Question 1

A fiscal tax year can end on the last day of any month other than December.

Accepted Answer

A) True 
 B)False  True

Question 2

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:   
What amount of travel expenditures can Sam deduct?

Accepted Answer

$3,070 = 2,500 + (2 × $120) + (2 × $90) + [2 × (½ × $150)]
Explanation: The trip is primarily personal so the airfare is not deductible. Only two days cost can be deducted for the lodging, half the meals, and auto rental.

Question 3

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 B

Question 4

Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?

Accepted Answer

A) selling expenditures 
B) cost of manufacturing labor 
C) compensation of managers who supervise production 
D) cost of raw materials 
E) All of these are subject to capitalization under the UNICAP rules. 
A) selling expenditures 
B) cost of manufacturing labor 
C) compensation of managers who supervise production 
D) cost of raw materials 
E) All of these are subject to capitalization under the UNICAP rules.

Question 5

Shadow Services uses the accrual method and reports on a calendar year. This year Shadow agreed to a uniform cleaning contract with Odie Cleaning. Under the contract Odie bills Shadow for cleaning services as the services are provided. At year end Shadow paid Odie $2,350 for the services rendered during the year. In addition, Shadow paid Odie $700 for cleaning services expected in January of next year. What amount, if any, can Shadow deduct for the cleaning services this year?

Accepted Answer

$3,050
Explanation: Shadow can

Question 6

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 7

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 8

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 9

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 10

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 11

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 these are true. 
E) None of these is 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 these are true. 
E) None of these is true.

Question 12

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 these is 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 these is true.

Question 13

Which of the following 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

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 15

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 16

When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the taxpayer on the debt will not be deductible.

Accepted Answer

A) True 
 B)False

Question 17

Riley operates a plumbing business and this year the 3-year old van he used in the business was destroyed in a traffic accident. The van was originally purchased for $20,000 and the adjusted basis was $5,800 at the time of the accident. Although the van was worth $6,000 at the time of accident, insurance only paid Riley $1,200 for the loss. What is the amount of Riley's casualty loss deduction?

Accepted Answer

A) $6,000 
B) $14,000 
C) $5,800 
D) $4,600 
E) $5,300 
A) $6,000 
B) $14,000 
C) $5,800 
D) $4,600 
E) $5,300

Question 18

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 19

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 20

Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

Accepted Answer

A) True 
 B)False

A fiscal tax year can end on the last day of any month other than December.

Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?

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

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

Mike started a calendar year business on September 1^st 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?

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

Which of the following is a true statement?

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

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

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

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

When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the taxpayer on the debt will not be deductible.

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

Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

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

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

Filters

Exam 9: Business Income, Deductions, and Accounting Methods

A fiscal tax year can end on the last day of any month other than December.

Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?

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

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

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?

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

Which of the following is a true statement?

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

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

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

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

When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the taxpayer on the debt will not be deductible.

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

Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

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

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

Filters

Mike started a calendar year business on September 1^st 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?