Question 1

Match each statement with the correct term below.
-All-events Test

Accepted Answer

A) Specifically disallowed. 
B) Appropriate and helpful. 
C) Considered a trade or business. 
D) Not considered a trade or business. 
E) Problems with this generally arise with related parties.
F)This is met when services or property are provided to the taxpayer.
G)Normal,common,and accepted but not necessarily regularly recurring.
H)This is met when the existence and the amount of a liability have been established. 
A) Specifically disallowed. 
B) Appropriate and helpful. 
C) Considered a trade or business. 
D) Not considered a trade or business. 
E) Problems with this generally arise with related parties.
F)This is met when services or property are provided to the taxpayer.
G)Normal,common,and accepted but not necessarily regularly recurring.
H)This is met when the existence and the amount of a liability have been established.

Question 2

Match the proper deduction method with the correct expenditures.
-Investment expenditures related to earning interest from municipal bonds

Accepted Answer

A) Capitalized and amortized over a number of accounting periods 
B) Expensed in the period incurred 
C) Not deductible 
D) Can be capitalized and amortized or deductible depending on the amount of the expenditure 
A) Capitalized and amortized over a number of accounting periods 
B) Expensed in the period incurred 
C) Not deductible 
D) Can be capitalized and amortized or deductible depending on the amount of the expenditure

Question 3

Which of the following expenditures are not deductible because they are personal in nature?
I.Legal costs to acquire a personal residence.
II.Losses resulting from the sale of personal residences.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 4

Jennifer pays the following expenses for her dependent 30-year old daughter while the daughter was ill during the current year:
​
 
How much of the above expenditures may Jennifer use in computing her itemized deductions?

Accepted Answer

A) $- 0 - 
B) $6,000 
C) $9,000 
D) $14,800 
E) $17,000 
A) $- 0 - 
B) $6,000 
C) $9,000 
D) $14,800 
E) $17,000

Question 5

Using the tests for deductibility discussed in Chapter 5,explain why the following expenses may not be fully deductible in the current year.
a.Antonio is the owner of a restaurant.His business has been growing,and Antonio determines that he needed to add more seating capacity.He builds a patio garden section onto the back of the restaurant at a cost of $70,000.
b.Tina owns a construction company.Because she is behind schedule on a project,she pays a city building inspector $500 to get him to come out and do his inspection a week before he had scheduled the inspection.
c.Claude is a graduate of State University and an avid supporter of the school's athletic program.During the summer he employed State's star running back in his pool cleaning business.He paid the football player $15 an hour,although other employees doing similar work are only paid $10 per hour.
d.Melody owns a chain of coffeehouses.When she opened a coffeehouse in a new city this year,she spent $20,000 advertising the new store.Even though this is much more than she typically spends on advertising,she felt that it was reasonable because the new coffeehouse has the potential to be a very profitable venture for many years.

Accepted Answer

The answer of Using the tests for deductibility discussed in...

Question 6

Which of the following is/are trade or business expenses?
I.Mahlon incurs expenses related to investing in stocks and bonds.Mahlon is a Sociology professor at State University but spends 10-15 hours per week on his investments.Almost 2/3 of Mahlon's annual income comes from his investments as dividends and interest.
II.Shaheen has expenses related to managing her portfolio of securities.The short-term trading of her securities generates most of her annual income.She has no other job.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 7

Diana bought 1,500 shares of Dalton Protection,Inc. ,common stock for $10 per share.She paid her broker a $300 commission to close the purchase.The following year,Diana sold 1,000 of the shares for $17 per share and paid a commission of $175 on the sale.What is Diana's capital gain on the sale of the stock?

Accepted Answer

A) $1,525 
B) $2,000 
C) $6,625 
D) $6,825 
E) $7,000 
A) $1,525 
B) $2,000 
C) $6,625 
D) $6,825 
E) $7,000

Question 8

The Business Purpose Concept means
I.that the economic purpose of the transaction must exceed the tax avoidance motive.
II.that the taxpayer's dominant motive for an expenditure is to reduce taxation.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 9

Marlene is a single taxpayer with an adjusted gross income of $140,000.In addition to her personal residence,Marlene owns a ski cabin in Vail.She uses the cabin for 40 days during the current year and rents it out to unrelated parties for 80 days,receiving rent of $10,000.Marlene's costs before any allocation related to the cabin are as follows:
​
 
Based on the above information,what is her allowable depreciation deduction?

Accepted Answer

A) $- 0 - 
B) $1,000 
C) $3,000 
D) $4,000 
E) $6,000 
A) $- 0 - 
B) $1,000 
C) $3,000 
D) $4,000 
E) $6,000

Question 10

John decides rather than work late in the office,he does all of his work in an office at home.His employer approves of this arrangement.Since John uses his home office on a regular and exclusive basis,he will be eligible to take a home office deduction even though it was not required as a condition of employment.

