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Question;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.;26.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.

 

Paper#44983 | Written in 18-Jul-2015

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