Question 1

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 man" life insurance. 
C)  One half of the cost of business meals is not deductible. 
D)  All of the 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 man" life insurance. 
C)  One half of the cost of business meals is not deductible. 
D)  All of the choices are true. 
E)  None of the choices are true. D

Question 2

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. B

Question 3

Uniform capitalization of indirect inventory costs is required for most large taxpayers.

Accepted Answer

A) True 
 B)False  True

Question 4

The domestic production activities deduction is a deduction for the incremental cost of manufacturing tangible assets in the United States.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Otto operates a bakery and is on the cash method and calendar year.This year one of Otto's ovens caught fire and was partially destroyed.Otto bought it a few years ago for $20,000 and claimed depreciation of $12,000 up to the fire.Otto was charged $4,400 for repairs to the oven but the insurance company paid Otto $1,500 for the damage.What is Otto's casualty loss deduction?

Accepted Answer

($2,900)= $1,500 − $4,400
If a business

Question 7

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 8

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 in rebates 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 because Big Homes is an accrual method taxpayer. 
C)  $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. 
D)  $12,000 because the $7,500 liability is not fixed and determinable. 
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 because Big Homes is an accrual method taxpayer. 
C)  $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. 
D)  $12,000 because the $7,500 liability is not fixed and determinable. 
E)  Big Homes is not entitled to a deduction because rebates are against public policy.

Question 9

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 10

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 11

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

Question 12

Taxpayers must maintain written contemporaneous records of business purpose when entertaining clients in order to claim a deduction for the expenditures.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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

Accepted Answer

A)  net income from selling or leasing property the taxpayer manufactured in the United States. 
B)  revenue from selling or leasing property the taxpayer manufactured in the United States. 
C)  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. 
D)  6 percent of revenue from selling or leasing property the taxpayer manufactured in the United States. 
E)  None of the choices are correct. 
A)  net income from selling or leasing property the taxpayer manufactured in the United States. 
B)  revenue from selling or leasing property the taxpayer manufactured in the United States. 
C)  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. 
D)  6 percent of revenue from selling or leasing property the taxpayer manufactured in the United States. 
E)  None of the choices are correct.

Question 15

According to the Internal Revenue Code §162,deductible trade or business expenses must be 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 16

Shelley is employed in Texas and recently attended a two-day business conference in New Jersey.Shelley spent the entire time at the conference and documented her expenditures (described below).What amount can Shelley deduct as an employee business expense (before considering any miscellaneous itemized deduction limitations)? Alrfare to New Jer'sey                                                $2,000
Meals                                                                            220
Lodging in New Jersey                                                  450
Rental car                                                                      180

Accepted Answer

A)  $2,850 
B)  $2,740 
C)  $1,850 if Shelley's AGI is $50,000 
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)  $2,850 
B)  $2,740 
C)  $1,850 if Shelley's AGI is $50,000 
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 17

Rock Island Corporation generated taxable income (before the domestic production activities deduction)of $10 million this year.The total income included $4,500,000 of qualified production activities income.The company paid $500,000 in W-2 wages to generate the qualified production activity income.What is Rock Island's domestic production activities deduction for the year?

Accepted Answer

$250,000 = ½ × $500,000
The domestic pro

Question 18

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)  $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 19

George operates a business that generated adjusted gross income of $250,000 and taxable income of $170,000 this year (before the domestic production activities deduction).Included in income was $70,000 of qualified production activities income.George paid $60,000 of wages to employees engaged in domestic manufacturing.What domestic production activities deduction will George be eligible to claim this year?

Accepted Answer

A)  $5,400. 
B)  $6,300. 
C)  $7,200. 
D)  $15,300. 
E)  $22,500. 
A)  $5,400. 
B)  $6,300. 
C)  $7,200. 
D)  $15,300. 
E)  $22,500.

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

$910 = ½ × ($1,220 + $600)
The

Which of the following is a true statement?

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

Uniform capitalization of indirect inventory costs is required for most large taxpayers.

The domestic production activities deduction is a deduction for the incremental cost of manufacturing tangible assets in the United States.

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

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

Taxpayers must maintain written contemporaneous records of business purpose when entertaining clients in order to claim a deduction for the expenditures.

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

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?

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?

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

Filters

Exam 9: Business Income, Deductions, and Accounting Methods

Which of the following is a true statement?

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

Uniform capitalization of indirect inventory costs is required for most large taxpayers.

The domestic production activities deduction is a deduction for the incremental cost of manufacturing tangible assets in the United States.

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

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

Taxpayers must maintain written contemporaneous records of business purpose when entertaining clients in order to claim a deduction for the expenditures.

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

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?

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?

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

Filters