Question 1

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

Accepted Answer

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

Question 2

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 3

Jim operates his business on the accrual method and this year he received $4,000 for services that he intends to provide to his clients next year.Under what circumstances can Jim defer the recognition of the $4,000 of income until next year?

Accepted Answer

A)  Jim can defer the recognition of the income if he absolutely promises not to provide the services until next year. 
B)  Jim must defer the recognition of the income until the income is earned. 
C)  Jim can defer the recognition of the income if he has requested that the client not pay for the services until the services are provided. 
D)  Jim can elect to defer the recognition of the income if the income is not recognized for financial accounting purposes. 
E)  Jim can never defer the recognition of the prepayments of income. 
A)  Jim can defer the recognition of the income if he absolutely promises not to provide the services until next year. 
B)  Jim must defer the recognition of the income until the income is earned. 
C)  Jim can defer the recognition of the income if he has requested that the client not pay for the services until the services are provided. 
D)  Jim can elect to defer the recognition of the income if the income is not recognized for financial accounting purposes. 
E)  Jim can never defer the recognition of the prepayments of income.

Question 4

This year Clark leased a car to drive between his office and various work sites.Clark carefully recorded that he drove the car 23,000 miles this year and paid $7,200 of operating expenses ($2,700 for gas,oil,and repairs,and $4,500 for lease payments).What amount of these expenses may Clark deduct as business expenses?

Accepted Answer

A)  $7,200 
B)  Clark cannot deduct these costs because taxpayers must use the mileage method to determine any transportation deduction. 
C)  $4,500 
D)  $2,700 
E)  Clark is not entitled to any deduction if he used the car for any personal trips. 
A)  $7,200 
B)  Clark cannot deduct these costs because taxpayers must use the mileage method to determine any transportation deduction. 
C)  $4,500 
D)  $2,700 
E)  Clark is not entitled to any deduction if he used the car for any personal trips.

Question 5

Which of the following is a true statement about the domestic production activities deduction?

Accepted Answer

A)  This deduction is determined by the amount of goods manufactured in the United States for export abroad. 
B)  The deduction is calculated as a percentage of the cost of goods manufactured in the United States. 
C)  This deduction represents a subsidy to taxpayers who manufacture or construct goods in the United States. 
D)  The domestic production activities deduction is not affected by the cost of labor. 
E)  All of the choices are true. 
A)  This deduction is determined by the amount of goods manufactured in the United States for export abroad. 
B)  The deduction is calculated as a percentage of the cost of goods manufactured in the United States. 
C)  This deduction represents a subsidy to taxpayers who manufacture or construct goods in the United States. 
D)  The domestic production activities deduction is not affected by the cost of labor. 
E)  All of the choices are true.

Question 6

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

Accepted Answer

A) True 
 B)False

Question 7

The full-inclusion method requires cash basis taxpayers to include prepayments for goods or services into realized income.

Accepted Answer

A) True 
 B)False

Question 8

Bill operates a proprietorship using the cash method of accounting,and this year he received the following payments:  -$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.
How much income should Bill realize on Schedule C?

Accepted Answer

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

Question 9

Jones operates an upscale restaurant and he pays experienced cooks $35,000 per year.This year he hired his son as an apprentice cook.Jones agreed to pay his son $40,000 per year.Which of the following is a true statement about this transaction?

Accepted Answer

A)  Jones will be allowed to deduct $40,000 only if his son eventually develops into an expert cook. 
B)  Jones will be allowed to accrue $40,000 only if he pays his son in cash. 
C)  Jones will be allowed to deduct $35,000 as compensation and another $5,000 can be deducted as an employee gift. 
D)  Jones can only deduct $20,000 because an apprentice cook is only worth half as much as an experienced cook. 
E)  None of the choices are true. 
A)  Jones will be allowed to deduct $40,000 only if his son eventually develops into an expert cook. 
B)  Jones will be allowed to accrue $40,000 only if he pays his son in cash. 
C)  Jones will be allowed to deduct $35,000 as compensation and another $5,000 can be deducted as an employee gift. 
D)  Jones can only deduct $20,000 because an apprentice cook is only worth half as much as an experienced cook. 
E)  None of the choices are true.

Question 10

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 11

Taffy Products uses the accrual method and reports on a calendar year.On July 1ˢᵗ of this year Taffy paid $48,000 for warehouse rent and $18,000 for insurance on the contents of their warehouse.The rent and insurance covers the next 12 months.What amount,if any,can Taffy deduct for rent and insurance this year?

