Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 man life insurance with benefits payable to Dick.
E)   All of these are deductible by Dick.F) C) and D)
G) A) and E)

Question 3

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.
The correct answer is _________.

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

Question 4

When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the taxpayer on the debt will not be deductible.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 C)
G) A) and B)

Question 7

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) B) and D)
G) B) and C)

Question 8

George operates a business that generated adjusted gross income of $250,000 and taxable income of $170,000 this year (before the domestic production activities deduction) . Included in income was $70,000 of qualified production activities income. George paid $60,000 of wages to employees engaged in domestic manufacturing. What domestic production activities deduction will George be eligible to claim this year?

Accepted Answer

A)   $5,400
B)   $6,300
C)   $7,200
D)   $15,300
E)   $22,500F) A) and E)
G) B) and E)

Question 9

Joe is a self-employed electrician who operates his business on the accrual method. This year Joe purchased a shop for his business, and for the first time at year end he received a bill for $4,500 of property taxes on his shop. Joe didn't pay the taxes until after year end but prior to filing his tax return. Which of the following is a true statement?

Accepted Answer

A)   If he elects to treat the taxes as a recurring item, Joe can accrue and deduct $4,500 of taxes on the shop this year.
B)   The taxes are a payment liability.
C)   The taxes would not be deductible if Joe's business was on the cash method.
D)   Unless Joe makes an election, the taxes are not deductible this year.
E)   All of these are true.F) A) and B)
G) C) and D)

Question 10

Anne is a self-employed electrician who reports her business income using the accrual method over a calendar year. On September 1st of this year Anne paid $2,280 of interest on a loan. The interest accrues evenly over 19 months ($120 per month) from June 1st of this year through December 31st of next year. In addition, on September 1st Anne also paid $2,700 for 18 months of professional liability insurance ($150 per month). What amount of interest and insurance can Anne deduct this year?

Accepted Answer

$1,440 = $840 interest ($120 × 7 months ...

Question 11

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 12

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) All of the above
G) A) and B)

Question 13

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

Question 14

Qualified production activities income is defined as follows for purposes of the domestic production activities deduction

Accepted Answer

A)   net income from selling or leasing property the taxpayer manufactured in the United States.
B)   revenue from selling or leasing property the taxpayer manufactured in the United States.
C)   revenue from selling or leasing property the taxpayer manufactured in the United States but the revenue was less that 50 percent of qualifying wages used in the production.
D)   6 percent of revenue from selling or leasing property the taxpayer manufactured in the United States.
E)   None of theseF) A) and B)
G) B) and E)

Question 15

Which of the following expenses are 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) C) and E)
G) None of the above

Question 16

Which of the following is a true statement?

Accepted Answer

A)   Meals, lodging, and incidental expenditures are only deductible if the taxpayer is away from home overnight while traveling.
B)   Meals are deductible for an employee who is forced to work during the lunch hour.
C)   When a taxpayer travels solely for business purposes, only half of the costs of travel are deductible.
D)   If travel has both business and personal aspects, the cost of transportation is always deductible but the deductibility of lodging depends upon whether business is conducted that day.
E)   None of these is true.F) A) and B)
G) None of the above

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 these is likely to be deductible.F) B) and D)
G) B) and E)

Question 18

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

Accepted Answer

A)   The insurance deduction 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) B) and C)

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 the above three dates.
E)   None of these.F) C) and E)
G) A) and E)

Exam 9: Business Income, Deductions, and Accounting Methods

When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the taxpayer on the debt will not be deductible.

Correct Answer
verified

Qualified production activities income is defined as follows for purposes of the domestic production activities deduction

Correct Answer
verified

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

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

Correct Answer
verified

Which of the following expenses are completely deductible?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

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 is a true statement?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
$1,440 = $840 interest ($120 × 7 months ...
View Answer

Correct Answer
verified

Exam 9: Business Income, Deductions, and Accounting Methods

When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the taxpayer on the debt will not be deductible.

Correct AnswerverifiedShow Answer

Qualified production activities income is defined as follows for purposes of the domestic production activities deduction

Correct AnswerverifiedShow Answer

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

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

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

Which of the following expenses are completely deductible?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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

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 is a true statement?

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answerverified$1,440 = $840 interest ($120 × 7 months ...View AnswerShow Answer

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
verified

Correct Answer
verified

Correct Answer
verified
$1,440 = $840 interest ($120 × 7 months ...
View Answer

Correct Answer
verified