HRB-27 Final Exam Review/ 125
Questions and Answers/ Verified and
Graded A+
What income reporting form should an independent contractor
sometimes receive from the person who paid him for his services?
- -Form 1099-MISC (15.6)
-Schedule C, Line F asks for the accounting method used in the
business.
What is the difference between the cash method and the accrual
method of accounting? - -• Under the accrual method, total sales
and total charges for services are included in income even though
payment may be received in another tax year.
• Under the cash method, only income actually received or
expenses actually paid during the year are included. (15.5)
-What does it mean if a proprietor "materially participates" in the
business? - -He is active in running the business in a substantial
way on a day-to-day basis. (15.5)
-Why is it important to know whether or not the proprietor
materially participates? - -If the proprietor does not materially
participate, any loss from the business is a passive loss and
,generally may be currently deducted only against passive income.
(15.6)
-What are returns and allowances? - -• Amounts that were
refunded to customers who returned merchandise for refund or
partial refund.
• These amounts are subtracted from gross receipts. (15.6)
-How is cost of goods sold determined? - -Beginning inventory
plus purchases, plus labor, supplies, depreciation, etc.
attributable to product manufacture or preparation for sale, minus
ending inventory. (15.7)
-If the client has contract labor, what should you remind the
client that they should do? - -• Provide a Form 1099-MISC to any
independent contractor who worked and earned $600 or more.
(15.9)
-What is the purpose of self-employment tax? - -To pay social
security and medicare taxes. (15.14)
-What amounts does a proprietor have "at risk"? - -Amounts
invested in the business plus any business debts for which the
proprietor is personally liable. (15.16)
, -What difference does it make if the proprietor is "at risk" or not?
- -Only amounts at risk may be used to determine the actual loss
on Schedule C. (15.16)
-How does a Tax Professional meet due diligence requirements? -
-• Tax Professionals fulfill due diligence requirements by making
every effort to prepare accurate and complete returns.
• Tax Professionals must have knowledge of tax law, and apply a
reasonability check to the information provided by their clients.
(26.1)
-What is a thorough interview? - -A thorough interview consists of
asking general information questions, then asking additional
questions whenever information is incomplete or seems
inaccurate or inconsistent. (26.2)
-What is a conflict of interest? - -A conflict of interest is when
one's situation might benefit at the expense of another's
situation. (26.3)
-What actions can resolve a conflict of interest? - -A conflict of
interest is resolved when it is acknowledged, disclosed to all
parties, and the parties have consented to waiving the conflict.
(26.3)
Questions and Answers/ Verified and
Graded A+
What income reporting form should an independent contractor
sometimes receive from the person who paid him for his services?
- -Form 1099-MISC (15.6)
-Schedule C, Line F asks for the accounting method used in the
business.
What is the difference between the cash method and the accrual
method of accounting? - -• Under the accrual method, total sales
and total charges for services are included in income even though
payment may be received in another tax year.
• Under the cash method, only income actually received or
expenses actually paid during the year are included. (15.5)
-What does it mean if a proprietor "materially participates" in the
business? - -He is active in running the business in a substantial
way on a day-to-day basis. (15.5)
-Why is it important to know whether or not the proprietor
materially participates? - -If the proprietor does not materially
participate, any loss from the business is a passive loss and
,generally may be currently deducted only against passive income.
(15.6)
-What are returns and allowances? - -• Amounts that were
refunded to customers who returned merchandise for refund or
partial refund.
• These amounts are subtracted from gross receipts. (15.6)
-How is cost of goods sold determined? - -Beginning inventory
plus purchases, plus labor, supplies, depreciation, etc.
attributable to product manufacture or preparation for sale, minus
ending inventory. (15.7)
-If the client has contract labor, what should you remind the
client that they should do? - -• Provide a Form 1099-MISC to any
independent contractor who worked and earned $600 or more.
(15.9)
-What is the purpose of self-employment tax? - -To pay social
security and medicare taxes. (15.14)
-What amounts does a proprietor have "at risk"? - -Amounts
invested in the business plus any business debts for which the
proprietor is personally liable. (15.16)
, -What difference does it make if the proprietor is "at risk" or not?
- -Only amounts at risk may be used to determine the actual loss
on Schedule C. (15.16)
-How does a Tax Professional meet due diligence requirements? -
-• Tax Professionals fulfill due diligence requirements by making
every effort to prepare accurate and complete returns.
• Tax Professionals must have knowledge of tax law, and apply a
reasonability check to the information provided by their clients.
(26.1)
-What is a thorough interview? - -A thorough interview consists of
asking general information questions, then asking additional
questions whenever information is incomplete or seems
inaccurate or inconsistent. (26.2)
-What is a conflict of interest? - -A conflict of interest is when
one's situation might benefit at the expense of another's
situation. (26.3)
-What actions can resolve a conflict of interest? - -A conflict of
interest is resolved when it is acknowledged, disclosed to all
parties, and the parties have consented to waiving the conflict.
(26.3)
