Question 1

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 theseF) A) and B)
G) A) and C)

Question 2

Crystal operates a business that provides typing and delivery services. This year Crystal spent $2,500 to purchase special shirts that identify her employees and provide some notoriety for her business. The shirts are especially colorful and include logos on the front pocket and back. Besides salary payments, Crystal also compensates her employees by offering to pay whole life insurance premiums for any that want to provide insurance coverage for their beneficiaries. This year Crystal paid $5,000 in life insurance premiums. What amount of these payments can Crystal deduct? Crystal is on the cash method and calendar year.

Accepted Answer

The answer of Crystal operates a business that provides typing...

Question 3

In order to deduct a portion of the cost of a business meal which of the following conditions must be met?

Accepted Answer

A)   A client (not a supplier or vendor)  must be present at the meal.
B)   The taxpayer or an employee must be present at the meal.
C)   The meal must occur on the taxpayer's business premises.
D)   None of these is a condition for a deduction.
E)   All of these are conditions for a deduction.F) A) and E)
G) A) and D)

Question 4

Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

Accepted Answer

A)   Spouse when the taxpayer is an individual.
B)   A partner when the taxpayer is a partnership.
C)   Brother when the taxpayer is an individual.
D)   A minority shareholder when the taxpayer is a corporation.
E)   All of these are related parties.F) C) and D)
G) A) and B)

Question 5

Ajax Computer Company is an accrual method calendar year taxpayer. Ajax has never advertised in the national media prior to this year. In November of this year, however, Ajax paid $1 million for television advertising time during a "super" sporting event scheduled to take place in early February of next year. In addition, in November of this year the company paid $500,000 for advertising time during a professional golf tournament in April of next year. What amount of these payments, if any, can Ajax deduct this year?

Accepted Answer

A)   $1 million
B)   $500,000
C)   $1.5 million
D)   $1.5 million only if the professional golf tournament is played before April 15.
E)   No deduction can be claimed this year.F) A) and B)
G) A) and C)

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

Ed is a self-employed heart surgeon who 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.

Accepted Answer

A)   $1,300 "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 these.F) C) and D)
G) B) and C)

Question 8

Sandy Bottoms Corporation generated taxable income (before the domestic manufacturing deduction) of $3 million this year. The total income included $2,350,000 of qualified production activities income. The company paid $460,000 in W-2 wages to generate the qualified production activity income. What is Sandy Bottom's domestic manufacturing deduction for the year?

Accepted Answer

$211,500 =...

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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)   $800F) A) and D)
G) A) and E)

Question 11

Manley operates a law practice on the accrual method and calendar year. At the beginning of the year Manley's firm had an allowance for doubtful accounts with a balance of $15,000. At the end of the year, Manley recorded bad debt expense of $23,000 and the balance of doubtful accounts had increased to $18,000. What is Manley's deduction for bad debt expense this year?

Accepted Answer

A)   $23,000
B)   $3,000
C)   $26,000
D)   $5,000
E)   $20,000F) A) and B)
G) B) and C)

Question 12

Shadow Services uses the accrual method and reports on a calendar year. This year Shadow agreed to a uniform cleaning contract with Odie Cleaning. Under the contract Odie bills Shadow for cleaning services as the services are provided. At year end Shadow paid Odie $2,350 for the services rendered during the year. In addition, Shadow paid Odie $700 for cleaning services expected in January of next year. What amount, if any, can Shadow deduct for the cleaning services this year?

Accepted Answer

The answer of Shadow Services uses the accrual method and...

Question 13

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 entertaining a former client when there is no possibility of any future benefits from a relation with that client.
D)   All of these are likely to be unreasonable in amount.
E)   None of these is likely to be unreasonable in amount.F) B) and C)
G) A) and C)

Question 14

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

Question 15

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

The answer of Bryon operates a consulting business and he...

Question 16

Which of the following is a true statement?

Accepted Answer

A)   Meals are never deductible as a business expense.
B)   An employer can only deduct half of any meals provided to employees.
C)   The cost of business meals must be reasonable.
D)   A taxpayer can only deduct a meal for a client if business is discussed during the meal.
E)   None of these is true.F) A) and B)
G) C) and E)

Question 17

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 18

After a business meeting with a prospective client Holly took the client to dinner and the theatre. Holly paid $290 for the meal and $250 for the theatre tickets, amounts that were reasonable under the circumstances. What amount of these expenditures can Holly deduct as a business expense?

Accepted Answer

A)   $540
B)   $415
C)   $270
D)   None unless Holly discussed business with the client during the meal and the entertainment.
E)   None - the meals and entertainment are not deductible except during travel.F) None of the above
G) A) and E)

Question 19

When does the all-events test under the accrual method require the recognition of income from the sale of goods?

Accepted Answer

A)   when the title of the goods passes to the buyer.
B)   when the business receives payment.
C)   when payment is due from the buyer.
D)   the earliest of these three dates.
E)   None of these.F) A) and E)
G) A) and C)

Question 20

Which of the following cannot be selected as a valid tax year end?

Accepted Answer

A)   December 31st
B)   January 31st
C)   The last Friday of the last week of June.
D)   December 15th
E)   A tax year can end on any of these days.F) A) and B)
G) None of the above

Exam 8: Business Income, Deductions, and Accounting Methods

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

Correct Answer
verified

Which of the following is a true statement?

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.

Correct Answer
verified

Correct Answer
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In order to deduct a portion of the cost of a business meal which of the following conditions must be met?

Correct Answer
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Correct Answer
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Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

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

Correct Answer
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When does the all-events test under the accrual method require the recognition of income from the sale of goods?

Correct Answer
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Which of the following cannot be selected as a valid tax year end?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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$211,500 =...
View Answer

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

Correct Answer
verified

After a business meeting with a prospective client Holly took the client to dinner and the theatre. Holly paid $290 for the meal and $250 for the theatre tickets, amounts that were reasonable under the circumstances. What amount of these expenditures can Holly deduct as a business expense?

Correct Answer
verified

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

Correct Answer
verified

Exam 8: Business Income, Deductions, and Accounting Methods

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

Which of the following is a true statement?

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In order to deduct a portion of the cost of a business meal which of the following conditions must be met?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When does the all-events test under the accrual method require the recognition of income from the sale of goods?

Correct AnswerverifiedShow Answer

Which of the following cannot be selected as a valid tax year end?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answerverified$211,500 =...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

After a business meeting with a prospective client Holly took the client to dinner and the theatre. Holly paid $290 for the meal and $250 for the theatre tickets, amounts that were reasonable under the circumstances. What amount of these expenditures can Holly deduct as a business expense?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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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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
verified
$211,500 =...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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