Question 1

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.

Question 2

Shelley is employed in Texas and recently attended a two-day business conference at the request of her employer. Shelley spent the entire time at the conference and documented her expenditures (described below). What amount can Shelley deduct if she is not reimbursed by her employer?

Accepted Answer

A)  $2,850 
B)  $2,740 
C)  $1,850 if Shelley's AGI is $50,000 
D)  All of these expenses are deductible if Shelley attends a conference in Texas. 
E)  None of the expenses are deductible by an employee. 
A)  $2,850 
B)  $2,740 
C)  $1,850 if Shelley's AGI is $50,000 
D)  All of these expenses are deductible if Shelley attends a conference in Texas. 
E)  None of the expenses are deductible by an employee.

Question 3

Marilyn operates a day care center as a cash-method sole proprietorship. On August 1st of this year Marilyn received a prepayment of $4,000 for child care services to be rendered evenly over the next 20 months. How much income must Marilyn recognize this year if she is attempting to minimize her tax burden?

Accepted Answer

$4,000
Prepayments a

Question 4

Ronald is a cash method taxpayer who made the following expenditures this year. Which expenditure is completely deductible in this period as a business expense?

Accepted Answer

A)  $4,000 for rent on his office that covers the next 24 months. 
B)  $3,000 for a new watch for the mayor to keep "good relations" with city hall. 
C)  $2,500 for professional hockey tickets distributed to a customer to generate "goodwill" for his business. 
D)  $55 to collect an account receivable from a customer who has failed to pay for services rendered. 
E)  None of the choices are completely deductible. 
A)  $4,000 for rent on his office that covers the next 24 months. 
B)  $3,000 for a new watch for the mayor to keep "good relations" with city hall. 
C)  $2,500 for professional hockey tickets distributed to a customer to generate "goodwill" for his business. 
D)  $55 to collect an account receivable from a customer who has failed to pay for services rendered. 
E)  None of the choices are completely deductible.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 choices are true. 
E)  None of the choices are 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 choices are true. 
E)  None of the choices are true.

Question 7

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 8

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
Shadow can deduct amoun

Question 9

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
Because tort liabilities

Question 10

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 11

Although expenses associated with illegal activities are not deductible, political contributions can be deducted as long as the donation is not made to a candidate for public office.

Accepted Answer

A) True 
 B)False

Question 12

Adjusted taxable income is defined as follows for purposes of the business interest limitation:

Accepted Answer

A)  taxable income allocable to the business computed without regard to interest income, and depreciation, amortization, or depletion, interest expense, and net operating loss deductions. 
B)  30 percent of revenue after deducting depreciation and interest expense. 
C)  Taxable income allocable to debt invested in the business. 
D)  Interest income after deducting 30 percent of all deductible expenses. 
E)  None of the choices are correct. 
A)  taxable income allocable to the business computed without regard to interest income, and depreciation, amortization, or depletion, interest expense, and net operating loss deductions. 
B)  30 percent of revenue after deducting depreciation and interest expense. 
C)  Taxable income allocable to debt invested in the business. 
D)  Interest income after deducting 30 percent of all deductible expenses. 
E)  None of the choices are correct.

Question 13

Holly took a prospective client to dinner, and after agreeing to a business deal, they went to the theater. 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)  $270 
C)  $145 
D)  $125 
E)  None - the meals and entertainment are not deductible except during travel. 
A)  $540 
B)  $270 
C)  $145 
D)  $125 
E)  None - the meals and entertainment are not deductible except during travel.

Question 14

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 the choices are correct. 
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 the choices are correct.

Question 15

Crystal operates a business that provides typing and delivery services. This year Crystal spent $2,500 to purchase special shirts that identify her employees and provide some notoriety for her business. The shirts are especially colorful and include logos on the front pocket and back. Besides salary payments, Crystal also compensates her employees by offering to pay whole life insurance premiums for any that want to provide insurance coverage for their beneficiaries. This year Crystal paid $5,000 in life insurance premiums. What amount of these payments can Crystal deduct? Crystal is on the cash method and calendar year.

Accepted Answer

$7,500
Uniforms are deductible

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 typically required to be filed with a request for change in accounting method. 
E)  All of the choices 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 typically required to be filed with a request for change in accounting method. 
E)  All of the choices are true.

Question 17

Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

Accepted Answer

A)  Spouse when the taxpayer is an individual. 
B)  A partner when the taxpayer is a partnership. 
C)  Brother when the taxpayer is an individual. 
D)  A minority shareholder when the taxpayer is a corporation. 
E)  All of these are related parties. 
A)  Spouse when the taxpayer is an individual. 
B)  A partner when the taxpayer is a partnership. 
C)  Brother when the taxpayer is an individual. 
D)  A minority shareholder when the taxpayer is a corporation. 
E)  All of these are related parties.

Question 18

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 19

John is a self-employed computer consultant who lives and works in Dallas. John paid for the following activities in conjunction with his business. Which is not deductible in any amount? 1. Dinner with a potential client where the client's business was discussed.
2) A trip to Houston to negotiate a contract.
3) A seminar in Houston on new developments in the software industry.
4) A trip to New York to visit a school chum who is also interested in computers.

Accepted Answer

A)  1 only. 
B)  2 only. 
C)  3 only. 
D)  4 only. 
E)  None of the choices are correct. 
A)  1 only. 
B)  2 only. 
C)  3 only. 
D)  4 only. 
E)  None of the choices are correct.

Question 20

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

Accepted Answer

A) True 
 B)False

Which of the following expenses are completely deductible?

Shelley is employed in Texas and recently attended a two-day business conference at the request of her employer. Shelley spent the entire time at the conference and documented her expenditures (described below). What amount can Shelley deduct if she is not reimbursed by her employer?

Ronald is a cash method taxpayer who made the following expenditures this year. Which expenditure is completely deductible in this period 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 is a true statement?

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.

Although expenses associated with illegal activities are not deductible, political contributions can be deducted as long as the donation is not made to a candidate for public office.

Adjusted taxable income is defined as follows for purposes of the business interest limitation:

Holly took a prospective client to dinner, and after agreeing to a business deal, they went to the theater. 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?

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

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

Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

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

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, 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

Which of the following expenses are completely deductible?

Shelley is employed in Texas and recently attended a two-day business conference at the request of her employer. Shelley spent the entire time at the conference and documented her expenditures (described below). What amount can Shelley deduct if she is not reimbursed by her employer?

Ronald is a cash method taxpayer who made the following expenditures this year. Which expenditure is completely deductible in this period 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 is a true statement?

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.

Although expenses associated with illegal activities are not deductible, political contributions can be deducted as long as the donation is not made to a candidate for public office.

Adjusted taxable income is defined as follows for purposes of the business interest limitation:

Holly took a prospective client to dinner, and after agreeing to a business deal, they went to the theater. 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?

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

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

Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

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

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, 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