Deck 6: Business Expenses

Question 1

To be deductible,meals and entertainment must be both an ordinary and necessary business expense and must be either directly related to or associated with the active conduct of an activity for which the taxpayer has a business purpose.

Answer 1

True

Question 2

Match each statement with the correct term below.
a.Not deductible.
b.Short-term capital loss.
c.Limited to $25 per person.
d.Deductible as an ordinary loss
e.Only 50% of the cost is deductible.
f.Must be away from tax home overnight to be deductible.
g.General area where a taxpayer conducts principal activity.
h.If the "directly-related" test fails; this test may allow the deduction.
Business gift

Answer 2

C

Question 3

Match each statement with the correct term below.
a.Not deductible.
b.Short-term capital loss.
c.Limited to $25 per person.
d.Deductible as an ordinary loss
e.Only 50% of the cost is deductible.
f.Must be away from tax home overnight to be deductible.
g.General area where a taxpayer conducts principal activity.
h.If the "directly-related" test fails; this test may allow the deduction.
Child support

Answer 3

A

Question 4

Discovery,Inc.,a cash-basis consulting firm,can deduct a twelve-month insurance premium in the year the premium is paid even though the policy remains in effect into the following year.

Question 5

In 2013,a husband and wife who are less than 50 and qualify may contribute $12,000 to two separate IRA accounts as long as their total income exceeds $12,000.The total amount contributed to each account cannot exceed $6,000.

Question 6

Legal expenses are generally deductible if they have a business purpose; they are generally not deductible if they originate from a personal transaction.

Question 7

To be deductible,employee compensation must be for services actually performed by the employee and the amount must be reasonable.

Question 8

Business and nonbusiness bad debts are both deductible as a short-term capital loss.

Question 9

The actual cost method is a more-flexible way to compute the auto expense deduction and often results in a larger tax savings.

Question 10

Match each statement with the correct term below.
a.Not deductible.
b.Short-term capital loss.
c.Limited to $25 per person.
d.Deductible as an ordinary loss
e.Only 50% of the cost is deductible.
f.Must be away from tax home overnight to be deductible.
g.General area where a taxpayer conducts principal activity.
h.If the "directly-related" test fails; this test may allow the deduction.
Business bad debt expense

Question 11

Match each statement with the correct term below.
a.Not deductible.
b.Short-term capital loss.
c.Limited to $25 per person.
d.Deductible as an ordinary loss
e.Only 50% of the cost is deductible.
f.Must be away from tax home overnight to be deductible.
g.General area where a taxpayer conducts principal activity.
h.If the "directly-related" test fails; this test may allow the deduction.
Travel expenses

Question 12

Match each statement with the correct term below.
a.Not deductible.
b.Short-term capital loss.
c.Limited to $25 per person.
d.Deductible as an ordinary loss
e.Only 50% of the cost is deductible.
f.Must be away from tax home overnight to be deductible.
g.General area where a taxpayer conducts principal activity.
h.If the "directly-related" test fails; this test may allow the deduction.
Associated with

Question 13

Match each statement with the correct term below.
a.Not deductible.
b.Short-term capital loss.
c.Limited to $25 per person.
d.Deductible as an ordinary loss
e.Only 50% of the cost is deductible.
f.Must be away from tax home overnight to be deductible.
g.General area where a taxpayer conducts principal activity.
h.If the "directly-related" test fails; this test may allow the deduction.
Business meals

Question 14

A taxpayer can deduct multiple gifts to a single customer as long as the total value of all gifts to that customer does not exceed $25.

Question 15

If an employer reimbursement plan is an accountable plan,for an expense that is fully reimbursed the employee does not have to report either the expense or the reimbursement .

Question 16

Match each statement with the correct term below.
a.Not deductible.
b.Short-term capital loss.
c.Limited to $25 per person.
d.Deductible as an ordinary loss
e.Only 50% of the cost is deductible.
f.Must be away from tax home overnight to be deductible.
g.General area where a taxpayer conducts principal activity.
h.If the "directly-related" test fails; this test may allow the deduction.
Nonbusiness bad debt

Question 17

The Big Easy Company leases a luxury box and purchases 20 tickets to the New Orleans Saints home games.The entire amount is deductible as an entertainment expense as long as all the requirements are met.