Accepted Answer

$42,000 = $24,000 + $18,000
Economic per

Question 12

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 13

Qualified production activity income for calculating the domestic production activities deduction is limited to taxable income for a business or modified AGI for an individual.

Accepted Answer

A) True 
 B)False

Question 14

Crystal operates a business that provides typing and delivery services.This year Crystal spent $2,500 to purchase special shirts that identify her employees and provide some notoriety for her business.The shirts are especially colorful and include logos on the front pocket and back.Besides salary payments,Crystal also compensates her employees by offering to pay whole life insurance premiums for any that want to provide insurance coverage for their beneficiaries.This year Crystal paid $5,000 in life insurance premiums.What amount of these payments can Crystal deduct? Crystal is on the cash method and calendar year.

Accepted Answer

$7,500
Uniforms are deductible

Question 15

David purchased a deli shop on February 1ˢᵗ of last year and began to operate it as a sole proprietorship.David reports his personal taxes using the cash method over a calendar year,and he wants to use the cash method and fiscal year for his sole proprietorship.He has summarized his receipts and expenses through January 31ˢᵗ of this year as follows:
 $$\begin{array} { l r r } 
& \text { Receipts } & \text { Expenses } \
\text { February thri. Decermber lastyear } & \$ 112,000 & \$ 84,500 \
\text { Jarnury this year } & 10,400 & 6,200
\end{array}$$ What income should David report from his sole proprietorship?

Accepted Answer

$27,500 = $112,000 − $84,500
A

Question 16

Which of the following expenditures is most likely to be deductible for a construction business?

Accepted Answer

A)  A fine for a zoning violation. 
B)  A tax underpayment penalty. 
C)  An "under the table" payment to a government representative to obtain a better price for raw materials. 
D)  A payment to a foreign official to expedite an application for a business permit. 
E)  An arm's length payment to a related party for emergency repairs of a sewage line. 
A)  A fine for a zoning violation. 
B)  A tax underpayment penalty. 
C)  An "under the table" payment to a government representative to obtain a better price for raw materials. 
D)  A payment to a foreign official to expedite an application for a business permit. 
E)  An arm's length payment to a related party for emergency repairs of a sewage line.

Question 17

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:
 CourseTuition                $2,500
Air Fare                           800
Hotel (10 nights)            1,200
Rental car ( 10 days)           900
Meals ( 10 days)              1,500 What amount of travel expenditures can Sam deduct?

Accepted Answer

$3,070 = 2,500 + (2 × $120)+ (2 × $90)+

Question 18

Smith operates a roof repair business.This year Smith's business generated cash receipts of $32,000 and Smith made the following expenditures associated with his business:
 Advertisirig
5
500
Car ad truck expenses
Depreciation
Employee compensation
Education
1000 The education expense was for a two-week,nighttime course in business management.Smith believes the expenditure should qualify as an ordinary and necessary business expense.What net income should Smith report from his business? Smith is on the cash method and calendar year.

Accepted Answer

$20,940 = $32,000 −

Question 19

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 and from 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 20

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 as business expenses?

Accepted Answer

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

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

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

Jim operates his business on the accrual method and this year he received $4,000 for services that he intends to provide to his clients next year.Under what circumstances can Jim defer the recognition of the $4,000 of income until next year?

Which of the following is a true statement about the domestic production activities deduction?

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

The full-inclusion method requires cash basis taxpayers to include prepayments for goods or services into realized income.

Jones operates an upscale restaurant and he pays experienced cooks $35,000 per year.This year he hired his son as an apprentice cook.Jones agreed to pay his son $40,000 per year.Which of the following is a true statement about this transaction?

Individual proprietors report their business income and deductions on:

Qualified production activity income for calculating the domestic production activities deduction is limited to taxable income for a business or modified AGI for an individual.

Which of the following expenditures is most likely to be deductible for a construction 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

Exam 9: Business Income, Deductions, and Accounting Methods

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

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

Jim operates his business on the accrual method and this year he received $4,000 for services that he intends to provide to his clients next year.Under what circumstances can Jim defer the recognition of the $4,000 of income until next year?

Which of the following is a true statement about the domestic production activities deduction?

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

The full-inclusion method requires cash basis taxpayers to include prepayments for goods or services into realized income.

Jones operates an upscale restaurant and he pays experienced cooks $35,000 per year.This year he hired his son as an apprentice cook.Jones agreed to pay his son $40,000 per year.Which of the following is a true statement about this transaction?

Individual proprietors report their business income and deductions on:

Qualified production activity income for calculating the domestic production activities deduction is limited to taxable income for a business or modified AGI for an individual.

Which of the following expenditures is most likely to be deductible for a construction 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