Question 1

There is a limitation of $25 per donee on the deduction of gifts to employees for length of service.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following would be a business bad debt if it were uncollectible?

Accepted Answer

A)  A taxpayer loans his father $1,000 to start a business.
B)  A taxpayer loans his son $10,000 to purchase a rental house.
C)  A dentist,using the accrual basis of accounting,who records income when it is earned and extends credit to a patient for services provided.
D)  A taxpayer loans his brother $3,000 to purchase a truck for use in his brother's business.
E)  None of the above. C

Question 3

Which of the following is not a factor that the IRS looks at to determine if a loss is from a hobby or from a business?

Accepted Answer

A)  Whether the activity is owned and run by the taxpayer alone
B)  The history of the income and loss from the activity
C)  Whether the business has elements of personal recreation
D)  The financial status of the taxpayer A

Question 4

Linda is self-employed and spends $600 for business meals and $400 for business entertainment in 2013.What is Linda allowed to deduct in 2013 for these expenses?

Accepted Answer

A)  $200
B)  $500
C)  $800
D)  $1,000
E)  None of the above

Question 5

Acacia Company had inventory of $100,000 on December 31,2013.Other information is as follows: $\begin{array}{lr}
\text { Purchases } & \$ 1,500,000 \
\text { Sales } & 3,000,000 \
\text { Inventory 1/1/2013 } & 300,000
\end{array}$ What is the amount of Acacia's cost of goods sold for 2013?

Accepted Answer

A)  $1,300,000
B)  $1,600,000
C)  $1,700,000
D)  $3,000,000
E)  None of the above

Question 6

Martin has a home office for his business as an agent for rock-and-roll bands.The business shows a loss of $2,000 before home office expenses.How should the home office expenses be treated?

Accepted Answer

A)  Because of the business loss,home office expenses cannot be deducted and are lost forever.
B)  Because of the business loss,home office expenses other than mortgage interest and property taxes allocated to the office) cannot be deducted in the current year but can be carried forward to the next year.
C)  The home office expenses increase the business loss in the year they are incurred and are fully deductible in that year.
D)  The home office expenses increase the business loss in the year they are incurred and are 50 percent deductible in that year.

Question 7

To file a Schedule C-EZ,the taxpayer must:

Accepted Answer

A)  Have gross receipts of $25,000 or less from the business.
B)  Have business expenses of $5,000 or less.
C)  Have inventory of less than $2,000 during the year.
D)  Have no more than 2 businesses.
E)  Have no more than 5 employees during the year.

Question 8

Which of the following does not give rise to a business expense for uniforms or special clothing?

Accepted Answer

A)  An accountant buys a business suit.
B)  A mascot buys his costume.
C)  A baseball player buys his team uniform.
D)  A scientist buys his hazmat suit.
E)  All of the above are deductible.

Question 9

Hope Springs,a teacher,loaned Hugh Owens,a friend,$10,000 to invest in real estate.Hugh declared bankruptcy in 2013 and cannot repay the $10,000.
a.What is the nature of Hope's loss?
b.Assuming Hope has no other capital transactions,is there a limit on the amount she may deduct for 2013? Explain.
c.What amount of the loss may Hope deduct in 2013?

Accepted Answer

The answer of Hope Springs,a teacher,loaned Hugh Owens,a friend,$10,000 to...

Question 10

Maria runs a small business out of her home.She has expenses of $2,000 per year and uses the cash basis method of accounting.Her only employee is her cousin who works for her part-time.What form should she use to report her business income?

Accepted Answer

A)  Schedule A
B)  Schedule C
C)  Schedule F
D)  Schedule C-EZ
E)  Schedule B

Question 11

A gift to a foreman by a worker is considered business related and therefore subject to the $25 limit.

Accepted Answer

A) True 
 B)False

Question 12

Jess has had a couple of good years in his new business.In the current year,however,he has a net operating loss of $8,000.He is uncertain about the future of the business,and has a serious cash flow problem.As his tax accountant,how would you recommend Jess treat his net operating loss?

Accepted Answer

The answer of Jess has had a couple of good...

Question 13

Choose the correct answer.

Accepted Answer

A)  Education expenses are deductible on Schedule C even if the education qualifies the taxpayer for a new trade or business.
B)  Expenses required for education to maintain skills for the taxpayer's current business are not deductible.
C)  The cost of a CPA review course is deductible by a bookkeeper on his Schedule C.
D)  Expenses for travel as a form of education are not deductible.

