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Activity based questions




Question;MULTIPLE CHOICE1.George operates a business that generated adjusted gross;income of $250,000 and taxable income of $170,000 this year (before;the domestic manufacturing 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 manufacturing deduction will George be;eligible to claim this year?;$5,400;$6,300;$7,200;$15,300;$22,500;2.Paris operates a talent agency as a sole proprietorship;and this year she incurred the following expenses in operating her talent;agency. What is the total deductible amount of these expenditures?;$1,000 dinner with a film producer where no business was discussed;$500 lunch with sister Nicky where no business was discussed;$700 business dinner with a client but Paris forgot to keep any;records (oops!);$900 tickets to the opera with a client following a business;meeting;$450;$900;$1,100;$1,200;$800;3.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;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 these.;4.Clyde operates a sole proprietorship using the cash;method. This year, Clyde made the following expenditures;$480 to US Bank for 12 months of interest accruing on a business;loan from September 1st of this year through August 31st of;next year;$600 for 12 months of property insurance beginning on July 1 of;this year.;What is the maximum amount Clyde can deduct this year?;a) $760;b) $600;c) $480;d) $160;e) $360;5.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 these are subject to capitalization under the UNICAP;rules.;6.Which of the following is an explanation for why insurance;premiums on a key employee are not deductible?;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 IRC disallowed;all insurance premiums deductions.;7.This year, Clark leased a car to drive between his office;and various work sites. Clark carefully recorded that he drove the car 23,000;miles this year and paid $7,200 of operating expenses ($2,700 for;gas, oil, and repairs, and $4,500 for lease payments). What amount;of these expenses may Clark deduct as business expenses?;a) $7,200.;b) Clark cannot deduct these costs but he must use the mileage;method to determine any deduction.;c) $4,500.;d) $2,700.;e) Clark is not entitled to any deduction if he used the car for;any personal trips.;8.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 in April of next year. What;amount of these payments, if any, can Ajax deduct this year?;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 year.;9.Ed is a self-employed heart surgeon who has incurred the;following reasonable expenses.;$1,000 in air fare 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.;How much can Ed deduct?;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 these.;10.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?;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.;11.Which of the following is a true statement about;accounting for business activities?;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 these is true.;12.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 taxpayer's business premises.;e) None of these is a condition for a deduction.;13.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?;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 year;14.Colbert operates a catering service on the accrual method.;In November of year 1, Colbert received a payment of $9,000 for 18 months;of catering services to be rendered from December 1st of year 1;through May 31st year 3. When must Colbert recognize the income if his;accounting methods are selected to minimize income recognition?;a) $500 is recognized in year 1, $6,000 in year 2, and $2,500 in;year 3.;b) $500 is recognized in year 1 and $8,500 in year 2.;c) $9,000 is recognized in year 3.;d) $2,500 is recognized in year 1 and $6,500 in year 2.;e) $9,000 is recognized in year 1.;15.Shelley is employed in Texas and recently attended a;two-day business conference in New Jersey. Shelley spent the entire time at the;conference and documented her expenditures (described below). What;amount can Shelley deduct as an employee business expense?;Airfare to NJ $2,000;Meals 220;Lodging in NJ 450;Rental Car 180;a) $2,850.;b) $2,740.;c) $1,850 if Shelley's AGI is $50,000.;d) All of these are deductible if Shelley is reimbursed under an;accountable plan.;e) None of the expenses are deductible - only employers can deduct;travel expenses.;16.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;17.Individual proprietors report their business income and;deductions on;a) Form 1065;b) Form 1120S;c) Schedule C;d) Schedule A;e) Form 1041;18.Mike started a calendar year business on September 1st of;this year by paying 12 months' 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?;a) $12,000 under the cash method and $12,000 under the accrual;method;b)$4,000 under the cash method and $12,000 under the accrual;method;c)$12,000 under the cash method and $4,000 under the accrual;method;d)$4,000 under the cash method and $4,000 under the accrual method;e)$4,000 under the cash method and zero under the accrual method;19.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?;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.;20.Which of the following is a true statement about the;domestic manufacturing deduction?;a) This deduction is determined by the amount of goods;manufactured in the United States for export abroad.;b) The deduction is calculated as a percentage of the cost of;goods manufactured in the United States.;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 of these are true.;21.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 these is true.;22.The IRS would most likely apply the arm's length;transaction test to determine which of the following?;a) whether an expenditure is related to a business activity;b) whether an expenditure will be likely to produce income;c) timeliness of an expenditure;d) reasonableness of an expenditure;e) All of these;23.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?;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.;24.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?;a) $4,000 for rent on his office that covers the next 24 months.;b) $3,000 for a new watch for the mayor to keep "good;relations" with city hall.;c) $2,500 for professional hockey tickets distributed to a;customer to generate "goodwill" for his business.;d) $55 to collect an account receivable from a customer who has;failed to pay for services rendered.;e) None of these is completely deductible.;25.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 of these.


Paper#44977 | Written in 18-Jul-2015

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