Question 1

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

Question 2

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 choices is a condition for the deduction.
E)  All of the choices are conditions for a deduction.F) A) and E)
G) B) and C)

Question 3

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 the choices are correct.F) D) and E)
G) B) and E)

Question 4

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 the choices are true.F) B) and C)
G) A) and E)

Question 5

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 the choices are deductible by Dick.F) A) and B)
G) All of the above

Question 6

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 7

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 the choices are true.F) A) and E)
G) A) and C)

Question 8

Which of the following is a true statement?

Accepted Answer

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 business meals is not deductible.
D)  All of these choices are true.
E)  None of the choices are true.F) A) and B)
G) B) and E)

Question 9

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 December of last year.However,Beth didn't bill the client until January of this year and she didn't receive the payment until March when she received payment in full.When should Beth recognize income under the accrual method of accounting?

Accepted Answer

A)  In August of last year
B)  In December of last year
C)  In January of this year
D)  In March of this year
E)  In April of this yearF) A) and E)
G) None of the above

Question 10

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 11

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 which will occur once 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 yearF) B) and C)
G) A) and E)

Question 12

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 13

Individual proprietors report their business income and deductions on:

Accepted Answer

A)  Form 1065.
B)  Form 1120S.
C)  Schedule C.
D)  Schedule A.
E)  Form 1041.F) B) and D)
G) B) and C)

Question 14

Ralph borrowed $4 million and used the proceeds in his internet business.The interest on this debt is not subject to an interest limitation if Ralph's business has average annual gross receipts of $25 million or less for the prior three taxable years.

Accepted Answer

A) True 
 B)False

Question 15

Todd operates a business using the cash basis of accounting.At the end of last year,Todd was granted permission to switch his sales on account to the accrual method.Last year Todd made $420,000 of sales on account and $64,000 was uncollected at the end of the year.What is Todd's §481 adjustment for this year?

Accepted Answer

A)  Increase income by $420,000
B)  Increase income by $16,000
C)  Increase expenses by $64,000
D)  Increase expenses by $420,000
E)  Todd has no §481 adjustment this year.F) A) and B)
G) A) and C)

Question 16

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,and 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) B) and E)

Question 17

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.F) A) and B)
G) B) and E)

Question 18

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 the choices are true.F) A) and B)
G) A) and C)

Question 19

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 performance occ...

Question 20

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

Exam 8: Business Income, deductions, and Accounting Methods

Individual proprietors report their business income and deductions on:

Correct Answer
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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
verified

Ralph borrowed $4 million and used the proceeds in his internet business.The interest on this debt is not subject to an interest limitation if Ralph's business has average annual gross receipts of $25 million or less for the prior three taxable years.

Correct Answer
verified

Which of the following is a true statement?

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
verified

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

Correct Answer
verified

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

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

Correct Answer
verified

Which of the following is a true statement?

Correct Answer
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Correct Answer
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$15,000 Unless performance occ...
View Answer

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

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

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 is a true statement about accounting for business activities?

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

Correct Answer
verified

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

Exam 8: Business Income, deductions, and Accounting Methods

Individual proprietors report their business income and deductions on:

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

Ralph borrowed $4 million and used the proceeds in his internet business.The interest on this debt is not subject to an interest limitation if Ralph's business has average annual gross receipts of $25 million or less for the prior three taxable years.

Correct AnswerverifiedShow Answer

Which of the following is a true statement?

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

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

Correct AnswerverifiedShow Answer

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

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 is a true statement?

Correct AnswerverifiedShow Answer

Correct Answerverified$15,000 Unless performance occ...View AnswerShow Answer

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

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

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 is a true statement about accounting for business activities?

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

Correct AnswerverifiedShow Answer

Correct Answerverified$1,440 = $840 interest ($120 × 7 months ...View AnswerShow 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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$15,000 Unless performance occ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

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