Question 1

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?

Accepted Answer

A)  $100
B)  $300
C)  $350
D)  $270
E)  $520F) B) and D)
G) C) and D)

Question 2

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

Accepted Answer

A)  incurred for the production of investment income
B)  ordinary and necessary
C)  minimized
D)  appropriate and measurable
E)  personal and justifiableF) A) and B)
G) C) and E)

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Mike started a calendar year business on September 1st 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?

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 methodF) None of the above
G) C) and D)

Question 6

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 1st of this year through August 31st 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?

Accepted Answer

A)  $760
B)  $600
C)  $480
D)  $160
E)  $360F) B) and E)
G) A) and E)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  sales of inventory
B)  services
C)  purchases of machinery
D)  payments of debt
E)  sales of securities by an investorF) D) and E)
G) A) and B)

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

The answer of Blackwell Manufacturing uses the accrual method and...

Question 10

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?

Accepted Answer

A)  Jim can defer the recognition of the income if he absolutely promises not to provide the services until next year.
B)  Jim must defer the recognition of the income until the income is earned.
C)  Jim can defer the recognition of the income if he has requested that the client not pay for the services until the services are provided.
D)  Jim can elect to defer the recognition of the income if the income is not recognized for financial accounting purposes.
E)  Jim can never defer the recognition of the prepayments of incomE.The deferral method can be elected for advance payments of unearned service income if the income is also unearned for financial reporting.F) A) and E)
G) A) and D)

Question 11

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

Accepted Answer

A)  An overall accounting method can only be adopted with the permission of the Commissioner.
B)  An overall accounting method is initially adopted on the first return filed for the business.
C)  The cash method can only be adopted by individual taxpayers.
D)  The accrual method can only be adopted by corporate taxpayers.
E)  None of these is truE.An overall accounting method (cash or accrual)  is initially adopted with the first return filed for the business.F) C) and D)
G) A) and C)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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?

Accepted Answer

A)  $12,000 because rebates are payment liabilities.
B)  $19,500 because Big Homes is an accrual method taxpayer.
C)  $19,500 if this amount is not material,Big Homes expects to continue the practice of offering rebates in future years,and Big Homes expects to pay the accrued rebates before filing their tax return for this year.
D)  $12,000 because the $7,500 liability is not fixed and determinable.
E)  Big Homes is not entitled to a deduction because rebates are against public policy.F) None of the above
G) B) and E)

Question 15

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 theseF) All of the above
G) B) and E)

Question 16

Taxpayers must maintain written contemporaneous records of business purpose when entertaining clients in order to claim a deduction for the expenditures.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

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?

Accepted Answer

A)  $48,000 for the rent and $18,000 for the insurance.
B)  $24,000 for the rent and $18,000 for the insurance.
C)  $24,000 for the rent and $9,000 for the insurance.
D)  $48,000 for the rent and $9,000 for the insurance.
E)  None of these is truE.Economic performance occurs for the rent ratably over time so only $24,000 is accrued ($2,000 per month)  .Insurance is a payment liability and accrues only as paid.However,since the payment spans 2 periods (6 months this year and 6 months next year)  ,the portion benefiting the future period would typically be capitalized.In this case the duration of the contract does not exceed 12 months and the payment does not extend beyond the end of next year.So,the 12-month rule allows for the deduction of $18,000.Note that the 12-month rule can not apply to the rent until economic performance occurs and this only happens ratably.F) A) and E)
G) A) and D)

Question 20

Which of the following is NOT likely to be allowed as a current deduction for a landscaping and nursery business?

Accepted Answer

A)  cost of fertilizer
B)  accounting fees
C)  cost of a greenhouse
D)  cost of uniforms for employees
E)  a cash settlement for trade name infringementF) C) and D)
G) A) and B)

Exam 8: Business Income, Deductions, and Accounting Methods

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

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

Correct Answer
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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?

Correct Answer
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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.

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

Correct Answer
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Correct Answer
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Which of the following is NOT likely to be allowed as a current deduction for a landscaping and nursery business?

Correct Answer
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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?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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?

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

Correct Answer
verified

Taxpayers must maintain written contemporaneous records of business purpose when entertaining clients in order to claim a deduction for the expenditures.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Exam 8: Business Income, Deductions, and Accounting Methods

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is NOT likely to be allowed as a current deduction for a landscaping and nursery business?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Mike started a calendar year business on September 1st 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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Taxpayers must maintain written contemporaneous records of business purpose when entertaining clients in order to claim a deduction for the expenditures.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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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?

Correct Answer
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