Question 18

Match each statement with the correct term below.
a.Not deductible.
b.Short-term capital loss.
c.Limited to $25 per person.
d.Deductible as an ordinary loss
e.Only 50% of the cost is deductible.
f.Must be away from tax home overnight to be deductible.
g.General area where a taxpayer conducts principal activity.
h.If the "directly-related" test fails; this test may allow the deduction.
Tax home

Question 19

A taxpayer may use either the actual cost method or the standard mileage rate for deducting auto expenses.

Question 20

To be away overnight requires the taxpayer to be away from their tax home for more than 24 hours.

Question 21

Rodrigo works as a salesperson for a auto parts manufacturer.His job requires that he spend most of his time outside the office calling on customers.In addition,to supplement his income he works 1 night a week and on weekends as a waiter at an exclusive seafood restaurant in the city.During the year,he keeps the following record of his travel:
$$\begin{array} { l r } \text { Home to office } & \text { Miles } \\\text { Office to home } & 850 \\\text { Office to restaurant } & 425 \\\text { Restaurant to home } & 300 \\\text { Home to restaurant } & 1,200 \\\text { Office to customers to office } & 725 \\\text { Customers to restaurant } & 7,100 \\\quad \text { Total miles } & \underline { 400 }\end{array}$$
If he uses the standard mileage rate,what amount can she deduct as a business automobile expense?

A)$3,621
B)$3,774
C)$3,941
D)$4,407
E)$6,105

Question 22

During 2013,Marsha,an employee of G&H CPA firm,drove her car 24,000 miles.The detail of the mileage is as follows:
$\begin{array}{lr}\text { Personal Use } & 3,000 \text { miles } \\\text { Transportati on between home and office } & 3,000 \text { miles } \\\text { Transportati on to and from clients' offices } & 18,000 \text { miles }\end{array}$
Marsha's 2013 records show that her car expenses totaled $14,320.The details of the expenses are as follows:
$\begin{array}{lr}\text { Gas, oil, and repairs } & 9,260 \\\text { Insurance and licensing } & 1,500 \\\text { Depreciation } & 2,960 \\\text { Interest on car loan } & 400 \\\text { Tolls and parking at clients' offices } & 200\end{array}$
What is the amount of her deduction for her use of the car?

A)$ 9,000
B)$ 9,990
C)$ 10,190
D)$ 10,670
E)$ 10,790

Question 23

Which of the following business expenses is/are subject to a 50% deduction limit for 2013?
I)Meals while traveling
II)Lodging while traveling

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

Question 24

The Wondercress Advertising agency rents a skybox at the Metrodome where the Minnesota Vikings plays its home games.The cost of the skybox for the season is $60,000 and includes ten tickets to each game.The team plays 8 games a year at the arena.The most expensive non-luxury box seat is $125.After acquiring a new advertising client,the president of the agency invites 9 business associates to watch a game in the company skybox.Food and drinks cost $900.What amount can Wondercress deduct as meal and entertainment expense?

A)$ - 0 -
B)$1,075
C)$2,100
D)$2,150
E)$4,200

Question 25

Danielle graduated from State University in 2012.She paid $2,100 of interest during 2013 on her qualified educational loan.The full amount is deductible.

Question 26

For moving expenses to be deductible the distance test must be met,which requires that the commuting distance from the old residence to the new job must be 50 miles further than the commuting distance was to the old job.

Question 27

Penny owns her own business and drives her car 12,000 miles a year for business and 3,000 miles a year for commuting and personal use.She wants to claim the largest tax deduction possible for business use of her car.Her total expenses related to her auto for 2013 are as follows:
$\begin{array}{lr}\text { Gas, oil, and maintenance } & 4,050 \\\text { Insurance } & 720 \\\text { Interest on car loan } & 500 \\\text { Depreciation } & 2,960 \\\text { License } & 80 \\\text { Parking fees and tolls (100\% business) } & 130\end{array}$
Penny's total deduction for business use of the auto in 2013 is:

A)$6,378
B)$6,778
C)$6,878
D)$7,190
E)$7,310

Question 28

Sandra,who owns a small accounting firm,pays $1,500 to the local country club for food and entertainment for her annual employee Christmas party.How much of the $1,500 in meals and entertainment cost can Sandra deduct?

