Question 1

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 2

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

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is a payment liability?

Accepted Answer

A) Tort claims 
B) Refunds 
C) Insurance premiums 
D) Real estate taxes 
E) All of these 
A) Tort claims 
B) Refunds 
C) Insurance premiums 
D) Real estate taxes 
E) All of these

Question 4

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 5

Colby Motors uses the accrual method and reports on a calendar year.In December of last year,Colby acquired auto repair equipment.As part of the acquisition,Colby purchased a warranty agreement that requires the seller of the equipment to provide repairs on the equipment for three years.Colby paid the cost of the warranty,$15,000,in January of this year.What can Colby deduct for the cost of the warranty on the tax return for last year?

Accepted Answer

zero.The warranty co

Question 6

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.The fine is against public policy,the three-year subscription must be amortized,and uniforms are only deductible if not adaptable to ordinary wear. 
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.The fine is against public policy,the three-year subscription must be amortized,and uniforms are only deductible if not adaptable to ordinary wear.

Question 7

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.All of the other alternatives are against public policy. 
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.All of the other alternatives are against public policy.

Question 8

The 12-month rule allows taxpayers to deduct the entire amount of certain prepaid business expenses.

Accepted Answer

A) True 
 B)False

Question 9

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 but he must use the mileage method to determine any 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 but he must use the mileage method to determine any 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 10

Which of the following is a true statement?

Accepted Answer

A) Meals,lodging,and incidental expenditures are only deductible if the taxpayer is away from home overnight while traveling. 
B) Meals are deductible for an employee who is forced to work during the lunch hour. 
C) When a taxpayer travels solely for business purposes,only half of the costs of travel are deductible. 
D) If travel has both business and personal aspects,the cost of transportation is always deductible but the deductibility of lodging depends upon whether business is conducted that day. 
E) None of these is truE.When the travel has both business and personal aspects,the deductibility of the transportation costs depends upon whether business is the primary purpose for the trip.If the primary purpose of a trip is business,the transportation costs are fully deductible,but meals (50%) ,lodging,and incidental expenditures are limited to those incurred during the business portion of the travel. 
A) Meals,lodging,and incidental expenditures are only deductible if the taxpayer is away from home overnight while traveling. 
B) Meals are deductible for an employee who is forced to work during the lunch hour. 
C) When a taxpayer travels solely for business purposes,only half of the costs of travel are deductible. 
D) If travel has both business and personal aspects,the cost of transportation is always deductible but the deductibility of lodging depends upon whether business is conducted that day. 
E) None of these is truE.When the travel has both business and personal aspects,the deductibility of the transportation costs depends upon whether business is the primary purpose for the trip.If the primary purpose of a trip is business,the transportation costs are fully deductible,but meals (50%) ,lodging,and incidental expenditures are limited to those incurred during the business portion of the travel.

Question 11

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 the 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 12

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 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

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 15

Manley operates a law practice on the accrual method and calendar year.At the beginning of the year Manley's firm had an allowance for doubtful accounts with a balance of $15,000.At the end of the year,Manley recorded bad debt expense of $23,000 and the balance of doubtful accounts had increased to $18,000.What is Manley's deduction for bad debt expense this year?

Accepted Answer

A) $23,000 
B) $3,000 
C) $26,000 
D) $5,000 
E) $20,000 
A) $23,000 
B) $3,000 
C) $26,000 
D) $5,000 
E) $20,000

Question 16

Ajax Computer Company is an accrual method calendar year taxpayer.Ajax has never advertised in the national media prior to this year.In November of this year,however,Ajax paid $1 million for television advertising time during a "super" sporting event scheduled to take place in early February of next year.In addition,in November of this year the company paid $500,000 for advertising time during a professional golf tournament in April of next year.What amount of these payments,if any,can Ajax deduct this year?

Accepted Answer

A) $1 million 
B) $500,000 
C) $1.5 million 
D) $1.5 million only if the professional golf tournament is played before April 15. 
E) No deduction can be claimed this year. 
A) $1 million 
B) $500,000 
C) $1.5 million 
D) $1.5 million only if the professional golf tournament is played before April 15. 
E) No deduction can be claimed this year.

Question 17

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

Question 18

Which of the following is an explanation for why insurance premiums on a key employee are not deductible?

Accepted Answer

A) The insurance deduction would offset taxable income without the potential for the proceeds generating taxable income. 
B) The federal government does not want to subsidize insurance companies. 
C) It is impractical to trace insurance premiums to the receipt of proceeds. 
D) Congress presumes that all expenses are not deductible unless specifically allowed in the Internal Revenue Code. 
E) This rule was grandfathered from a time when the IRC disallowed all insurance premiums deductions. 
A) The insurance deduction would offset taxable income without the potential for the proceeds generating taxable income. 
B) The federal government does not want to subsidize insurance companies. 
C) It is impractical to trace insurance premiums to the receipt of proceeds. 
D) Congress presumes that all expenses are not deductible unless specifically allowed in the Internal Revenue Code. 
E) This rule was grandfathered from a time when the IRC disallowed all insurance premiums deductions.

Question 19

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 20

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.The deduction is a tax subsidy. 
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.The deduction is a tax subsidy.

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

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

Which of the following is a payment liability?

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

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

The 12-month rule allows taxpayers to deduct the entire amount of certain prepaid business expenses.

Which of the following is a true statement?

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 is an explanation for why insurance premiums on a key employee are not deductible?

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?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Tax Overview

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

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Exam 8: Business Income, Deductions, and Accounting Methods

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

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

Which of the following is a payment liability?

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

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

The 12-month rule allows taxpayers to deduct the entire amount of certain prepaid business expenses.

Which of the following is a true statement?

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 is an explanation for why insurance premiums on a key employee are not deductible?

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?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Tax Overview

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

Filters