Question 1

The 12-month rule allows taxpayers to deduct the entire amount of certain prepaid business expenses.

Accepted Answer

A) True 
 B)False

Question 2

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

Question 3

The all-events test for income determines the period in which income will be recognized for tax purposes.

Accepted Answer

A) True 
 B)False

Question 4

Ed is a self-employed heart surgeon who lives in Michigan and has incurred the following reasonable expenses. How much can Ed deduct? $1,000 in airfare to repair investment rental property in Colorado.
$500 in meals while attending a medical convention in New York.
$300 for tuition for an investment seminar, "How to pick stocks."
$100 for tickets to a football game with hospital administrators to celebrate successful negotiation of a surgical contract earlier in the day.
The correct answer is ________.

Accepted Answer

A)  $1,250 "for AGI"
B)  $1,300 "for AGI" and $300 "from AGI"
C)  $480 "for AGI"
D)  $80 "for AGI" and $1,300 "from AGI"
E)  None of the choices are correct.F) D) and E)
G) B) and C)

Question 5

A business can deduct the cost of uniforms supplied to employees.

Accepted Answer

A) True 
 B)False

Question 6

David purchased a deli shop on February 1st of last year and began to operate it as a sole proprietorship. David reports his personal taxes using the cash method over a calendar year, and he wants to use the cash method and fiscal year for his sole proprietorship. He has summarized his receipts and expenses through January 31st of this year as follows:
  What income should David report from his sole proprietorship?

Accepted Answer

$27,500 = $112,000 − $84,500.
...

Question 7

Which of the following business expense deductions is most likely to be unreasonable in amount?

Accepted Answer

A)  Compensation paid to the taxpayer's spouse in excess of salary payments to other employees.
B)  Amounts paid to a subsidiary corporation for services where the amount is in excess of the cost of comparable services by competing corporations.
C)  Cost of a meal with a former client when there is no possibility of any future benefits from a relation with that client.
D)  All of the choices are likely to be unreasonable in amount.
E)  None of the choices are likely to be unreasonable in amount.F) A) and B)
G) None of the above

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

A business generally adopts a fiscal or calendar year by using that year-end on the first tax return for the business.

Accepted Answer

A) True 
 B)False

Question 10

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 of the following expenditures 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.F) B) and E)
G) A) and E)

Question 11

Dick pays insurance premiums for his employees. What type of insurance premium is not deductible as compensation paid to the employee?

Accepted Answer

A)  Health insurance with benefits payable to the employee.
B)  Whole life insurance with benefits payable to the employee's dependents.
C)  Group-term life insurance with benefits payable to the employee's dependents.
D)  Key-employee life insurance with benefits payable to Dick.
E)  All of the choices are deductible by Dick.F) B) and D)
G) None of the above

Question 12

Murphy uses the accrual method and reports on a calendar year. This year Murphy signed a binding contract to provide consulting services to Kirby beginning next year. Murphy incurred $15,000 to train his staff for this particular project. In addition, Murphy estimates that he will incur another $60,000 to complete the Kirby contract. What amount, if any, can Murphy deduct this year for the services expected to be rendered next year?

Accepted Answer

$15,000.
Unless the services a...

Question 13

Which of the following expenditures is 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.F) B) and E)
G) B) and D)

Question 14

Which of the following expenditures 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) D) and E)
G) None of the above

Question 15

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) D) and E)
G) All of the above

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

The full-inclusion method requires cash-basis taxpayers to include prepayments for goods or services into realized income.

Accepted Answer

A) True 
 B)False

Question 18

Only half the cost of a business meal is deductible even if the meal is extravagant.

Accepted Answer

A) True 
 B)False

Question 19

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) B) and E)
G) A) and B)

Question 20

Shelley is self-employed in Texas and recently attended a two-day business conference in New Jersey. After Shelley attended the conference, she had dinner with an old friend who lived nearby. Shelly documented her expenditures (described below) . What amount can Shelley deduct?

Accepted Answer

A)  $2,850.
B)  $2,740.
C)  $1,850 if Shelley itemizes the deductions.
D)  All of these expenses are deductible but only if Shelley attends a conference in Texas.
E)  None of the expenses are deductible because Shelly visited her friend.F) A) and E)
G) A) and C)

Exam 9: Business Income, Deductions, and Accounting Methods

A business can deduct the cost of uniforms supplied to employees.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
$15,000.
Unless the services a...
View Answer

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 an explanation for why insurance premiums on a key employee are not deductible?

Correct Answer
verified

Correct Answer
verified
$27,500 = $112,000 − $84,500.
...
View Answer

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

Correct Answer
verified

The full-inclusion method requires cash-basis taxpayers to include prepayments for goods or services into realized income.

Correct Answer
verified

Which of the following expenditures is completely deductible?

Correct Answer
verified

Correct Answer
verified

Dick pays insurance premiums for his employees. What type of insurance premium is not deductible as compensation paid to the employee?

Correct Answer
verified

Shelley is self-employed in Texas and recently attended a two-day business conference in New Jersey. After Shelley attended the conference, she had dinner with an old friend who lived nearby. Shelly documented her expenditures (described below) . What amount can Shelley deduct?

Correct Answer
verified

The 12-month rule allows taxpayers to deduct the entire amount of certain prepaid business expenses.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Only half the cost of a business meal is deductible even if the meal is extravagant.

Correct Answer
verified

A business generally adopts a fiscal or calendar year by using that year-end on the first tax return for the business.

Correct Answer
verified

The all-events test for income determines the period in which income will be recognized for tax purposes.

Correct Answer
verified

Which of the following business expense deductions is most likely to be unreasonable in amount?

Correct Answer
verified

Exam 9: Business Income, Deductions, and Accounting Methods

A business can deduct the cost of uniforms supplied to employees.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answerverified$15,000.Unless the services a...View AnswerShow 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 an explanation for why insurance premiums on a key employee are not deductible?

Correct AnswerverifiedShow Answer

Correct Answerverified$27,500 = $112,000 − $84,500....View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The full-inclusion method requires cash-basis taxpayers to include prepayments for goods or services into realized income.

Correct AnswerverifiedShow Answer

Which of the following expenditures is completely deductible?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Dick pays insurance premiums for his employees. What type of insurance premium is not deductible as compensation paid to the employee?

Correct AnswerverifiedShow Answer

Shelley is self-employed in Texas and recently attended a two-day business conference in New Jersey. After Shelley attended the conference, she had dinner with an old friend who lived nearby. Shelly documented her expenditures (described below) . What amount can Shelley deduct?

Correct AnswerverifiedShow Answer

The 12-month rule allows taxpayers to deduct the entire amount of certain prepaid business expenses.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Only half the cost of a business meal is deductible even if the meal is extravagant.

Correct AnswerverifiedShow Answer

A business generally adopts a fiscal or calendar year by using that year-end on the first tax return for the business.

Correct AnswerverifiedShow Answer

The all-events test for income determines the period in which income will be recognized for tax purposes.

Correct AnswerverifiedShow Answer

Which of the following business expense deductions is most likely to be unreasonable in amount?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified
$15,000.
Unless the services a...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
$27,500 = $112,000 − $84,500.
...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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