A)$ - 0 -
B)$ 500
C)$ 750
D)$1,000
E)$1,500

Question 29

Mercedes is an employee of MWH company and drives her car 12,000 miles a year for business and 3,000 miles a year for commuting and personal use.She is not reimbursed by her employer.She wants to claim the largest tax deduction possible for business use of her car,before any limitations on itemized deductions.Her total auto expenses for 2013 are as follows:
$\begin{array}{lr}\text { Gas, oil, and maintenance } & 4,600 \\\text { Insurance } & 720 \\\text { Interest on car loan } & 500 \\\text { Depreciation } & 2,960 \\\text { License } & 80 \\\text { Parking fees and tolls (100\% business) } & 130\end{array}$
Mercedes's total 2013 deduction for automobile use is:

A)$6,420
B)$6,660
C)$6,790
D)$7,218
E)$7,310

Question 30

Larry is a self-employed insurance salesperson.He decides to take his best customer to a Pacers basketball game.Larry is able to buy two floor seat tickets for $500 each.The face amount of the tickets is $200 each.How much of the total cost can Larry deduct?

A)$ - 0 -
B)$ 200
C)$ 400
D)$ 500
E)$1,000

Question 31

Which of the following business expenses is/are subject to a 50% deduction limit for 2013?
I)Gifts
II)Incidental expenses while traveling

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

Question 32

Donna is an audit supervisor with the IRS and on January 4,2013 she uses her car in the following manner.
$\begin{array}{lr}\text { Personal residence to her office at the IRS. } & 8 \text { miles } \\\text { IRS office to X Corp to supervise new audit activities. } & 10 \text { miles } \\X \text { Corp to Y Corp to supervise ongoing audit activities } & 6 \text { miles } \\\text { From Y Corp. to personal residence } & 7 \text { miles }\end{array}$
What amount of Donna's mileage for this day is qualified business mileage?

A)10 miles.
B)16 miles.
C)17 miles.
D)23 miles.
E)31 miles.

Question 33

Alfred uses his personal automobile in his business of selling party supplies to local businesses.He bought a new car in 2013 and drove it a total of 20,000 miles of which 2,000 miles were for commuting and other personal uses.Actual gas,oil,repairs,licensing,insurance,and depreciation totaled $11,000 for 2013.Actual parking expenses for business were $200.What is the maximum amount Alfred can deduct for 2013?

A)$ 9,750
B)$10,100
C)$10,170
D)$10.370
E)$11,200

Question 34

The Crown Howe Accounting firm rents a skybox at Lucas Oil Field where the Indianapolis Colts play their home games.The cost of the skybox for the season is $80,000 and includes 8 tickets to each game.The team plays 10 games a year at the arena.The most expensive non-luxury box seat is $200.After acquiring a new accounting client,the Managing partner invites 5 business associates to watch a game in the firm skybox.Food and drinks cost $800.What amount can Crown Howe deduct as meal and entertainment expense?

A)$1,000
B)$1,200
C)$2,000
D)$2,400
E)$4,400

Question 35

In 2013,Eileen,a self-employed nurse,drives her car 20,000 miles,of which 12,000 miles pertain to business.Expenses concerning the car include the following:
$$\begin{array} { l r } \text { Gas and oil } & \$ 5,720 \\\text { Auto license tag } & 90 \\\text { Insurance } & 900 \\\text { Repairs } & 700 \\\text { Tires } & 400 \\\text { Parking during business use } & 300 \\\text { Tolls during business use } & 150 \\\text { Depreciation } & 2,960\end{array}$$
Assuming Eileen purchases the car in 2013 and she wants to use the most advantageous method to determine her 2013 deduction for automobile expense,what amount can Eileen deduct as auto expenses?

A)$ 5,964
B)$ 6,780
C)$ 6,912
D)$ 7,230
E)$11,220

Question 36

After negotiating a new supply contract with Jim,Beth takes him to dinner at the Magnolia Cafe.The dinner costs $94.The amount includes tip ($15)and sales tax ($5).Cab fare to and from the restaurant is $20.How much can Beth deduct for the evening's expenditures?

A)$ 47
B)$ 52
C)$ 67
D)$ 94
E)$114

Question 37

Lester uses his personal automobile in his business of selling insurances.He bought a new car in 2013 and drove it a total of 30,000 miles of which 3,000 miles were for commuting and other personal uses.Actual gas,oil,repairs,licensing,insurance,and depreciation totaled $16.500 for 2013.Actual parking expenses for business were $200.What is the maximum amount Lester can deduct for 2013?