Question 14

If a taxpayer works at two or more jobs during the same day,he or she may deduct the cost of transportation from one job to the other.

Accepted Answer

A) True 
 B)False

Question 15

Jezebel loaned her friend $7,000 to buy a used car.She had her friend sign a note with repayment terms and set a reasonable interest rate on the note because she wanted her friend to understand that this was purely a loan and not a gift.Her friend is now on disability and has made it clear she has no way of paying back the loan.How should Jezebel treat the bad loan for tax purposes?

Accepted Answer

The answer of Jezebel loaned her friend $7,000 to buy...

Question 16

Which of the following is deductible as dues,subscriptions or publications?

Accepted Answer

A)  Dues to a health club for a doctor
B)  Subscription to "Vogue" magazine for a corporate president
C)  Dues to the drama club for a student
D)  Subscription to the "Journal of Taxation" for a tax attorney
E)  None of the above

Question 17

Sue is a small business owner who often gives gifts to clients.She gives a $40 gift to her client,Mr.Smith,and his wife.Sue spent $6 to wrap the gift.She also gave out 400 calendars with her company name on them.Each calendar cost $1.Sue also gave her secretary a $370 watch for his 10 years of service.How much of the above expenses may she deduct?

Accepted Answer

A)  $816
B)  $446
C)  $795
D)  $801
E)  None of the above

Question 18

Chris opens a chiropractic office in Houston on January 1,2013.In 2013,Chris drives a total of 4,195
miles from his office to clients' homes to do chiropractic adjustments.In addition,he drives a total of 3,000 miles for commuting between his home and his office in 2013.He elects to use the standard mileage method.On January 1,2013,Chris purchases an annual subscription to a chiropractic journal for
$200 and a 1-year medical reference service for $500.Calculate Chris's deduction for the above items for the 2013 tax year.

Accepted Answer

The answer of Chris opens a chiropractic office in Houston...

Question 19

Carol,a CPA,is always required by her employer to wear to work either a gray or a blue business suit with matching shoes.Carol would never consider wearing her gray or blue suits and matching shoes anywhere other than work since she considers them uncomfortable as well as unattractive.Can Carol deduct the cost of the suits and shoes as special work clothing or uniforms? Explain.

Accepted Answer

The answer of Carol,a CPA,is always required by her employer...

Question 20

The taxpayer must use either the FIFO or LIFO method of valuing inventory,depending upon which method reflects the actual goods the taxpayer has on hand.

Accepted Answer

A) True 
 B)False

Exam 3: Business Income and Expenses, Part I

There is a limitation of $25 per donee on the deduction of gifts to employees for length of service.

Which of the following would be a business bad debt if it were uncollectible?

Which of the following is not a factor that the IRS looks at to determine if a loss is from a hobby or from a business?

Linda is self-employed and spends $600 for business meals and $400 for business entertainment in 2013.What is Linda allowed to deduct in 2013 for these expenses?

Acacia Company had inventory of $100,000 on December 31,2013.Other information is as follows: $\begin{array}{lr}\text { Purchases } & \$ 1,500,000 \\\text { Sales } & 3,000,000 \\\text { Inventory 1/1/2013 } & 300,000\end{array}$ What is the amount of Acacia's cost of goods sold for 2013?

Martin has a home office for his business as an agent for rock-and-roll bands.The business shows a loss of $2,000 before home office expenses.How should the home office expenses be treated?

To file a Schedule C-EZ,the taxpayer must:

Which of the following does not give rise to a business expense for uniforms or special clothing?

Maria runs a small business out of her home.She has expenses of $2,000 per year and uses the cash basis method of accounting.Her only employee is her cousin who works for her part-time.What form should she use to report her business income?

A gift to a foreman by a worker is considered business related and therefore subject to the $25 limit.

Jess has had a couple of good years in his new business.In the current year,however,he has a net operating loss of $8,000.He is uncertain about the future of the business,and has a serious cash flow problem.As his tax accountant,how would you recommend Jess treat his net operating loss?

Choose the correct answer.

If a taxpayer works at two or more jobs during the same day,he or she may deduct the cost of transportation from one job to the other.

Which of the following is deductible as dues,subscriptions or publications?

The taxpayer must use either the FIFO or LIFO method of valuing inventory,depending upon which method reflects the actual goods the taxpayer has on hand.