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Paris operates a talent agency as a sole proprietorship,and this year she incurred the following expenses in operating her talent agency.What is the total deductible amount of these expenditures? $1,000 dinner with a film producer where no business was discussed. $500 lunch with sister Nicky where no business was discussed. $700 business dinner with a client but Paris forgot to keep any records (oops!) . $900 tickets to the opera with a client following a business meeting.


A) $450.
B) $900.
C) $1,100.
D) $1,200.
E) $800.

F) A) and D)
G) B) and D)

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George operates a business that generated adjusted gross income of $250,000 and taxable income of $170,000 this year (before the domestic production activities deduction) .Included in income was $70,000 of qualified production activities income.George paid $60,000 of wages to employees engaged in domestic manufacturing.What domestic production activities deduction will George be eligible to claim this year?


A) $5,400.
B) $6,300.
C) $7,200.
D) $15,300.
E) $22,500.

F) C) and D)
G) D) and E)

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Colbert operates a catering service on the accrual method.In November of year 1 Colbert received a payment of $9,000 for 18 months of catering services to be rendered from December 1st of year 1 through May 31st year 3.When must Colbert recognize the income if his accounting methods are selected to minimize income recognition?


A) $500 is recognized in year 1, $6,000 in year 2, and $2,500 in year 3.
B) $500 is recognized in year 1 and $8,500 in year 2.
C) $9,000 is recognized in year 3.
D) $2,500 is recognized in year 1 and $6,500 in year 2.
E) $9,000 is recognized in year 1.

F) B) and E)
G) A) and C)

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Judy is a self-employed musician who performs for a variety of events.This year Judy was fined $250 by the city for violating the city's noise ordinance with a relatively loud performance.As a consequence,Judy contributed $1,000 to a campaign committee formed to recall the city's mayor.Judy normally hires three part-time employees to help her schedule events and transport equipment.Judy paid a total of $33,000 to her employees through June of this year.In June Judy fired her part-time employees and hired her husband to replace them.However,Judy paid him $55,000 rather than $33,000.Judy is on the cash method and calendar year,and she wants to know what amount of these expenditures is deductible as business expenses.

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$66,000
The fine and political contribut...

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Only half the cost of a business meal is deductible even if the meal is associated with the active conduct of business.

A) True
B) False

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Which of the following is a true statement about the domestic production activities 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 production activities deduction is not affected by the cost of labor.
E) All of the choices are true.

F) All of the above
G) A) and E)

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Sandy Bottoms Corporation generated taxable income (before the domestic manufacturing deduction)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 Bottoms' domestic manufacturing deduction for the year?

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$211,500 = 9% × $2,350,000
The domestic ...

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Which of the following is a true statement?


A) Interest expense is not deductible if the loan is used to purchase municipal bonds.
B) Insurance premiums are not deductible if paid for "key man" life insurance.
C) One half of the cost of business meals is not deductible.
D) All of the choices are true.
E) None of the choices are true.

F) None of the above
G) D) and E)

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Which of the following expenditures is NOT likely to be allowed as a current deduction for a landscaping and nursery business?


A) cost of fertilizer.
B) accounting fees.
C) cost of a greenhouse.
D) cost of uniforms for employees.
E) a cash settlement for trade name infringement.

F) A) and D)
G) B) and D)

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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?


A) Jones will be allowed to deduct $40,000 only if his son eventually develops into an expert cook.
B) Jones will be allowed to accrue $40,000 only if he pays his son in cash.
C) Jones will be allowed to deduct $35,000 as compensation and another $5,000 can be deducted as an employee gift.
D) Jones can only deduct $20,000 because an apprentice cook is only worth half as much as an experienced cook.
E) None of the choices are true.

F) C) and E)
G) A) and B)

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Mike operates a fishing outfitter as an accrual-method sole proprietorship.On March 1st of this year Mike received $15,000 for three outfitting trips.This is the first time Mike agreed to such a payment and he is obligated to outfit one trip per year for the next three summers beginning this year.How much income must Mike recognize in each of the next three years if he is attempting to minimize his tax burden?

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Mike can elect to recognize $5,000 this ...

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Dick pays insurance premiums for his employees.What type of insurance premium is not deductible as compensation paid to the employee?


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 the choices are deductible by Dick.

F) A) and E)
G) B) and E)

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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 the choices are true.

F) B) and C)
G) D) and E)

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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 the choices are true.

F) B) and C)
G) None of the above

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Todd operates a business using the cash basis of accounting.At the end of last year,Todd was granted permission to switch his sales on account to the accrual method.Last year Todd made $420,000 of sales on account and $64,000 was uncollected at the end of the year.What is Todd's §481 adjustment for this year?


A) increase income by $420,000.
B) increase income by $16,000.
C) increase expenses by $64,000.
D) increase expenses by $420,000.
E) Todd has no §481 adjustment this year.

F) A) and E)
G) None of the above

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According to the Internal Revenue Code §162,deductible trade or business expenses must be one of the following:


A) incurred for the production of investment income.
B) ordinary and necessary.
C) minimized.
D) appropriate and measurable.
E) personal and justifiable.

F) C) and E)
G) C) and D)

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Uniform capitalization of indirect inventory costs is required for most large taxpayers.

A) True
B) False

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Shelley is employed in Texas and recently attended a two-day business conference in New Jersey.Shelley spent the entire time at the conference and documented her expenditures (described below) .What amount can Shelley deduct as an employee business expense (before considering any miscellaneous itemized deduction limitations) ? Shelley is employed in Texas and recently attended a two-day business conference in New Jersey.Shelley spent the entire time at the conference and documented her expenditures (described below) .What amount can Shelley deduct as an employee business expense (before considering any miscellaneous itemized deduction limitations) ? A) $2,850 B) $2,740 C) $1,850 if Shelley's AGI is $50,000 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.


A) $2,850
B) $2,740
C) $1,850 if Shelley's AGI is $50,000
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) A) and B)
G) A) and C)

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

A) True
B) False

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


A) An impermissible method is adopted by using the method to report results for two consecutive years.
B) An impermissible method may never be used by a taxpayer.
C) Cash method accounting is an impermissible method for partnerships and Subchapter S electing corporations.
D) There is no accounting method that is impermissible.
E) None of the choices are true.

F) All of the above
G) A) and C)

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