Question 1

Patricia is a business owner who is trying to determine her cost of goods sold for the current year.She bought 20 units of inventory at $11,then 26 units at $10,and finally 18 units at $14.She sold 30 units at an average price of $16 per unit during the current year and uses FIFO for her inventory valuation.What was her cost of goods sold in the current year,assuming that there was no inventory at the beginning of the year? ​

Accepted Answer

A) $320 
B) $330 
C) $480 
D) $732 
E) None of the above

Question 2

Christine is a self-employed tax accountant who drives her car to visit clients occasionally throughout the year.She drives her car 1,000 miles for business,5,000 miles for commuting and 5,000 miles for personal use.Assuming that Christine uses the standard mileage method,how much is her auto expense for 2017? Where in her tax return should Christine claim this deduction?

Accepted Answer

The answer of Christine is a self-employed tax accountant who...

Question 3

Most taxpayers must use the specific charge-off method in calculating the bad debt deduction.

Accepted Answer

A) True 
 B)False

Question 4

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 losses are due to circumstances beyond a person's control 
D) The financial status of the taxpayer

Question 5

Terry is a policeman employed by the city.He must purchase and maintain his uniforms.The total cost of purchasing and maintaining uniforms is $1,000 for the current year.How much may he deduct,why,and where on his tax return?

Accepted Answer

The answer of Terry is a policeman employed by the...

Question 6

In determining whether an activity should be classified as a hobby,the tax law provides a rebuttable presumption with regard to the profits or losses of an activity.Which of the following statements describes the profit/loss test which must be satisfied in order to meet the presumption that the activity is not a hobby?

Accepted Answer

A) The activity shows a profit for 3 of the 5 previous years. 
B) The activity shows a loss for 3 of the 5 previous years. 
C) The activity shows a profit for 3 of the 7 previous years. 
D) The activity shows a loss for 3 of the 7 previous years. 
E) None of the above.

Question 7

The standard mileage rate for automobiles in 2017 is 56 cents per mile.

Accepted Answer

A) True 
 B)False

Question 8

The home office deduction is an easy way for a taxpayer to show a loss on his or her tax return.

Accepted Answer

A) True 
 B)False

Question 9

Gary is a self-employed accountant who pays $2,000 for business meals.How much of a deduction can he claim for the meals and where should the deduction be claimed?

Accepted Answer

A) 50 percent,miscellaneous itemized deduction 
B) 50 percent,Schedule C deduction 
C) 100 percent,miscellaneous itemized deduction 
D) 100 percent,Schedule C deduction

Question 10

Which of the following items incurred while on travel is not considered a travel expense?

Accepted Answer

A) The cost of meals 
B) The cost of lodging 
C) Transportation costs 
D) Cost of entertaining clients 
E) None of the above

Question 11

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

Accepted Answer

A) A lawyer 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 12

Vinnie has a small retail store and sells one product.His beginning inventory consisted of 1,000 products at $4 each for a total of $4,000.During the year,Vinnie made the following purchases of the product:
March 1 5,000 products at $5 each = $25,000
August 1 1,000 products at $6 each = $ 6,000
​
Vinnie uses the LIFO method of inventory valuation and he sells 5,000 products during the current year.
a.Calculate the total cost of goods available for sale.
b.Calculate the cost of the ending inventory.
c.Calculate the cost of goods sold.

Accepted Answer

The answer of Vinnie has a small retail store and...

Question 13

The IRS has approved only two per diem methods to substantiate travel expenses,the high-low method and the meals and incidental expenses method.

Accepted Answer

A) True 
 B)False

Question 14

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 15

For an expense to qualify as a travel expense,the taxpayer must be away from home for at least 24 hours.

Accepted Answer

A) True 
 B)False

Question 16

If a taxpayer takes a trip within the United States which is primarily for business,the cost of travel to and from the destination need not be prorated between the business and personal portion of the trip.

Accepted Answer

A) True 
 B)False

Question 17

Tim loaned a friend $4,000 to buy a used car.In the current year,Tim's friend declares bankruptcy and the debt is considered totally worthless.What amount may Tim deduct on his individual income tax return for the current year as a result of the worthless debt,assuming he has no other capital gains or losses for the year? ​

Accepted Answer

A) $4,000 ordinary loss 
B) $4,000 short-term capital loss 
C) $2,000 short-term capital loss 
D) $3,000 ordinary loss 
E) $3,000 short-term capital loss

Question 18

Dennis is a self-employed hair stylist who operates a salon in his home.The property taxes and interest allocated to the business amount to $5,000,maintenance and utilities allocated to the business total $2,100,and depreciation allocated to the business use of the home equals $3,100 for the current tax year.
a.​If Dennis' gross revenue after deducting supplies for his business is $5,900 for the current tax year,calculate his allowable deductions for the home office.
b.​If Dennis' gross revenue after deducting supplies for his business is $13,800,calculate his allowable deductions for the home office.

Accepted Answer

The answer of Dennis is a self-employed hair stylist who...

Question 19

What is the advantage of carrying a net operating loss back against prior years' income rather than forward against future years?

Accepted Answer

The answer of What is the advantage of carrying a...

Question 20

Generally,for an activity to be treated as a trade or business,which of the following is required:​

Accepted Answer

A) ​Always generate a profit 
B) No more than intermittent effort toward the activity 
C) ​Regular and continual effort designed to seek profit 
D) ​Organization as a corporation or partnership

Exam 3: Business Income and Expenses Part I

Most taxpayers must use the specific charge-off method in calculating the bad debt deduction.

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? ​

Terry is a policeman employed by the city.He must purchase and maintain his uniforms.The total cost of purchasing and maintaining uniforms is $1,000 for the current year.How much may he deduct,why,and where on his tax return?

The standard mileage rate for automobiles in 2017 is 56 cents per mile.

The home office deduction is an easy way for a taxpayer to show a loss on his or her tax return.

Gary is a self-employed accountant who pays $2,000 for business meals.How much of a deduction can he claim for the meals and where should the deduction be claimed?

Which of the following items incurred while on travel is not considered a travel expense?

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

The IRS has approved only two per diem methods to substantiate travel expenses,the high-low method and the meals and incidental expenses method.

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

For an expense to qualify as a travel expense,the taxpayer must be away from home for at least 24 hours.

If a taxpayer takes a trip within the United States which is primarily for business,the cost of travel to and from the destination need not be prorated between the business and personal portion of the trip.

What is the advantage of carrying a net operating loss back against prior years' income rather than forward against future years?

Generally,for an activity to be treated as a trade or business,which of the following is required:​

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?

Generally,for an activity to be treated as a trade or business,which of the following is required: