Question 1

Match each statement with the correct term below.
-Personal 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 2

Devery,Inc.sells high tech machine parts that are fully warranted against defects.Based on prior years experience they can expect to incur $20,000 of warranty expense on current sales.They are on the accrual basis,and the warranty expense is based on a reasonable estimate,so Devery can deduct the $20,000.

Accepted Answer

A) True 
 B)False

Question 3

An ordinary expense
I.is an expense commonly incurred in an income-producing activity.
II.is an expenditure that provides future benefits to an income-producing activity.

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

Which of the following can be deducted as a trade or business expense?

Accepted Answer

A) Lobbying expenses to influence taxpayers. 
B) Political contribution to elect a local Congressman. 
C) Illegal bribes to government 
D) Rent paid on a office to run an illegal gambling operation. 
E) None of the above can be deducted. 
A) Lobbying expenses to influence taxpayers. 
B) Political contribution to elect a local Congressman. 
C) Illegal bribes to government 
D) Rent paid on a office to run an illegal gambling operation. 
E) None of the above can be deducted.

Question 5

An accrual basis taxpayer may deduct expenses in the year in which certain tests are met.These tests include
I.when services or property are provided to the taxpayer or when the taxpayer uses the property.
II.when the "all-events test" is met.
III.when "economic performance" has occurred.
IV.when all events have occurred to determine that a liability exists and the amount of the liability can be determined with reasonable accuracy.

Accepted Answer

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

Question 6

Pamela owns the building where her plumbing supply business is located.This year she put on vinyl siding to replace the weathered wood siding on her building.The cost of the new siding can be expensed in the current year.

Accepted Answer

A) True 
 B)False

Question 7

Using the general tests for deductibility,explain why the following expenses are not fully deductible.
a.Irene spends $1,600 on a trip to Florida to investigate opening up a consulting firm.Irene currently works for a consulting firm.
 
b.Augie and his wife divorce during the current year.Augie pays $3,000 in legal fees related to the divorce.
 
c.Peter owns a hardware store.During the current year,he pays $328,000 to acquire a new warehouse.
 
d.Paul contributes $25 to a fund to be used for advertising to persuade voters to vote against a candidate running for Congress.

Accepted Answer

a.Because Irene is already in the consul

Question 8

Match the proper deduction method with the correct expenditures.
-Illegal gambling operation expenses

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 9

Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.

Accepted Answer

Municipal bond interest is excluded from

Question 10

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 11

Amy borrowed $25,000 for her business from a local bank two years ago.To increase her deductions for 2013,she pays December interest of $400 and prepays January and February interest totaling $800 on December 30,2013.The maturity date of the note is November 30,2014.How much of the interest that she paid in December is deductible in 2013?
I.If she is a cash-basis taxpayer,Amy's interest deduction is $1,200.
II.If she is an accrual-basis taxpayer,Amy's interest deduction is $400.

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

Match the proper deduction method with the correct expenditures.
-Repair-and-maintenance expenditures

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 13

Generally income tax accounting methods are designed to result in
I.a proper application of the wherewithal-to-pay concept.
II.a proper matching of expenses to the revenues being generated.

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 14

Match the proper deduction method with the correct expenditures.
-Federal lobbying expenditures

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

For a taxpayer to be engaged in a trade or business,the activity must meet all of the following tests: it must produce a profit every year; must be continuous and regular activity; and must be the taxpayer's livelihood not their hobby.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

In the current year,Paul acquires a car for $16,000.He uses the car in his advertising business and for personal purposes.His records indicate the car is used 60% for business and that the total operating expenses,including depreciation,are $4,700.Paul expects to use the car for 5 years in his business.What amount can Paul deduct as the operating costs of the car?

Accepted Answer

A) $ - 0 - 
B) $ 2,400 
C) $ 2,820 
D) $ 4,700 
E) $12,000 
A) $ - 0 - 
B) $ 2,400 
C) $ 2,820 
D) $ 4,700 
E) $12,000

Question 18

Mike and Pam own a cabin near Teluride,Colorado.In the current year the cabin was rented for 8 days to friends.Mike and Pam used the cabin a total of 82 days during the same year.After allocating the expenses between personal and rental use,the following rental loss was determined:
$\begin{array}{llcc}
 \text { Rental income } & \$ 700\
 \text { Froperty taxes } &(250)\
 \text { Mortgage interest } &(300)\
 \text {Repairs and maintenance  } &(100)\
 \text { Utilities } &\underline{(150)}\
 \text {Rental loss  } & \underline{\$(100)}\
\end{array}$

How should Mike and Pam report the rental income and expenses for last year?

Accepted Answer

A) Report the $100 loss for AGI. 
B) Include the $700 in gross income, but no deductions are allowed. 
C) Only expenses up to the amount of $700 rental income may be deducted. 
D) Report the interest ($300) and taxes ($250) as itemized deductions and the other expenses for AGI. 
E) No reporting for the rental activity is necessary. 
A) Report the $100 loss for AGI. 
B) Include the $700 in gross income, but no deductions are allowed. 
C) Only expenses up to the amount of $700 rental income may be deducted. 
D) Report the interest ($300) and taxes ($250) as itemized deductions and the other expenses for AGI. 
E) No reporting for the rental activity is necessary.

Question 19

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 20

Match the proper deduction method with the correct expenditures.
-Betterment

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

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

An ordinary expense I.is an expense commonly incurred in an income-producing activity. II.is an expenditure that provides future benefits to an income-producing activity.

Which of the following can be deducted as a trade or business expense?

Pamela owns the building where her plumbing supply business is located.This year she put on vinyl siding to replace the weathered wood siding on her building.The cost of the new siding can be expensed in the current year.

Match the proper deduction method with the correct expenditures. -Illegal gambling operation expenses

Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.

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

Match the proper deduction method with the correct expenditures. -Repair-and-maintenance expenditures

Generally income tax accounting methods are designed to result in I.a proper application of the wherewithal-to-pay concept. II.a proper matching of expenses to the revenues being generated.

Match the proper deduction method with the correct expenditures. -Federal lobbying expenditures

For a taxpayer to be engaged in a trade or business,the activity must meet all of the following tests: it must produce a profit every year; must be continuous and regular activity; and must be the taxpayer's livelihood not their hobby.

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

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

Match the proper deduction method with the correct expenditures. -Betterment

Federal Income Taxation - an Overview

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. -Personal Expense

An ordinary expense I.is an expense commonly incurred in an income-producing activity. II.is an expenditure that provides future benefits to an income-producing activity.

Which of the following can be deducted as a trade or business expense?

Pamela owns the building where her plumbing supply business is located.This year she put on vinyl siding to replace the weathered wood siding on her building.The cost of the new siding can be expensed in the current year.

Match the proper deduction method with the correct expenditures. -Illegal gambling operation expenses

Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.

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

Match the proper deduction method with the correct expenditures. -Repair-and-maintenance expenditures

Generally income tax accounting methods are designed to result in I.a proper application of the wherewithal-to-pay concept. II.a proper matching of expenses to the revenues being generated.

Match the proper deduction method with the correct expenditures. -Federal lobbying expenditures

For a taxpayer to be engaged in a trade or business,the activity must meet all of the following tests: it must produce a profit every year; must be continuous and regular activity; and must be the taxpayer's livelihood not their hobby.

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

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

Match the proper deduction method with the correct expenditures. -Betterment

Federal Income Taxation - an Overview

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