FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 9: Business Income, Deductions, and Accounting Methods

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Multiple Choice

Review LaterAdd Note

Review Later

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 of the choices are True.

F) All of the above
G) A) and E)

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

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

A) Selling expenditures
B) Cost of manufacturing labor
C) Compensation of managers who supervise production
D) Cost of raw materials
E) All of the choices are subject to capitalization under the UNICAP rules

F) B) and E)
G) A) and C)

Correct Answer

verified

Show Answer

Question 43

Essay

Review LaterAdd Note

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.

The 12-month rule allows taxpayers to deduct the entire amount of certain prepaid business expenses.

Judy is a self-employed musician who performs for a variety of events. This year Judy was fined $250 by the city for violating the city's noise ordinance with a relatively loud performance. As a consequence, Judy contributed $1,000 to a campaign committee formed to recall the city's mayor. Judy normally hires three part-time employees to help her schedule events and transport equipment. Judy paid a total of $33,000 to her employees through June of this year. In June Judy fired her part-time employees and hired her husband to replace them. However, Judy paid him $55,000 rather than $33,000. Judy is on the cash method and calendar year, and she wants to know what amount of these expenditures is deductible as business expenses.

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?

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

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.

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?

Joe operates a plumbing business that uses the accrual method and reports on a calendar year. This year Joe signed a $50,000 binding contract with Brian. Under the contract Brian will provide Joe with up to 2,000 hours of vehicle repairs at $25 per hour. This year Brian provided 200 hours of repair services and billed Joe for $5,000. At year end Joe had not paid Brian for the services. What amount, if any, can Joe deduct for the repair services this year?

Mike started a calendar year business on September 1ˢᵗ of this year by paying 12 months of rent on his shop at $1,000 per month. What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?

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

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?

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

Ronald is a cash method taxpayer who made the following expenditures this year. Which expenditure is completely deductible in this period as a business expense?

The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary."

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

Although expenses associated with illegal activities are not deductible, political contributions can be deducted as long as the donation is not made to a candidate for public office.

The all-events test for income determines the period in which income will be recognized for tax purposes.

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