A)$13,050
B)$13,970
C)$14,850
D)$14.985
E)$15,255

Question 38

Olga is a technical sales consultant for Interactive Systems Corporation (ISC)based in San Diego.While on business in Boise,she entertains several clients at a cost of $600.When she returns to San Diego,Olga gives ISC receipts and other information to account for the entertainment expense.ISC reimburses Olga $600.How much can Olga and ISC deduct?

Question 39

Donald had a party to publicize the opening of his new accounting office.He invited community and business leaders to his office where food and beverage of $4,000 was served along with $1,000 of entertainment.How much of the total cost can Donald deduct?

A)$ - 0 -
B)$2,500
C)$3,000
D)$4,500
E)$5,000

Question 40

Walker,an employee of Lakeview Corporation,drives his automobile 18,000 business miles during 2013.He pays tolls of $145 while traveling on business.What amount can Walker deduct as unreimbursed transportation expenses before considering any limitations on itemized deductions?

A)$ 10,170 for AGI.
B)$ 10,315 for AGI.
C)$ 10,170 from AGI.
D)$ 10,315 from AGI.

Question 41

In July of this year,Sam performs financial consulting services for William.On August 1,Sam sends William a bill for $1,200.As of September 30,Sam had not heard from William.After repeated efforts to collect the fee,Sam discovers in November that William has left the state and cannot be found.If Sam is an accrual basis taxpayer,for the current year he can deduct

A)$ - 0 -
B)A $800 ordinary loss
C)A $1,200 ordinary loss
D)A $1,200 short-term capital loss
E)A $1,200 long-term capital loss

Question 42

Garcia is a self-employed chiropractor and a cash basis taxpayer.During the most recent tax year,he provides patient services totaling $400,000.Of that total amount,he estimates $20,000 will never be collected.How much can Garcia deduct as a bad debt expense in the current tax year?

A)$ - 0 -
B)$ 6,000
C)$10,000
D)$14,000
E)$20,000

Question 43

Which of the following information is not required for substantiation of business entertainment expenditures?

A)Time and place of event.
B)Specific business purpose of the event.
C)Receipt to provide evidence of amount of expenditure.
D)Identity of, and business relationship to, those persons attending the event.
E)All of the above information is required to substantiate business entertainment.

Question 44

Caroline is a doctor in Little Rock.She travels to Atlanta to attend a two-day seminar for health professionals about investing in real estate.Transportation expenses are $400,the hotel cost $104/day,and meals cost $50/day.How much can Caroline deduct for travel to the seminar?

A)$- 0 -
B)$258
C)$308
D)$658
E)$708

Question 45

Julie travels to Mobile to meet with a client.While in Mobile,she spends 4 days meeting with the client and one-day sightseeing.Her husband Harry goes with her and spends all 5 days sightseeing and playing golf.The cost of the trip is as follows:
$$\begin{array} { l l } \text { Airfare } & \$ 540 \text { for each person. } \\\text { Lodging at hotel } & \$ 150 / \text { day (Single Occupancy Rate } = \$ 125 \text { ) } \\\text { Meals } & \$ 75 / \text { day for each person. } \\\text { Incidental expenses } & \$ 20 / \text { day for Julie. } \$ 15 / \text { day for Harry. }\end{array}$$
If Julie is self-employed,what is the amount of the deduction she may claim for the trip?

A)$ 730
B)$1,270
C)$1,370
D)$1,420
E)$1,520

Question 46

Kadian purchases a block of 10 tickets to next Saturday's basketball game.The tickets cost $45 each.He keeps two tickets for himself and gives the remaining tickets to his business customers.Each customer receives two tickets,and Kadian told all of them he would see them Saturday night.How much can Kadian deduct?

A)$ - 0 -
B)$180
C)$200
D)$360
E)$450

Question 47

Safina,a single taxpayer with adjusted gross income of $100,000,works as an engineer for the Wabash Corporation.The corporation reimburses all its employees 80% of tuition,fees and books for courses taken at the local university.Safina incurs $8,000 of expenses and can deduct the remaining 20% of the education expense
I)Only if the course improves her skills as an engineer.
II)Is not a deduction from adjusted gross income.

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

Question 48

Arlene,a criminal defense attorney inherits $500,000 from her grandmother.Unsure of how to invest the money,Arlene attends a three-day investment seminar in New York.Arlene attends all the sessions and receives a certificate for successfully completing the seminar.Her expenses to attend the seminar are as follows:
$$\begin{array} { l r } \text { Airfare } & \$ 450 \\\text { Hotel daily rate } & 110 \\\text { Meals } @ 40 \text { per day } & 40 \\\text { Incidentals } \$ 15 \text { per day } & 15 \\\text { Entertainment } & 140\end{array}$$
What amount may she deduct as travel expenses for the seminar?

