FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 9: Business Income, Deductions, and Accounting Methods

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

True/False

Review LaterAdd Note

Review Later

Illegal bribes and kickbacks are not deductible as business expenses but fines imposed by a governmental unit are deductible as long as the fines are incurred in the ordinary course of business.

A) True
B) False

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

Kip started a wholesale store this year selling bulk peanut butter. In January of this year Kip purchased an initial five tubs of peanut butter for a total cost of $5,000. In July Kip purchased three tubs for a total cost of $6,000. Finally, in November Kip bought two tubs for a total cost of $1,000. Kip sold six tubs by year-end. What is Kip's ending inventory under the FIFO cost-flow method?

A) $12,000
B) $6,000
C) $5,000
D) $2,500
E) $1,000

F) A) and D)
G) A) and C)

Correct Answer

verified

Show Answer

Question 23

True/False

Review LaterAdd Note

The deduction for business interest expense is limited to the sum of (1)business interest income and (2)30 percent of the adjusted taxable income of the taxpayer for the taxable year.

Which of the following is a true statement?

A loss deduction from a casualty of a business asset is only available if the asset is completely destroyed.

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?

Which of the following is a true statement about travel that has both business and personal aspects?

Shadow Services uses the accrual method and reports on a calendar year. This year Shadow agreed to a uniform-cleaning contract with Odie Cleaning. Under the contract Odie bills Shadow for cleaning services as the services are provided. At year-end Shadow paid Odie $2,350 for the services rendered during the year. In addition, Shadow paid Odie $700 for cleaning services expected in January of next year. What amount, if any, can Shadow deduct for the cleaning services this year?

The phase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business.

Jones operates an upscale restaurant and he pays experienced cooks $35,000 per year. This year he hired his son as an apprentice cook. Jones agreed to pay his son $40,000 per year. Which of the following is a true statement about this transaction?

Mike started a calendar-year business on September 1^st of this year by paying 12 months of 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?

Bryon operates a consulting business and he usually works alone. However, during the summer Bryon will sometimes hire undergraduate students to collect data for his projects. This past summer Bryon hired Fred, the son of a prominent businessman, for a part-time summer job. The summer job usually pays about $17,000, but Bryon paid Fred $27,000 to gain favor with Fred's father. What amount of Fred's summer wages can Bryon deduct for tax purposes? Bryon is on the cash method and calendar year.

Which of the following is a true statement about impermissible accounting methods?

Which of the following is a true statement about a request for a change in accounting method?

Danny owns an electronics outlet in Dallas. This year he paid $600 to register for a four-day course in management in Chicago. Danny paid $800 in airfare and $1,000 for five nights' lodging. After the course, Danny spent the last day sightseeing. During the trip, Danny also paid $140 a day for meals, and $80 a day for a rental car. What amount of these travel expenditures may Danny deduct as business expenses?

A fiscal tax year can end on the last day of any month other than December.

Which of the following is a true statement about the limitation on business interest deductions?

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount.

Colby Motors uses the accrual method and reports on a calendar year. In December of last year, Colby acquired auto repair equipment. As part of the acquisition, Colby purchased a warranty agreement that requires the seller of the equipment to provide repairs on the equipment for three years. Colby paid the cost of the warranty, $15,000, in January of this year. What can Colby deduct for the cost of the warranty on the tax return for last year?

This year Clark leased a car to drive between his office and various work sites. Clark carefully recorded that he drove the car 23,000 miles this year and paid $7,200 of operating expenses ($2,700 for gas, oil, and repairs, and $4,500 for lease payments) . What amount of these expenses may Clark deduct as business expenses?