Question 1

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 2

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 these 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 these are true.

Question 3

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 4

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

Accepted Answer

A) True 
 B)False

Question 5

Which of the following business expense deductions is most likely to be unreasonable in amount?

Accepted Answer

A) Compensation paid to the taxpayer's spouse in excess of salary payments to other employees. 
B) Amounts paid to a subsidiary corporation for services where the amount is in excess of the cost of comparable services by competing corporations. 
C) Cost of entertaining a former client when there is no possibility of any future benefits from a relation with that client. 
D) All of these are likely to be unreasonable in amount. 
E) None of these is likely to be unreasonable in amount. 
A) Compensation paid to the taxpayer's spouse in excess of salary payments to other employees. 
B) Amounts paid to a subsidiary corporation for services where the amount is in excess of the cost of comparable services by competing corporations. 
C) Cost of entertaining a former client when there is no possibility of any future benefits from a relation with that client. 
D) All of these are likely to be unreasonable in amount. 
E) None of these is likely to be unreasonable in amount.

Question 6

Anne is a self-employed electrician who reports her business income using the accrual method over a calendar year. On September 1st of this year Anne paid $2,280 of interest on a loan. The interest accrues evenly over 19 months ($120 per month) from June 1st of this year through December 31st of next year. In addition, on September 1st Anne also paid $2,700 for 18 months of professional liability insurance ($150 per month). What amount of interest and insurance can Anne deduct this year?

Accepted Answer

$1,440 = $840 interest ($120 × 7 months

Question 7

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 these 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 these are true.

Question 8

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
Explanation: Because tort

Question 9

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
Explanation:

Question 10

A loss deduction from a casualty of a business asset is only available if the asset is completely destroyed.

Accepted Answer

A) True 
 B)False

Question 11

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 12

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:   
What income should David report from his sole proprietorship?

Accepted Answer

$27,500 = $112,000 - $84,500
E

Question 13

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 these 
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 these

Question 14

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 these 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 these are deductible if Shelley is reimbursed under an accountable plan. 
E) None of the expenses are deductible - only employers can deduct travel expenses.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

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

Accepted Answer

A) True 
 B)False

Question 18

The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary".

Accepted Answer

A) True 
 B)False

Question 19

Which of the following expenses are completely deductible?

Accepted Answer

A) $1,000 spent on compensating your brother for a personal expense. 
B) $50 spent on meals while traveling on business. 
C) $2,000 spent by the employer on reimbursing an employee for entertainment. 
D) All of these expenses are fully deductible. 
E) None of these expenses can be deducted in full. 
A) $1,000 spent on compensating your brother for a personal expense. 
B) $50 spent on meals while traveling on business. 
C) $2,000 spent by the employer on reimbursing an employee for entertainment. 
D) All of these expenses are fully deductible. 
E) None of these expenses can be deducted in full.

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

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

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?

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

Which of the following business expense deductions is most likely to be unreasonable in amount?

A loss deduction from a casualty of a business asset is only available if the asset is completely destroyed.

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

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

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

The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary".

Which of the following expenses are completely deductible?

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

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

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

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?

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

Which of the following business expense deductions is most likely to be unreasonable in amount?

A loss deduction from a casualty of a business asset is only available if the asset is completely destroyed.

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

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

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

The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary".

Which of the following expenses are completely deductible?

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