Question 1

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

Accepted Answer

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

Question 2

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) None of the above
G) B) and E)

Question 3

Reasonable in amount means that expenditures can be exorbitant as long as the activity is motivated by profit.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Gabby operates a pizza delivery service. This year she paid delivery personnel $18,000 in salary. She carefully documented the use of the auto (11,700 miles this year) and her $7,350 of vehicle expenses (for gas, oil, repairs, and auto lease payments). What amount of these expenses may Gabby deduct as business expenses? Gabby is on the cash method and calendar year.

Accepted Answer

The answer of Gabby operates a pizza delivery service. This...

Question 6

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) B) and E)
G) B) and C)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)   selling expenditures
B)   cost of manufacturing labor
C)   compensation of managers who supervise production
D)   cost of raw materials
E)   All of these are subject to capitalization under the UNICAP rules.F) C) and E)
G) All of the above

Question 9

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

Accepted Answer

A) True 
 B)False

Question 10

Riley operates a plumbing business and this year the 3-year old van he used in the business was destroyed in a traffic accident. The van was originally purchased for $20,000 and the adjusted basis was $5,800 at the time of the accident. Although the van was worth $6,000 at the time of accident, insurance only paid Riley $1,200 for the loss. What is the amount of Riley's casualty loss deduction?

Accepted Answer

A)   $6,000
B)   $14,000
C)   $5,800
D)   $4,600
E)   $5,300F) A) and B)
G) C) and D)

Question 11

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 are true.
E)   None of these is true.F) D) and E)
G) A) and D)

Question 12

Danny owns an electronics outlet in Dallas. This year he paid $600 to register for a four-day course in management in Chicago. Danny paid $800 in airfare and $1,000 for five nights lodging. After the course, Danny spent the last day sightseeing. During the trip, Danny also paid $140 a day for meals, and $80 a day for a rental car. What amount of these travel-related expenditures may Danny deduct as business expenses?

Accepted Answer

$2,800 = $600 + $800...

Question 13

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) A) and C)
G) A) and E)

Question 14

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 15

The domestic production activities deduction cannot exceed 50 percent of the wages paid to employees engaged in domestic manufacturing activities during the year.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is a payment liability?

Accepted Answer

A)   Tort claims
B)   Refunds
C)   Insurance premiums
D)   Real estate taxes
E)   All of theseF) A) and C)
G) A) and B)

Question 17

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? 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 these.F) All of the above
G) A) and C)

Question 18

Big Homes Corporation is an accrual method calendar year taxpayer that manufactures and sells modular homes. This year for the first time Big Homes was forced to offer a rebate on the purchase of new homes. At year end, Big Homes had paid $12,000 in rebates and was liable for an additional $7,500 in rebates to buyers. What amount of the rebates, if any, can Big Homes deduct this year?

Accepted Answer

A)   $12,000 because rebates are payment liabilities.
B)   $19,500 because Big Homes is an accrual method taxpayer.
C)   $19,500 if this amount is not material, Big Homes expects to continue the practice of offering rebates in future years, and Big Homes expects to pay the accrued rebates before filing their tax return for this year.
D)   $12,000 because the $7,500 liability is not fixed and determinable.
E)   Big Homes is not entitled to a deduction because rebates are against public policy.F) A) and C)
G) C) and E)

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

Exam 8: Business Income, Deductions, and Accounting Methods

Reasonable in amount means that expenditures can be exorbitant as long as the activity is motivated by profit.

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

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

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

Correct Answer
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Which of the following is a true statement?

Correct Answer
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Correct Answer
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Which of the following expenses are completely deductible?

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

Correct Answer
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Which of the following is a payment liability?

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

Correct Answer
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Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?

Correct Answer
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The domestic production activities deduction cannot exceed 50 percent of the wages paid to employees engaged in domestic manufacturing activities during the year.

Correct Answer
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The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

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

Correct Answer
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Correct Answer
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$2,800 = $600 + $800...
View Answer

Exam 8: Business Income, Deductions, and Accounting Methods

Reasonable in amount means that expenditures can be exorbitant as long as the activity is motivated by profit.

Correct AnswerverifiedShow Answer

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

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

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

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

Correct AnswerverifiedShow Answer

Which of the following is a true statement?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following expenses are completely deductible?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is a payment liability?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The domestic production activities deduction cannot exceed 50 percent of the wages paid to employees engaged in domestic manufacturing activities during the year.

Correct AnswerverifiedShow Answer

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answerverified$2,800 = $600 + $800...View AnswerShow Answer

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Correct Answer
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Correct Answer
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Correct Answer
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$2,800 = $600 + $800...
View Answer