A)$- 0 -
B)$780
C)$825
D)$885
E)$955

Question 49

George is a full-time student at Indiana State University majoring in accounting.He works 12 to 20 hours per week at a local CPA firm inputting data for spreadsheets to prepare monthly financial statements for the firm's clients.George's tuition,fees,books,and supplies related to his education are $3,000 for the current year.
I)The educational costs are deductible from AGI because they prepare him for a new trade or business.
II)The education costs are deductible because it is part of a program that will qualify George to become a CPA.

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

Question 50

Carter is a podiatrist in Minneapolis.He travels to Milwaukee to attend a two-day seminar for health professionals about investing in commodities.Transportation expenses are $140,the hotel cost $125/day,and meals cost $60/day.How much can Carter deduct for travel to the seminar?

A)$- 0 -
B)$140
C)$390
D)$450
E)$510

Question 51

Francine operates an advertising agency.To show her appreciation to her 10 best customers,she sends a box of fancy chocolate,costing $75 a box,to each of them.How much of the cost of the chocolates can Francine deduct as a business gift?

A)$- 0 -
B)$125
C)$250
D)$375
E)$750

Question 52

Which of the following taxpayers can claim a business bad debt deduction for the current year?
I)Johnson is a dentist using the cash basis of accounting.He has accounts receivable from patients totaling $7,800 that are more than 90 days past due.
II)George owns and operates a sporting goods store and uses the accrual method of accounting.He has several customers who have owed him money for more than 10 months.

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

Question 53

During 2013,Jason travels to Miami to meet with a client.While in Miami,he spends 2 days meeting with his client and 3 days sightseeing.Mary,his wife,goes with him and spends all 5 days sightseeing and shopping.The cost of the trip is as follows:
$$\begin{array} { l l } \text { Airfare } & \$ 540 \text { for each person. } \\\text { Lodging at hotel } & \$ 150 \text { per day (same rate for single and double rooms). } \\\text { Meals } & \$ 75 \text { per day for each person. } \\\text { Incidental expenses } & \$ 20 \text { per day for Jason. Mary kept no records. }\end{array}$$
If Jason is self-employed,what is the amount of the deduction he may claim for the trip?

A)$ - 0 -
B)$ 415
C)$ 490
D)$ 955
E)$1,765

Question 54

Carlotta pays $190 to fly from Santa Fe to Denver.She spends three days finalizing a contract with the management of El Rancho Restaurant for the delivery of green chili in the upcoming year.Because she finalized the contract,Carlotta spends two-days attending the National Western Stock Show.Hotel costs are $108 per night and meals are $22 per day.How much can Carlotta deduct as business expenses from her trip?

A)$190
B)$514
C)$547
D)$580
E)$763

Question 55

Matthew,a single taxpayer with adjusted gross income of $90,000,works as a computer programmer for the Novak Corporation.The corporation reimburses all its employees 50% of tuition,fees and books for courses taken at the local university.Matthew incurs $6,000,is reimbursed $3,000,and can deduct the remaining $3,000 of the education expense
I
As a deduction from adjusted gross income.
II)Only if the course is required by state law to continue in his current job.

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

Question 56

Entertainment,auto,travel,and gift expenses are subject to strict documentation requirements.Taxpayers are required to keep records that show
I)The business purpose of the event.
II)The time and place of the event.

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

Question 57

Which of the following taxpayers can claim a business bad debt deduction for the current year?
I)Sylvia lent her neighbor $4,000 to put a new roof on his home.Because they have been friends for over 15 years,Sylvia trusted her neighbor to pay her back and didn't make him sign a note with interest.The neighbor has left town and Sylvia will not get any of her money back.Her loss is properly related to this year using the cash basis of accounting.
II)Saul is an attorney using the cash basis of accounting.One of his clients is short of money to pay the utilities in the office building Saul rents from him.Saul advances the client $5,000.Saul has just learned that the client has filed bankruptcy and that Saul will not be repaid for any part of the loan.

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

Question 58

Peter,proprietor of Peter's Easy Loan Company,loaned Jessie $4,000 on December 1,2011.The loan is to be repaid on December 1,2012,along with $600 interest.On July 10,2012,Peter learns that Jessie has filed for personal bankruptcy and that non-secured creditors will receive only $0.60 on the dollar.Peter actually receives nothing until February 24,2013.On that date,Peter receives a check for $1,000 from Jessie's bankruptcy proceedings in final settlement of the loan.How should Peter account for the loan to Jessie?

