Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 3

Mike operates a fishing outfitter as an accrual-method sole proprietorship.On March 1st of this year Mike received $15,000 for three outfitting trips.This is the first time Mike agreed to such a payment and he is obligated to outfit one trip per year for the next three summers beginning this year.How much income must Mike recognize in each of the next three years if he is attempting to minimize his tax burden?

Accepted Answer

Mike can elect to recognize $5,000 this

Question 4

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 5

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 6

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.

Question 7

Which of the following is a true statement?

Accepted Answer

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

Question 8

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 9

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 10

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)?

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 11

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 12

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 13

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 14

Sandy Bottoms Corporation generated taxable income (before the domestic manufacturing deduction)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 Bottoms' domestic manufacturing deduction for the year?

Accepted Answer

$211,500 = 9% × $2,350,000
The domestic

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

Judy is a self-employed musician who performs for a variety of events.This year Judy was fined $250 by the city for violating the city's noise ordinance with a relatively loud performance.As a consequence,Judy contributed $1,000 to a campaign committee formed to recall the city's mayor.Judy normally hires three part-time employees to help her schedule events and transport equipment.Judy paid a total of $33,000 to her employees through June of this year.In June Judy fired her part-time employees and hired her husband to replace them.However,Judy paid him $55,000 rather than $33,000.Judy is on the cash method and calendar year,and she wants to know what amount of these expenditures is deductible as business expenses.

Accepted Answer

$66,000
The fine and political contribut

Question 18

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 19

Todd operates a business using the cash basis of accounting.At the end of last year,Todd was granted permission to switch his sales on account to the accrual method.Last year Todd made $420,000 of sales on account and $64,000 was uncollected at the end of the year.What is Todd's §481 adjustment for this year?

Accepted Answer

A)  increase income by $420,000. 
B)  increase income by $16,000. 
C)  increase expenses by $64,000. 
D)  increase expenses by $420,000. 
E)  Todd has no §481 adjustment this year. 
A)  increase income by $420,000. 
B)  increase income by $16,000. 
C)  increase expenses by $64,000. 
D)  increase expenses by $420,000. 
E)  Todd has no §481 adjustment this year.

Question 20

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

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

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

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

Which of the following is a true statement?

Which of the following is a true statement?

According to the Internal Revenue Code §162,deductible trade or business expenses must be one of the following:

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

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

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

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

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?

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

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Neorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 1: Business Income,Deductions,and Accounting Methods

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

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

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

Which of the following is a true statement?

Which of the following is a true statement?

According to the Internal Revenue Code §162,deductible trade or business expenses must be one of the following:

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

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

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

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

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?

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

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Neorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters