Actg Tax Ch. 8

Front 1

Individual proprietors report their business income and deductions on

A. Form 1065
B. Form 1120S
C. Schedule C
D. Shceudle A
E. Form 1041

Back 1

C. Schedule C

Front 2

According to the internal revenue code 162 deductible business expenses must be one of the following:

A. incurred for the production of investment income
B. ordinary and necessary
C. minimized
D. appropriate and measurable
E. personal and justifiable

Back 2

B. ordinary and necessary

Front 3

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

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 infringement

Back 3

C. cost of a greenhouse

Front 4

The IRS would most likely apply the arms length transaction text to determine which of the following?

A. whether an expenditure is related to a business activity
B. wherter an expenditure will be likely to product income
C.timeliness of an expenditure
D. reasonableness of an expenditure
E. All of the above

Back 4

D

Front 5

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

A. Compensation paid to the taxpayers souse in excess of salary paymments to other employees.
B. Amounts paid to a subsidiary corporation for service where the amount is in excess of the cost of comparable services by competing corporations
C. Cost of entertaining a from client when there is no possibility of any future
None of the above is likely to be unreasonalbe in amount
E. A, B, and C are all likely to be considered unseasonable in amount.

Back 5

E

Front 6

Which of the following is a true statement

A. Interest expense is not deductible if the loan is used to purchase municipal bonds.
B. Insurance premiums are not deductible if paid for "key man" life insurance
C. One half of the cost of buiness meals is not deductible
D. All of the above are true.
E None of the above is true.

Back 6

D

Front 7

Which of the following expenditures is most liekly to be dueductible for a construction business?

A. A fine for a zoning violation
B. A tax underpayment penalty
C. An under the table payment to a government rep to obtain a better price for raw materials
D. a payment to a foreign offical to expedite an apllicattion ofr a business permit
E. An arms length payment to a related party for emergency repairs of a sewage line.

Back 7

E

Front 8

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

A. the insurance deducation would offset taxable income without the potential for the proceeds generating taxable income.
B. The federal govermnement does not wan 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 form a time when the IRC disalowed all insurance premiums deductions .

Back 8

A

Front 9

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

A. Health insurance with benefits payable to the employee
B. Whole life insurance whith benefits payable to the employee dependents
C. Group trm life insurance with benefits payable to the employee dependents
D. Key man life insurance with benefits payable to Dick
E. All

Back 9

D.

Front 10

Which of the following is a true statement?

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

Back 10

C.

Front 11

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

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 total cost must be extravagant.
D. The meal must occur on the taxpayers business premises
E. None

Back 11

B

Front 12

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

A. Salaries in excess of the industry average paid to attract talented employees.
B. The cost of employee unifirms 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

Back 12

A

Front 13

Which of the following is a true statement?

A. Meal, 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 cost of travel are deductible.
D. If travel has both business and personal aspects the cost of transportation is always deductible but the dedutiblity of lodging depends upon whether business is conducted that day

Back 13

A

Front 14

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

A. Transporation costs are always fully deductibel
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 theose incurred during the business portion of the travel

Back 14

D

Front 15

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 is not deductible in any amount?

A. 1
B. 2
C. 3
D. 4
E. None

Back 15

D.

Front 16

Which of the following expenses are completely deductible

A. 1,000 spent on compensating your brother for a personal expense
B. $50 spent on meals while traveling on business.
C. $2000 spent by the employer on reimbursing an employee for entertainment
D. All
E. None

Back 16

E.

Front 17

Which of the following is true statement about the domestic manufacturing deduction?

A. This deduction is determined by the amount of goods manufactured in the US for export abroad.
B. The deduction is caluclated as percentage of the cost of goods manufacture in the US
C. This deduction represents a subsidy to taxpayers who manufacture or construct goods in the united states.
D. The domestic manufacturing deduction is not affected by the cost of labor.
E. All

Back 17

C.

Front 18

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

A. net income from selling or leasing property the taxpayer manufctured in the US
B. revenue from selling or leasing property the taxpayer manufactured in the US
C. Revenue from selling or leasing property the taxpayer manufctured in the US but the revneue was less that 50 percent of qualifying wages used in the production.
D. 6% of revenue from selling or leasing property that taxpayer manufactured in the US
E. None

Back 18

A

Front 19

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

A. Dec 31
B Jan 31
C. The last friday of the last week of June
D. Dec 15
E. A tax year can end on any of these days

Back 19

D.

Front 20

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

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

Back 20

D.

Front 21

Beth operates a plumbing firm. In august of last year she signed a contract to provide plumbing services for a renovation. Beth began the work that August and finished the work in Dec of last year. However, Beth didnt bill the client until Jan of this year and she didnt receive the payment until March when she received payment in full. When should Beth recognize income under the accrual method of accounting?

A. In august of last year
B. IN Dec of last year
C. In Jan of this year
D. In March of this year
E. In April of this year

Back 21

B

Front 22

Which of the follwoing types of transactions may not typically be accounted for using the cahs method

A. sales of inventory
B. services
C. purcheases of machinery
D. payments of debt
E. sales of sec by an investor

Back 22

A

Front 23

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

A. selling expenditrues
B. cost of manufcauring labor
C. Compensation of managers who supervise production
D. cost of raw materials
E. All

Back 23

A

Front 24

Which of the following is payment liability

A. Tort claims
B. Refunds
C. Insurance premiums
D. Real estate taxes
E. All of the above

Back 24

E

Front 25

Joe is a self employed electrician who operates his business on the accrual method. This year Joe purhcases a shop for his business and at year end he received a bill for 4500 of prop taxes on his ship. Joe didnt pay the taxes until after year end. Which of the following is true statement?

A. If he elects to treat the taxes as a recurring item, Joe can accrue and deduct 4500 of taxes on the shop this year.
B. THe taxes are a payment liability
C. The taxes would not be deductible if Joes business was on the cash method.
D. Unless Joe makes an election, the taxes are not deductible this year.
E. All

Back 25

E

Front 26

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

A. Spouse when the taxpayer is an individual
B. A partner when the taxpayer is a paternship
C. Brother when the taxpayer is an individual
D. A minority shareholder when the taxpayer is a corporation
E. All

Back 26

D

Front 27

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

A. An overall accounitng 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

Back 27

B

Front 28

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

A. an impermissible method is adopted by using the method to report results for two consective years.
B. an impermissible method may never be used 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

Back 28

A

Front 29

Which of the following is true statement about a request for a change in accounting method?

A. Some requests are automatically granted
B. Most request require the permission of the commissioner
C. Many request require payment of a fee and a good business purpose for the change.
D. Form 3115 is required to be filed with a rquest for change in accounting method.
E. All

Back 29

E