A)$1,600 short-term capital loss in 2012; and $1,400 short-term capital loss in 2013.
B)$3,000 ordinary loss in 2013.
C)$2,400 ordinary loss in 2012.
D)$1,600 ordinary loss in 2012; and $1,400 ordinary loss in 2013.
E)$3,000 short-term capital loss in 2013.

Question 59

Nora is the CEO of the publicly traded Micro Tech Corporation.The company paid her a salary of $1,030,000 and made mortgage payments of $30,000 on her behalf.How much is deductible as compensation expense?

A)$ - 0 -
B)$ 510,000
C)$1,000,000
D)$1,060,000
E)$1,030,000

Question 60

Ernest went to Boston to negotiate several new contracts with clients.His airfare was $400 and he spent $150 per day on lodging,$40 per day on meals,and a total of $60 on cab fare.
I)If Ernest spends 2 days on business and 3 days on personal activities,he can deduct $160 of his airfare.
II)If Ernest spends 3 days on business and 2 days on personal activities,he can deduct $120 of the meal costs.

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

Question 61

Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year?
I)Legal fees to resolve a tax dispute with the Internal Revenue Service.
II)Legal fees to purchase land that will be used to expand its warehouse.

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

Question 62

Sidney owns a residential rental property with an adjusted basis of $200,000 at the beginning of the current year.The county treasurer sends Sidney a tax bill payable by December 31.The bill is for real estate property taxes of $1,200 for the current calendar year and for a $6,000 special assessment for a new sewer line.On November 1,Sidney sells the property to Donald for $225,000.As part of the sale contract,Sidney will pay the real estate taxes of $1,200 at closing and Donald agrees to pay the special assessment of $6,000 on the due date.What is Sidney's gain on the sale?

A)$ 19,800
B)$ 20,000
C)$ 21,000
D)$ 24,800
E)$ 29,800

Question 63

Milroy Company manufactures steering wheels.It's taxable income in 2013 before the Qualifying Production Activities Deduction (QPAD)is $2,000,000 and its qualified production activities income is $2,500,000.Milroy's qualifying W-2 wages paid are $400,000.How much may Milroy take as it QPAD deduction in 2013?

A)$100,000
B)$180,000
C)$200,000
D)$225,000
E)$280,000

Question 64

Which of the following taxes paid by Woodhaven Inc.can be deducted during 2013?
I)Special real estate tax assessment for upgrading the sewer.
II)State income taxes paid in 2013 when filing Woodhaven's 2012 corporate return tax return.

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

Question 65

Raisor Corporation pays an annual premium of $12,000 on the whole life insurance policy on the life of Wilson,the founder and CEO of the corporation.The corporation is the beneficiary of the multi-million dollar policy.
I)The corporation can deduct the premiums.
II)If Wilson dies,the corporation will receive the policy proceeds tax-free.
III)If Wilson's wife is the beneficiary instead of the corporation,the amount of the premiums paid is a tax-free fringe benefit for Wilson.
IV)If Wilson's wife is the beneficiary instead of the corporation,the corporation can deduct the amount of premiums paid as compensation.

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

Question 66

Byron loaned $5,000 to his friend Alan in 2010.They drew up a formal loan agreement that called for a reasonable rate of interest.Alan used the loan proceeds to pay expenses during his last year in college.Byron was recently informed that his friend Alan was struck by lightning and died.Byron will never be able to collect the proceeds of this loan because Alan died with no assets.What tax benefit,if any,will Byron will be able to claim in 2013,the year that the loan became worthless.

A)$5,000 tax credit.
B)$5,000 ordinary loss.
C)$5,000 short-term capital loss.
D)This is a personal non-deductible loss.

Question 67

Which of the following is true regarding the Qualified Production Activities Deduction (QPAD)?
I)The QPAD deduction is limited to 9% of the lessor of taxable income before the QPAD deduction or qualified production activities income
II)The QPAD deduction cannot exceed 50% of W-2 wages allocated to QPAD activities.

