Taxation of business entities Exam Questions Answered Correctly Latest Update 2024 (Graded A+)
According to the internal revenue code 162, deductible trade or business expenses must be which one
of the following? - Answers Ordinary and necessary
Tax cost recovery methods do not include - Answers Capitalization
Which of the following business assets is not depreciated - Answers Patent
Which of the following is a true statement? - Answers all of the above
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 - Answers 5000
Which depreciation convention is the general rule for tangible personal property - Answers Half year
Jasmine started a new business in the current year. She incurred $10,000 of start-up costs. How much of
the start-up costs can be immediately expensed (excluding amounts amortized over 180 months) for the
year?
A. $0
B. $2,500
C. $5,000
D. $10,000
E. None of these - Answers C. 5000
, Tax depreciation is currently calculated under what system - Answers Modified Accelerated Cost
Recovery System
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?
a) $4,000 for rent on his office that covers the next 24 months.
b) $3,000 for a new watch for the mayor to keep "good relations" with city hall.
c) $2,500 for professional hockey tickets distributed to a customer to generate "goodwill" for his
business.
d) $55 to collect an account receivable from a customer who has failed to pay for services rendered.
e) None of these is completely deductible. - Answers A. 4000 for rent on his office, which covers the next
45 months
The IRS would most likely apply the arm's length transaction test to determine which of the following? -
Answers REASONABLENESS of an expenditure
Real property is depreciated using the straight line method - Answers True
Riley operates a plumbing business and this year the 3-year old van he used in the business was
destroyed in a traffic accident. The van was originally purchased for $20,000 and the adjusted basis was
$5,800 at the time of the accident. Although the van was worth $6,000 at the time of accident,
insurance only paid Riley $1,200 for the loss. What is the amount of Riley's casualty loss deduction? -
Answers $4600
The test for whether an expenditure is reasonable in amount is whether the expenditure was for an
"arms length" amount - Answers True
Which of the following is not usually included in an assets tax basis - Answers All the choices are
included in an assets tax basis
The phase "ordinary and necessary" has been defined to mean that an expense must be essential and
indisputable to the conduct of a business - Answers False
Poplock LLC purchased a warehouse and land during the current year for $350,000. The purchase price
was allocated as follows: $275,000 to the building and $75,000 to the land. The property was placed
in service on August 12. Calculate Poplock's maximum depreciation for this first year, rounded to the
nearest whole number:
A. $2,648
According to the internal revenue code 162, deductible trade or business expenses must be which one
of the following? - Answers Ordinary and necessary
Tax cost recovery methods do not include - