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Exam 9: Business Income, Deductions, and Accounting Methods

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Question 51

True/False

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

A) True
B) False

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Question 52

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(described below) . What amount can Shelley deduct as an employee business expense (before considering any miscellaneous itemized deduction limitations) ?

A) $2,740
B) $1,850 if Shelley's AGI is $50,000
C) $2,850
D) All of the expenses are deductible if Shelley is reimbursed under an accountable plan.
E) None of the expenses are deductible - only employers can deduct travel expenses.

F) All of the above
G) None of the above

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Question 53

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Alvin is a self-employed sound technician who reports on the cash method and calendar year. Alvin has a shop in Austin, Texas, but he spends much of his time away from his shop traveling to andfrom various concerts around the country. Alvin leases a truck to move his equipment around the country and this year he spent $12,000 in lease payments and paid $18,000 for gas, oil, and repairs. Alvin keeps records of his personal use of the truck and he estimates that 6,000 of the total 36,000 miles put on the truck this year were for personal trips. What amount of these expenses may Alvin deduct as business expenses?

Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

Sandy Bottoms Corporation generated taxable income (before the domestic manufacturingdeduction) of $3 million this year. The total income included $2,350,000 of qualified production activities income. The company paid $460,000 in W-2 wages to generate the qualified production activity income. What is Sandy Bottom's domestic manufacturing deduction for the year?

A business generally adopts a fiscal or calendar year by using that year end on the first tax return for the business.

Employees cannot deduct the cost of uniforms if the uniforms are also appropriate fornormal wear.

Ed is a self-employed heart surgeon who has incurred the following reasonable expenses. Ho4w6) much can Ed deduct?$1,000 in airfare to repair investment rental property in Colorado.$500 in meals while attending a medical convention in New York.$300 for tuition for an investment seminar "How to pick stocks."$100 for tickets to a football game with hospital administrators to celebrate successful negotiation of a surgical contract earlier in the day.The correct answer is ________.

Sole proprietorships must use the same tax year as the proprietor of the business.

Brad operates a storage business on the accrual method. On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of thewarehouse. The rent and insurance covers the next 12 months. What is Brad's deduction for the rent and insurance?

Which of the following is a payment liability?

Although expenses associated with illegal activities are not deductible, politicalcontributions can be deducted as long as the donation is not made to a candidate for public office.

Which of the following is a true statement?

Bill operates a proprietorship using the cash method of accounting, and this year he received54th) e following payments: •$100 in cash from a customer for services rendered this year$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.

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?

Anne is a self-employed electrician who reports her business income using the accrual method over a calendar year. On September 1st of this year Anne paid $2,280 of interest on a loan. The interest accrues evenly over 19 months ($120 per month) from June 1st of this year through December 31st of next year. In addition, on September 1st Anne also paid $2,700 for 18 months of professionalliability insurance ($150 per month). What amount of interest and insurance can Anne deduct this year?

Which of the following cannot be selected as a valid tax year end?

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

Sam operates a small chain of pizza outlets in Fort Collins, Colorado. In November of this year Sam decided to attend a two-day management training course. Sam could choose to attend the course in Denver or Los Angeles. Sam decided to attend the course in Los Angeles and take an eight-day vacation immediately after the course. Sam reported the following expenditures from the trip: What amount of travel expenditures can Sam deduct?