Exam 8: Business Income, Deductions, and Accounting Methods

Jim operates his business on the accrual method and this year he received $4,000 for services that he intends to provide to his clients next year.Under what circumstances can Jim defer the recognition of the $4,000 of income until next year?

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

Illegal bribes and kickbacks are not deductible as business expenses but fines imposed by a governmental unit are deductible as long as the fines are incurred in the ordinary course of business.No deductions are allowed for expenditures against public policy.

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?

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

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

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?

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

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

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 NOT likely to be allowed as a current deduction for a landscaping and nursery business?

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

The domestic production activities deduction is a deduction for the incremental cost of manufacturing tangible assets in the United States.

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?

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

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

Big Homes Corporation is an accrual method calendar year taxpayer that manufactures and sells modular homes.This year for the first time Big Homes was forced to offer a rebate on the purchase of new homes.At year end,Big Homes had paid $12,000 in rebates and was liable for an additional $7,500 in rebates to buyers.What amount of the rebates,if any,can Big Homes deduct this year?

Clyde operates a sole proprietorship using the cash method.This year Clyde made the following expenditures: $480 to US Bank for 12 months of interest accruing on a business loan from September 1^st of this year through August 31^st of next year $600 for 12 months of property insurance beginning on July 1 of this year.What is the maximum amount Clyde can deduct this year?

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

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?