Accepted Answer

A) True 
 B)False

Question 11

Marian,a schoolteacher in Duluth,Minnesota,owns a rental house in Scottsdale,Arizona.She travels to Arizona during spring break to inspect her property and discuss property improvements with the tenant and property manager.Marian's brother,Brian,lives in Scottsdale.She stays at his house during her week in Arizona and borrows his car to travel across town for her day of meetings.Her trip accomplishes several objectives: a visit with her brother,a trip away from Wisconsin's winter weather,and a review of her investment property.The expenses of traveling to Scottsdale
I.have a dominant business purpose.
II.are deductible as expenses for the production of income.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 12

A necessary expense is one that is appropriate and helpful to the taxpayer's income activity.

Accepted Answer

A) True 
 B)False

Question 13

Harold,a cash basis taxpayer,borrows $65,000 for his business on a 2-year note from First City Bank on December 1,2017.To close on the loan agreement,Harold is required to prepay interest of $4,800 on December 1.How much interest can Harold deduct in 2017?

Accepted Answer

A) $- 0 - 
B) $200 
C) $400 
D) $2,400 
E) $4,800 
A) $- 0 - 
B) $200 
C) $400 
D) $2,400 
E) $4,800

Question 14

Match the proper deduction method with the correct expenditures.
-Premiums the insured taxpayer pays for life insurance

Accepted Answer

A) Capitalized and amortized over a number of accounting periods 
B) Expensed in the period incurred 
C) Not deductible 
D) Can be capitalized and amortized or deductible depending on the amount of the expenditure 
A) Capitalized and amortized over a number of accounting periods 
B) Expensed in the period incurred 
C) Not deductible 
D) Can be capitalized and amortized or deductible depending on the amount of the expenditure

Question 15

During 2017,Myca sells her car for $5,000.She acquired the car in 2013 for $11,000 and has used it 60% for business and 40% for personal use.She deducted $5,280 in depreciation.What is the taxable gain or loss from the sale of the car attributable to her business use?

Accepted Answer

A) $3,680 gain 
B) $432 gain 
C) $720 loss 
D) $2,280 loss 
E) $1,680 gain 
A) $3,680 gain 
B) $432 gain 
C) $720 loss 
D) $2,280 loss 
E) $1,680 gain

Question 16

Match each statement with the correct term below.
-Necessary Expense

Accepted Answer

A) Specifically disallowed. 
B) Appropriate and helpful. 
C) Considered a trade or business. 
D) Not considered a trade or business. 
E) Problems with this generally arise with related parties.
F)This is met when services or property are provided to the taxpayer.
G)Normal,common,and accepted but not necessarily regularly recurring.
H)This is met when the existence and the amount of a liability have been established. 
A) Specifically disallowed. 
B) Appropriate and helpful. 
C) Considered a trade or business. 
D) Not considered a trade or business. 
E) Problems with this generally arise with related parties.
F)This is met when services or property are provided to the taxpayer.
G)Normal,common,and accepted but not necessarily regularly recurring.
H)This is met when the existence and the amount of a liability have been established.

Question 17

Discuss whether the following expenditures meet the ordinary,necessary,and reasonable requirements for deductibility.
a.Mortimer owns a shoe store.Every August Mortimer has a "Back-to-School" sale.To promote that event Mortimer spends $2,000 on newspaper and radio advertising.Generally,this event generates about $85,000 in sales.These sales revenues are about twice the level of sales in other months.
b.Wilma bought a small manufacturing business that had been declared bankrupt.To retain the current sales force,she pays some of the obligations owed to these people by the former owners.Wilma has no legal obligation to pay these debts.
c.Ned owns a large sporting goods store.Nick's 17-year-old son,Tony,works in the store when time permits.Nick pays Tony $10 per hour because he has worked in the store several years.Other high school age individuals also work at the store and perform functions requiring less experience than Tony.They are paid $8 per hour.
d.Art is a self-employed CPA.Last month he attended an AICPA Continuing Education course that cost him $750.In addition to the course registration fee,Art incurred $800 in travel expenses to attend the course.
e.Elvira is a stockholder in over 100 different corporations.However,she does not own more than 10 shares of stock in any one company.She enjoys attending annual stockholder meetings and often gives her "two cents worth" about issues affecting the companies' operations.In the past year Elvira spent $7,540 to attend the stockholder meetings to help protect her investments.

Accepted Answer

The answer of Discuss whether the following expenditures meet the...

Question 18

Claire and Harry own a house on Hilton Head Island.During the year,Claire and Harry rent the house for 30 days to friends from Texas for $2,000.Claire and Harry use the house a total of 60 days during the year.After making the appropriate allocation of expenses between personal and rental use,the following rental loss was determined:
​
 
How should Claire and Harry report the rental income and expenses for the forthcoming year?
I.Report the $100 loss for AGI.II.Only expenses up to the amount of $2,000 rental income may be deducted for the year.
III.Include the $2,000 in gross income,but no deductions are allowed.
IV.Nothing needs to be reported.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Statements II and III are correct. 
D) Statements III and IV are correct. 
E) Statements I and III are correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Statements II and III are correct. 
D) Statements III and IV are correct. 
E) Statements I and III are correct.

