). What amount can Shelley deduct if she is not reimbursed by her employer?

Accepted Answer

A)  $2,850 
B)  $2,740 
C)  $1,850 if Shelley's AGI is $50,000 
D)  All of these expenses are deductible if Shelley attends a conference in Texas. 
E)  None of the expenses are deductible by an employee. 
A)  $2,850 
B)  $2,740 
C)  $1,850 if Shelley's AGI is $50,000 
D)  All of these expenses are deductible if Shelley attends a conference in Texas. 
E)  None of the expenses are deductible by an employee.

Question 18

Joe operates a plumbing business that uses the accrual method and reports on a calendar year. This year Joe signed a $50,000 binding contract with Brian. Under the contract Brian will provide Joe with up to 2,000 hours of vehicle repairs at $25 per hour. This year Brian provided 200 hours of repair services and billed Joe for $5,000. At year end Joe had not paid Brian for the services. What amount, if any, can Joe deduct for the repair services this year?

Accepted Answer

$5,000
The all events test is satisfied

Question 19

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 20

Werner is the president and CEO of Acme, Inc. and this year he took a prospective client to dinner. During the dinner the President and the client discussed a proposed contract for over $6 million and personal matters. After dinner the CEO took the client to a football game and no business was discussed. The CEO paid $1,220 for an expensive dinner and spent $600 for tickets to the game. What is the deductible amount of these expenses?

Accepted Answer

$610 = 50% × ($1,220

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

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

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

Illegal bribes and kickbacks are not deductible as business expenses but fines imposed by a governmental unit are deductible as long as the fines are incurred in the ordinary course of 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?

Individual proprietors report their business income and deductions on:

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

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

Which of the following expenditures is NOT likely to be allowed as a current deduction for a landscaping and nursery business?

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

Adjusted taxable income is defined as follows for purposes of the business interest limitation:

Which of the following expenses are completely deductible?

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

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

Shelley is employed in Texas and recently attended a two-day business conference at the request of her employer. Shelley spent the entire time at the conference and documented her expenditures (described below). What amount can Shelley deduct if she is not reimbursed by her employer?

Property Acquisition and Cost Recovery

Property Dispositions

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 U.S. Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 1: Business Income, Deductions, and Accounting Methods

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

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

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

Illegal bribes and kickbacks are not deductible as business expenses but fines imposed by a governmental unit are deductible as long as the fines are incurred in the ordinary course of 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?

Individual proprietors report their business income and deductions on:

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

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

Which of the following expenditures is NOT likely to be allowed as a current deduction for a landscaping and nursery business?

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

Adjusted taxable income is defined as follows for purposes of the business interest limitation:

Which of the following expenses are completely deductible?

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

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

Shelley is employed in Texas and recently attended a two-day business conference at the request of her employer. Shelley spent the entire time at the conference and documented her expenditures (described below). What amount can Shelley deduct if she is not reimbursed by her employer?

Property Acquisition and Cost Recovery

Property Dispositions

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 U.S. Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters