Question 1

Which of the following is a true statement about a request for a change in accounting method?

Accepted Answer

A)  Some requests are automatically granted. 
B)  Most requests require the permission of the Commissioner. 
C)  Many requests require payment of a fee and a good business purpose for the change. 
D)  Form 3115 is required to be filed with a request for change in accounting method. 
E)  All of the choices are true. 
A)  Some requests are automatically granted. 
B)  Most requests require the permission of the Commissioner. 
C)  Many requests require payment of a fee and a good business purpose for the change. 
D)  Form 3115 is required to be filed with a request for change in accounting method. 
E)  All of the choices are true.

Question 2

Colby Motors uses the accrual method and reports on a calendar year.In December of last year,Colby acquired auto repair equipment.As part of the acquisition,Colby purchased a warranty agreement that requires the seller of the equipment to provide repairs on the equipment for three years.Colby paid the cost of the warranty,$15,000,in January of this year.What can Colby deduct for the cost of the warranty on the tax return for last year?

Accepted Answer

Zero.The warranty cost is only deductibl

Question 3

Joe is a self-employed electrician who operates his business on the accrual method.This year Joe purchased a shop for his business,and for the first time at year end he received a bill for $4,500 of property taxes on his shop.Joe didn't pay the taxes until after year end but prior to filing his tax return.Which of the following is a true statement?

Accepted Answer

A)  If he elects to treat the taxes as a recurring item, Joe can accrue and deduct $4,500 of taxes on the shop this year. 
B)  The taxes are a payment liability. 
C)  The taxes would not be deductible if Joe's business was on the cash method. 
D)  Unless Joe makes an election, the taxes are not deductible this year. 
E)  All of the choices are true. 
A)  If he elects to treat the taxes as a recurring item, Joe can accrue and deduct $4,500 of taxes on the shop this year. 
B)  The taxes are a payment liability. 
C)  The taxes would not be deductible if Joe's business was on the cash method. 
D)  Unless Joe makes an election, the taxes are not deductible this year. 
E)  All of the choices are true.

Question 4

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 the company 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 5

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 the parties in all the choices 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 the parties in all the choices are related parties.

Question 6

After a business meeting with a prospective client Holly took the client to dinner and the theatre.Holly paid $290 for the meal and $250 for the theatre tickets,amounts that were reasonable under the circumstances.What amount of these expenditures can Holly deduct as a business expense?

Accepted Answer

A)  $540 
B)  $415 
C)  $270 
D)  None unless Holly discussed business with the client during the meal and the entertainment. 
E)  None - the meals and entertainment are not deductible except during travel. 
A)  $540 
B)  $415 
C)  $270 
D)  None unless Holly discussed business with the client during the meal and the entertainment. 
E)  None - the meals and entertainment are not deductible except during travel.

Question 7

Dick pays insurance premiums for his employees.What type of insurance premium is not deductible as compensation paid to the employee?

Accepted Answer

A)  Health insurance with benefits payable to the employee. 
B)  Whole life insurance with benefits payable to the employee's dependents. 
C)  Group term life insurance with benefits payable to the employee's dependents. 
D)  Key man life insurance with benefits payable to Dick. 
E)  All of the choices are deductible by Dick. 
A)  Health insurance with benefits payable to the employee. 
B)  Whole life insurance with benefits payable to the employee's dependents. 
C)  Group term life insurance with benefits payable to the employee's dependents. 
D)  Key man life insurance with benefits payable to Dick. 
E)  All of the choices are deductible by Dick.

Question 8

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 golf tournament 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 million. 
B)  $500,000. 
C)  $1.5 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 million. 
B)  $500,000. 
C)  $1.5 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 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

Clyde operates a sole proprietorship using the cash method.This year Clyde made the following 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)  $600. 
C)  $480. 
D)  $160. 
E)  $360. 
A)  $760. 
B)  $600. 
C)  $480. 
D)  $160. 
E)  $360.

Question 12

Only half the cost of a business meal is deductible even if the meal is associated with the active conduct of business.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Paris operates a talent agency as a sole proprietorship,and this year she incurred the following expenses 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)  $450. 
B)  $900. 
C)  $1,100. 
D)  $1,200. 
E)  $800. 
A)  $450. 
B)  $900. 
C)  $1,100. 
D)  $1,200. 
E)  $800.

Question 15

Bryon operates a consulting business and he usually works alone.However,during the summer Bryon will sometimes hire undergraduate students to collect data for his projects.This past summer Bryon hired Fred,the son of a prominent businessman,for a part-time summer job.The summer job usually pays about $17,000,but Bryon paid Fred $27,000 to gain favor with Fred's father.What amount of Fred's summer wages can Bryon deduct for tax purposes? Bryon is on the cash method and calendar year.

Accepted Answer

$17,000
Only $17,000 is deduct

Question 16

Ed is a self-employed heart surgeon who has incurred the following reasonable expenses.How 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)  $1,300 "for AGI" and $300 "from AGI" 
C)  $480 "for AGI" 
D)  $80 "for AGI" and $1,300 "from AGI" 
E)  None of the choices are correct. 
A)  $1,300 "for AGI" 
B)  $1,300 "for AGI" and $300 "from AGI" 
C)  $480 "for AGI" 
D)  $80 "for AGI" and $1,300 "from AGI" 
E)  None of the choices are correct.

Question 17

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

Accepted Answer

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

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The all-events test for income determines the period in which income will be recognized for tax purposes.

Accepted Answer

A) True 
 B)False

Question 20

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.

Which of the following is a true statement about a request for a change in accounting method?

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

After a business meeting with a prospective client Holly took the client to dinner and the theatre.Holly paid $290 for the meal and $250 for the theatre tickets,amounts that were reasonable under the circumstances.What amount of these expenditures can Holly deduct as a business expense?

Dick pays insurance premiums for his employees.What type of insurance premium is not deductible as compensation paid to the employee?

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.

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

Only half the cost of a business meal is deductible even if the meal is associated with the active conduct of business.

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

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

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

The all-events test for income determines the period in which income will be recognized for tax purposes.

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

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

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Exam 9: Business Income, Deductions, and Accounting Methods

Which of the following is a true statement about a request for a change in accounting method?

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

After a business meeting with a prospective client Holly took the client to dinner and the theatre.Holly paid $290 for the meal and $250 for the theatre tickets,amounts that were reasonable under the circumstances.What amount of these expenditures can Holly deduct as a business expense?

Dick pays insurance premiums for his employees.What type of insurance premium is not deductible as compensation paid to the employee?

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.

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

Only half the cost of a business meal is deductible even if the meal is associated with the active conduct of business.

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

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

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

The all-events test for income determines the period in which income will be recognized for tax purposes.

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

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