Question 19

Which of the following people are currently engaged in a trade or business?
I.Willie devotes 45 hours per week to betting on horse races.Although he intends to win large sums,he has failed to win the big one.He considers his betting activities his job and relies on his meager winnings to support his family.
II.Daryl owns 214 home sites in and around Orlando,Florida.He bought these vacant lots several years ago in hoping that they would appreciate in value so he could sell them at a profit.Because of the recreational activities in the area,the building lots are worth several times his original cost.He is getting the lots ready to sell this year.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 20

Match each statement with the correct term below.
-Hobby expense

Accepted Answer

A) Automobile used 75% for business. 
B) Investment expenses on municipal bonds. 
C) Cost of investigating a new trade or business that the taxpayer enters. 
D) Can be separated into two classifications. 
E) Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities. 
A) Automobile used 75% for business. 
B) Investment expenses on municipal bonds. 
C) Cost of investigating a new trade or business that the taxpayer enters. 
D) Can be separated into two classifications. 
E) Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.

Match each statement with the correct term below. -All-events Test

Match the proper deduction method with the correct expenditures. -Investment expenditures related to earning interest from municipal bonds

Which of the following expenditures are not deductible because they are personal in nature? I.Legal costs to acquire a personal residence. II.Losses resulting from the sale of personal residences.

Jennifer pays the following expenses for her dependent 30-year old daughter while the daughter was ill during the current year: How much of the above expenditures may Jennifer use in computing her itemized deductions?

The Business Purpose Concept means I.that the economic purpose of the transaction must exceed the tax avoidance motive. II.that the taxpayer's dominant motive for an expenditure is to reduce taxation.

A necessary expense is one that is appropriate and helpful to the taxpayer's income activity.

Harold,a cash basis taxpayer,borrows $65,000 for his business on a 2-year note from First City Bank on December 1,2017.To close on the loan agreement,Harold is required to prepay interest of $4,800 on December 1.How much interest can Harold deduct in 2017?

Match the proper deduction method with the correct expenditures. -Premiums the insured taxpayer pays for life insurance

During 2017,Myca sells her car for $5,000.She acquired the car in 2013 for $11,000 and has used it 60% for business and 40% for personal use.She deducted $5,280 in depreciation.What is the taxable gain or loss from the sale of the car attributable to her business use?

Match each statement with the correct term below. -Necessary Expense

Match each statement with the correct term below. -Hobby expense

Conceptual Foundations of Tax Law

Income Tax Concepts

Income Sources

Income Exclusions

Business Expenses

Losses -- Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Nonrecognition Transactions

Choice of Business Entity -- General Tax and Nontax Factorsformation

Choice of Business Entity -- Operations and Distributions

Choice of Business Entity -- Other Considerations

Tax Research

Filters

Exam 5: Introduction to Business Expenses

Match each statement with the correct term below. -All-events Test

Match the proper deduction method with the correct expenditures. -Investment expenditures related to earning interest from municipal bonds

Which of the following expenditures are not deductible because they are personal in nature? I.Legal costs to acquire a personal residence. II.Losses resulting from the sale of personal residences. ​

Jennifer pays the following expenses for her dependent 30-year old daughter while the daughter was ill during the current year: ​ How much of the above expenditures may Jennifer use in computing her itemized deductions?

The Business Purpose Concept means I.that the economic purpose of the transaction must exceed the tax avoidance motive. II.that the taxpayer's dominant motive for an expenditure is to reduce taxation. ​

A necessary expense is one that is appropriate and helpful to the taxpayer's income activity.

Harold,a cash basis taxpayer,borrows $65,000 for his business on a 2-year note from First City Bank on December 1,2017.To close on the loan agreement,Harold is required to prepay interest of $4,800 on December 1.How much interest can Harold deduct in 2017?

Match the proper deduction method with the correct expenditures. -Premiums the insured taxpayer pays for life insurance

During 2017,Myca sells her car for $5,000.She acquired the car in 2013 for $11,000 and has used it 60% for business and 40% for personal use.She deducted $5,280 in depreciation.What is the taxable gain or loss from the sale of the car attributable to her business use?

Match each statement with the correct term below. -Necessary Expense

Match each statement with the correct term below. -Hobby expense

Conceptual Foundations of Tax Law

Income Tax Concepts

Income Sources

Income Exclusions

Business Expenses

Losses -- Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Nonrecognition Transactions

Choice of Business Entity -- General Tax and Nontax Factorsformation

Choice of Business Entity -- Operations and Distributions

Choice of Business Entity -- Other Considerations

Tax Research

Filters

Which of the following expenditures are not deductible because they are personal in nature? I.Legal costs to acquire a personal residence. II.Losses resulting from the sale of personal residences.

Jennifer pays the following expenses for her dependent 30-year old daughter while the daughter was ill during the current year: How much of the above expenditures may Jennifer use in computing her itemized deductions?

The Business Purpose Concept means I.that the economic purpose of the transaction must exceed the tax avoidance motive. II.that the taxpayer's dominant motive for an expenditure is to reduce taxation.