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| 1 | |
Reasonable in amount means that expenditures cannot be exorbitant even if the amount is motivated by profit. |
| | A) | True |
| | B) | False |
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| 2 | |
Expenses associated with illegal activities are not deductible but speeding fines can be deducted as long as the speeding was motivated by profit. |
| | A) | True |
| | B) | False |
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| 3 | |
Only half the cost of a business meal is deductible unless the meal is associated with the active conduct of rent/royalty business. |
| | A) | True |
| | B) | False |
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| 4 | |
The domestic manufacturing deduction cannot exceed 50 percent of the wages paid to employees engaged in domestic manufacturing activities during the year. |
| | A) | True |
| | B) | False |
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| 5 | |
A short year can end on the last day of any month. |
| | A) | True |
| | B) | False |
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| 6 | |
The "all-events" test for income determines the amount of income will be excluded tax purposes. |
| | A) | True |
| | B) | False |
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| 7 | |
The full-inclusion method requires accrual method taxpayers to include prepayments for goods or services into realized income. |
| | A) | True |
| | B) | False |
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| 8 | |
The arm's length transaction test would most likely not apply to which of the following? |
| | A) | whether expenditure is related to a personal activity |
| | B) | whether a specific activity is profit motivated |
| | C) | whether an expenditure should be deducted in a later period |
| | D) | reasonableness of an expenditure |
| | E) | All of the above |
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| 9 | |
Which of the following is a true statement? |
| | A) | The cost of business entertainment must be reasonable in amount. |
| | B) | An employer can only deduct half of any meals provided to employees. |
| | C) | Meals are always fully deductible as a business expense. |
| | D) | A taxpayer can only deduct the full cost of a meal for a client if business is discussed after the meal. |
| | E) | None of the above is true. |
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| 10 | |
Which of the following is a true statement? |
| | A) | The cost of transportation is always deductible for travel that has both business and personal aspects. |
| | B) | Employees can deduct the cost of meals when they must work during the lunch hour. |
| | C) | Half of the costs of travel are deductible for employees who travel on business. |
| | D) | The cost of lodging is deductible if the taxpayer is away from home overnight on business. |
| | E) | None of the above is true. |
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| 11 | |
Drake operates a trucking business, and one of his trucks was damaged in a traffic accident. The truck was purchased for $52,000 and the adjusted basis was $22,000 at the time of the accident. The truck was repaired at a cost of $5,000 and insurance reimbursed Drake $2,000 of this cost. What is the amount of Drake's casualty loss deduction? |
| | A) | $22,000 |
| | B) | $5,000 |
| | C) | $3,000 |
| | D) | $2,000 |
| | E) | Drake is not eligible for a casualty loss deduction. |
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| 12 | |
Which of the following cannot be selected as a valid tax year end? |
| | A) | December 15th |
| | B) | January 31st |
| | C) | The last Friday of the last week of June |
| | D) | December 31st |
| | E) | A tax year cannot end on any of these days. |
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| 13 | |
Charles operates a sole proprietorship using the cash method. This year Charles paid $6,400 to the bank for 12 months of interest accruing on a business loan from July 1st of this year through June 30 of next year and $6,000 for 12 months of property insurance beginning on July 1st of this year. What is the maximum amount Charles can deduct this year? |
| | A) | $12,400 |
| | B) | $9,200 |
| | C) | $6,400 |
| | D) | $6,000 |
| | E) | $6,200 |
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| 14 | |
Steven operates a landscaping service on the accrual method. In September of this year Steven received a payment of $18,000 for 24 months of landscape services ($750 per month commencing on November 1st of this year). When must Steven recognize the income if his accounting methods are selected to minimize income recognition? |
| | A) | $1,500 is recognized in this year, $16,500 next year. |
| | B) | $1,500 is recognized this year, $9,000 next year, and $7,500 in the last year of the contract. |
| | C) | $18,000 is recognized this year. |
| | D) | $9,000 is recognized this year and $9,000 next year. |
| | E) | $18,000 is recognized in the last year of the contract. |
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| 15 | |
Which of the following is not a payment liability? |
| | A) | Tort claims |
| | B) | Accrued compensation |
| | C) | Insurance premiums |
| | D) | Real estate taxes |
| | E) | All of the above |
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