accounts data bank
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
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
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?
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.