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Question;MULTIPLE CHOICE26.Dick pays insurance premiums for his employees. What type;of insurance premium is not deductible as compensation paid to the;employee?;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 these are deductible by Dick.;27.Which of the following cannot be selected as a valid tax;year end?;a) December 31st;b) January 31st;c) The last Friday of the last week of June;d) December 15th;e) A tax year can end on any of these days.;28.Joe is a self employed electrician who operates his;business on the accrual method. This year, Joe purchased a shop for his;business and 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.;Which of the following is a true statement?;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 these are true.;29.Bill operates a proprietorship using the cash method of;accounting, and this year he received the following payments;? $100 in cash from a customer for services rendered this year;? a promise to pay $200 from a customer for services rendered this;year;? tickets to a football game worth $250 as payment for services;performed last year;? a check for $170 for services rendered this year that Bill;forgot to cash;How much income should Bill realize on Schedule C?;a) $100;b) $300;c) $350;d) $270;e) $520;30.Which of the following is a true statement about a request;for a change in accounting method?;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.;31.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) $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.;32.Which of the following business expense deductions is most;likely to be unreasonable in amount?;a) Compensation paid to the taxpayer's spouse in excess of salary;payments to other employees.;b) Amounts paid to a subsidiary corporation for services where the;amount is in excess of the cost of comparable services by;competing corporations.;c) Cost of entertaining a former client when there is no;possibility of any future benefits from a relation with that client.;d) None of these is likely to be unreasonable in amount.;e) Compensation paid to the taxpayer's spouse in excess of salary;payments to other employees, amounts paid to a subsidiary;corporation for services where the amount is in excess of the cost;of comparable services by competing corporations, and cost of;entertaining a former client when there is no possibility of any;future benefits from a relation with that client are all likely to be;considered unreasonable in amount.;33.The domestic manufacturing deduction is a deduction for;the incremental cost of manufacturing tangible assets in the United;States.;? True;? False;34.Reasonable in amount means that expenditures can be;exorbitant as long as the activity is motivated by profit.;True;False;35.All taxpayers must account for taxable income using a;calendar year.;? True;? False;36.The full-inclusion method requires cash basis taxpayers to;include prepayments for goods or services into realized income.;True;False;37.The phase "ordinary and necessary" has been;defined to mean that an expense must be essential and indispensable to the;conduct;of a business.;True;False;38.Illegal bribes and kickbacks are not deductible as;business expenses, but this prohibition does not include fines incurred in the;ordinary course of business.;? True;? False;39.Qualified production activity income for calculating the;domestic manufacturing deduction is limited to taxable income for a;business or modified AGI for an individual.;True;False;40.A business generally adopts a fiscal or calendar year by;using that year end on the first tax return for the business.;True;False;41.The domestic manufacturing deduction cannot exceed 50;percent of the wages paid to employees engaged in domestic;manufacturing activities during the year.;True;False;42.Only half the cost of a business meal is deductible even;if the meal is associated with the active conduct of business.;True;False;43.A fiscal tax year can end on the last day of any month;other than December.;True;False;44.Uniform capitalization of indirect inventory costs is;required for most large taxpayers.;True;False;45.The test for whether an expenditure is reasonable in;amount is whether the expenditure was for an "arm's length" amount.;True;False;46.The Internal Revenue Code authorizes deductions for trade;or business activities if the expenditure is "ordinary and;necessary".;? True;? False;47.Sole proprietorships must use the same tax year as the;proprietor of the business.;True;False;48.The all-events test for income determines the period in;which income will be recognized for tax purposes.;True;False;49.The 12-month rule allows taxpayers to deduct the entire;amount of certain prepaid business expenses.;True;False;50.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.;True;False;51.Business activities are distinguished from personal;activities in that business activities are motivated by the pursuit of profits.;True;False;52.Employees cannot deduct the cost of uniforms if the;uniforms are also appropriate for normal wear.;True;False;53.The Internal Revenue Code authorizes deductions for trade;or business activities if the expenditure is "ordinary and;necessary".;True;False;54.The domestic manufacturing deduction cannot exceed 50;percent of the wages paid to employees engaged in domestic;manufacturing activities during the year.;? True;? False

 

Paper#44978 | Written in 18-Jul-2015

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