Question 1

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 the choices are correctF) A) and E)
G) A) and D)

Question 2

A fiscal tax year can end on the last day of any month other than December.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  Transportation costs are always fully deductible.
B)  Meals are not deductible for this type of travel.
C)  Only half of the cost of meals and transportation is deductible.
D)  The cost of lodging and incidental expenditures is limited to those incurred during the business portion of the travel.
E)  None of the choices are correct.F) C) and E)
G) C) and D)

Question 5

Sandy Bottoms Corporation generated taxable income (before depreciation,interest expense and any tax loss carryovers)of $3 million this year.Taxable income included $75,000,000 of revenue and $350,000 of interest income.What is Sandy Bottom's domestic maximum interest expense deduction for the year?

Accepted Answer

$1,145,000 = $350,000 + [30% × ($3,000,0...

Question 6

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

Accepted Answer

A)  A deduction for the insurance premium 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 Internal Revenue Code disallowed all insurance premiums deductions.F) A) and C)
G) D) and E)

Question 7

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.F) C) and D)
G) A) and E)

Question 8

Paris operates a talent agency as a sole proprietorship,and this year she incurred the following expenses in operating her talent agency.What is the total deductible amount of these expenditures? $1,000 dinner with a film producer where no business was discussed
$500 lunch with sister Nicky where no business was discussed
$700 business dinner with a client but Paris forgot to keep any records (oops!) 
$900 tickets to the opera with a client following a business meeting

Accepted Answer

A)  $450.
B)  $900.
C)  $1,100.
D)  $1,200.
E)  $0F) All of the above
G) C) and E)

Question 9

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.F) B) and E)
G) D) and E)

Question 10

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.F) C) and D)
G) B) and E)

Question 11

George operates a business that generated revenues of $50 million and allocable taxable income of $1.25 million.Included in the computation of allocable taxable income were deductible expenses of $240,000 of business interest and $250,000 of depreciation.What is the maximum business interest deduction that George will be eligible to claim this year?

Accepted Answer

A)  $375,000
B)  $552,000
C)  $1,500,000
D)  $300,000
E)  $228,000F) C) and D)
G) A) and B)

Question 12

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 13

Bryon operates a consulting business and he usually works alone.However,during the summer Bryon will sometimes hire undergraduate students to collect data for his projects.This past summer Bryon hired Fred,the son of a prominent businessman,for a part-time summer job.The summer job usually pays about $17,000,but Bryon paid Fred $27,000 to gain favor with Fred's father.What amount of Fred's summer wages can Bryon deduct for tax purposes? Bryon is on the cash method and calendar year.

Accepted Answer

$17,000 Only $17,000 is deduct...

Question 14

Which of the following is a true statement about impermissible accounting methods?

Accepted Answer

A)  An impermissible method is adopted by using the method to report results for two consecutive years.
B)  An impermissible method may never be used by a taxpayer.
C)  Cash method accounting is an impermissible method for partnerships and Subchapter S electing corporations.
D)  There is no accounting method that is impermissible.
E)  None of the choices are true.F) C) and D)
G) A) and D)

Question 15

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?   Airfare to New Jersey Meals Lodging in New Jersey Rental car$2,000220450180\begin{array}{l}\begin{array}{lll}	ext { Airfare to New Jersey}\	ext { Meals}\	ext { Lodging in New Jersey}\	ext { Rental car}\\end{array}\begin{array}{lll}\$2,000 \220 \450 \180\end{array}\end{array} Airfare to New Jersey Meals Lodging in New Jersey Rental car​$2,000220450180​​

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. F) C) and D)
G) All of the above

Question 16

Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

Accepted Answer

A) True 
 B)False

Question 17

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 the choices are likely to be deductible.F) All of the above
G) A) and D)

Question 18

Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?

Accepted Answer

A)  Selling expenditures
B)  Cost of manufacturing labor
C)  Compensation of managers who supervise production
D)  Cost of raw materials
E)  All of the choices are subject to capitalization under the UNICAP rulesF) B) and D)
G) D) and E)

Question 19

Mike started a calendar year business on September 1ˢᵗ of this year by paying 12 months of 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?

Accepted Answer

A)  $12,000 under the cash method and $12,000 under the accrual method.
B)  $4,000 under the cash method and $12,000 under the accrual method.
C)  $12,000 under the cash method and $4,000 under the accrual method.
D)  $4,000 under the cash method and $4,000 under the accrual method.
E)  $4,000 under the cash method and zero under the accrual method.F) All of the above
G) A) and C)

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 8: Business Income, deductions, and Accounting Methods

Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

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

Correct Answer
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Correct Answer
verified
$17,000 Only $17,000 is deduct...
View Answer

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

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

Correct Answer
verified

A fiscal tax year can end on the last day of any month other than December.

Correct Answer
verified

Correct Answer
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Which of the following is a payment liability?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?

Correct Answer
verified

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.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Sandy Bottoms Corporation generated taxable income (before depreciation,interest expense and any tax loss carryovers)of $3 million this year.Taxable income included $75,000,000 of revenue and $350,000 of interest income.What is Sandy Bottom's domestic maximum interest expense deduction for the year?

Correct Answer
verified
$1,145,000 = $350,000 + [30% × ($3,000,0...
View Answer

Which of the following is a true statement about impermissible accounting methods?

Correct Answer
verified

Correct Answer
verified

Mike started a calendar year business on September 1ˢᵗ of this year by paying 12 months of 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?

Correct Answer
verified

Exam 8: Business Income, deductions, and Accounting Methods

Business activities are distinguished from personal activities in that business activities are motivated by the pursuit of profits.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answerverified$17,000 Only $17,000 is deduct...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A fiscal tax year can end on the last day of any month other than December.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is a payment liability?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answerverified$1,145,000 = $350,000 + [30% × ($3,000,0...View AnswerShow Answer

Which of the following is a true statement about impermissible accounting methods?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Mike started a calendar year business on September 1ˢᵗ of this year by paying 12 months of 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?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
$17,000 Only $17,000 is deduct...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
$1,145,000 = $350,000 + [30% × ($3,000,0...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified