Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The IRS would most likely apply the arm's length transaction test to determine which of the following?

Accepted Answer

A)  whether an expenditure is related to a business activity 
B)  whether an expenditure will be likely to produce income 
C)  timeliness of an expenditure 
D)  reasonableness of an expenditure 
E)  All of these 
A)  whether an expenditure is related to a business activity 
B)  whether an expenditure will be likely to produce income 
C)  timeliness of an expenditure 
D)  reasonableness of an expenditure 
E)  All of these

Question 3

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 4

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 these 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 these are deductible by Dick.

Question 5

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 that 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 these 
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 that 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 these

Question 6

Gabby operates a pizza delivery service. This year she paid delivery personnel $18,000 in salary. She carefully documented the 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

The answer of Gabby operates a pizza delivery service. This...

Question 7

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 these 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 these are true.

Question 8

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 9

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}{llcc}
&  \underline{\text { Receipts  }} &  \underline{\text {Expenses  }  }\
 \text { February thru December } &\$112,000&\$84,500\
 \text { January } &10,400&6,200\

\end{array}$
 What income should David report from his sole proprietorship?

Accepted Answer

$27,500 =

Question 10

Brad operates a storage business on the accrual method. On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse. The rent and insurance covers the next 12 months. What is Brad's deduction for the rent and insurance?

Accepted Answer

A)  $48,000 for the rent and $18,000 for the insurance. 
B)  $24,000 for the rent and $18,000 for the insurance. 
C)  $24,000 for the rent and $9,000 for the insurance. 
D)  $48,000 for the rent and $9,000 for the insurance. 
E)  None of these is true. 
A)  $48,000 for the rent and $18,000 for the insurance. 
B)  $24,000 for the rent and $18,000 for the insurance. 
C)  $24,000 for the rent and $9,000 for the insurance. 
D)  $48,000 for the rent and $9,000 for the insurance. 
E)  None of these is true.

Question 11

All taxpayers must account for taxable income using a calendar year.

Accepted Answer

A) True 
 B)False

Question 12

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

The answer of Bryon operates a consulting business and he...

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

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 15

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 these is 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 these is true.

Question 16

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: $\begin{array}{llcc}
  \text {Course Tuition } & \$2,500 \
 \text { Air Fare } &800\
 \text { Hotel (10 nights) } &1,200\
 \text {Rental car (10 days)  } &900\
 \text { Meals (10 days) } &1,500\
\end{array}$
 What amount of travel expenditures can Sam deduct?

Accepted Answer

$3,070 = 2,500 + (2

Question 17

Which of the following is likely to be a fully deductible business expense?

Accepted Answer

A)  Salaries in excess of the industry average paid to attract talented employees. 
B)  The cost of employee uniforms that can be adapted to ordinary personal wear. 
C)  A speeding fine paid by a trucker who was delivering a rush order. 
D)  The cost of a three-year subscription to a business publication. 
E)  None of these is likely to be deductible. 
A)  Salaries in excess of the industry average paid to attract talented employees. 
B)  The cost of employee uniforms that can be adapted to ordinary personal wear. 
C)  A speeding fine paid by a trucker who was delivering a rush order. 
D)  The cost of a three-year subscription to a business publication. 
E)  None of these is likely to be deductible.

Question 18

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 these 
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 these

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Even a cash method taxpayer must consistently use accounting methods that "clearly reflect income" for tax purposes.

Accepted Answer

A) True 
 B)False

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

The IRS would most likely apply the arm's length transaction test to determine which of the following?

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

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

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

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

Brad operates a storage business on the accrual method. On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse. The rent and insurance covers the next 12 months. What is Brad's deduction for the rent and insurance?

All taxpayers must account for taxable income using a calendar year.

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.

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

Which of the following is a true statement?

Which of the following is likely to be a fully deductible business expense?

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

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

Even a cash method taxpayer must consistently use accounting methods that "clearly reflect income" for tax purposes.

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

Individual Income Tax Computation and Tax Credits

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

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 US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters

Exam 8: Business Income, Deductions, and Accounting Methods

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

The IRS would most likely apply the arm's length transaction test to determine which of the following?

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

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

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

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

Brad operates a storage business on the accrual method. On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse. The rent and insurance covers the next 12 months. What is Brad's deduction for the rent and insurance?

All taxpayers must account for taxable income using a calendar year.

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.

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

Which of the following is a true statement?

Which of the following is likely to be a fully deductible business expense?

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

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

Even a cash method taxpayer must consistently use accounting methods that "clearly reflect income" for tax purposes.

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

Individual Income Tax Computation and Tax Credits

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

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 US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters