HRB 27 Final Exam Review Verified Study Questions And
Answers
,HRB 27 Final Exam Review Verified Study Questions And Answers
1. What income reporting form should an independent contractor sometimes
receive from the person who paid him for his services?: Form 1099-MISC
(15.6)
2. 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)
3. 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)
4. Why is it important to know whether or not the proprietor materially partici-
pates?: 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)
,HRB 27 Final Exam Review Verified Study Questions And Answers
5. 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)
6. How is cost of goods sold determined?: Beginning inventory plus purchases,
plus labor, supplies, depreciation, etc. attributable to product manufacture or prepa-
ration for sale, minus ending inventory. (15.7)
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)
8. What is the purpose of self-employment tax?: To pay social security and
medicare taxes. (15.14)
9. 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)
10. 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)
11. 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
, HRB 27 Final Exam Review Verified Study Questions And Answers
to the information provided by their clients. (26.1)
12. 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)
Answers
,HRB 27 Final Exam Review Verified Study Questions And Answers
1. What income reporting form should an independent contractor sometimes
receive from the person who paid him for his services?: Form 1099-MISC
(15.6)
2. 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)
3. 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)
4. Why is it important to know whether or not the proprietor materially partici-
pates?: 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)
,HRB 27 Final Exam Review Verified Study Questions And Answers
5. 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)
6. How is cost of goods sold determined?: Beginning inventory plus purchases,
plus labor, supplies, depreciation, etc. attributable to product manufacture or prepa-
ration for sale, minus ending inventory. (15.7)
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)
8. What is the purpose of self-employment tax?: To pay social security and
medicare taxes. (15.14)
9. 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)
10. 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)
11. 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
, HRB 27 Final Exam Review Verified Study Questions And Answers
to the information provided by their clients. (26.1)
12. 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)