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

Question 68

Winslow owns a residential rental property with an adjusted basis of $200,000 at the beginning of the current year.The county treasurer sends Winslow a tax bill payable by December 31.The bill is for real estate property taxes of $1,200 for the current calendar year and for a $6,000 special assessment for a new sewer line.On November 1,Winslow sells the property to Edwin for $225,000.As part of the sale contract,Winslow will pay the special assessment at closing and Edwin agrees to pay the realty taxes on the due date.What is Winslow's gain on the sale?

A)$ 19,000
B)$ 20,000
C)$ 21,000
D)$ 25,000
E)$ 26,000

Question 69

Three years ago Edna loaned Carol $80,000 to help her get started in the TV repair business.Carol gave Edna a 5-year,9% note with semiannual repayment terms.Edna and Carol have been friends for over 35 years.Edna is a recently retired college professor with a significant portfolio of investments.During the current year,Carol became ill and couldn't continue operating the business.She has repaid $10,000 of the debt owed Edna.Because Carol has no remaining assets,no additional payments will be made to any of her creditors.For the current year,Edna realizes a

A)$ - 0 -
B)$70,000 ordinary loss
C)$70,000 long-term capital loss
D)$70,000 short-term capital loss
E)$80,000 ordinary loss

Question 70

Marsh Harbor Company manufactures fishing gear.Its taxable income in 2013 before the Qualifying Production Activities Deduction (QPAD)is $4,000,000 and its qualified production activities income is $3,500,000.Its qualifying W-2 wages paid are $300,000.How much may Marsh Harbour claim as its QPAD deduction in 2013?

A)$150,000
B)$175,000
C)$210,000
D)$300,000
E)$315,000

Question 71

During 2012,Wan-Ying,a lawyer,made a bona fide $5,750 loan to her friend Bill when he was in a time of need.Bill died in 2013.Wan-Ying has been informed by Bill's estate that he was insolvent.What is her deduction ton her 2013 tax return (she has no other capital transactions)?

A)$ - 0 -
B)$1,500
C)$3,000
D)$3,500
E)$5,750

Question 72

During 2012,Wendy,a biologist,made a bona fide $10,000 loan to her friend Ben when he was in a time of need.Ben dies in 2013.Wendy has been informed by Ben's estate that creditors can expect to receive 40% of amounts owed to them.No payments to creditors are made from Ben's estate in 2013.Wendy's maximum deduction in 2013 is

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

Question 73

Drew incurs the following expenses in his grocery store business.Drew can deduct the following as business expenses in the current year
I)$3,750 for advertising on the web.
II)$2,000 of interest expense related to the purchase of a new delivery truck.

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

Question 74

During the current year,Hope Corporation paid a $3,250 premium for a life insurance policy on the life of the chief executive officer,Joel.Determine the deductibility of the $3,250.
I)Hope could deduct the premium as compensation if Joel's daughter is the stated beneficiary of the policy.
II)The premium is not deductible if Hope Corporation is the beneficiary.

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

Question 75

On May 1,2013,Linda sells her rental property for $125,000.Her basis in the property at the beginning of the year is $75,000.As part of the sales contract,the buyer agrees to pay the real property taxes of $1,500 for the current year when they come due on December 31,2013.
I)Linda has a gain on the sale of the rental property of $50,000.
II)Linda can deduct $500 in real estate taxes.

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

Question 76

Which of the following best describes the tax treatment of losses from uncollectible business debts?

A)Such losses are not deductible.
B)Such losses are limited to $3,000 per year.
C)Such losses are treated as short-term capital losses.
D)Such losses are deductible without limitation as an ordinary loss.

Question 77

Which of the following taxes paid by Trevor Products,Inc.can be deducted during 2013?
I)Real estate taxes.
II)Sales tax on purchase of new equipment.

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

Question 78

During 2012,Virginia,an architect,made a bona fide $7,500 loan to her friend Joe when he was in a time of need.Joe died in 2013.Virginia has been informed by Joe's estate that he was insolvent.Virginia should record the nonpayment of the loan as

A)An ordinary loss.
B)An itemized deduction.
C)A short-term capital loss.
D)A long-term capital loss.
E)Nothing. It cannot be deducted.

Question 79

Which of the following taxes paid by the Sill Engineering Company can be deducted during 2012?
I)Federal taxes withheld from employees.
II)Sill Engineering's share of employee's Social Security taxes.

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

Question 80

Which of the following taxes paid by the Fowlers Company can be deducted during 2013?
I)State sales tax on utilities.
II)Federal income tax paid in 2013 when filing Fowlers' 2012 corporate tax return.

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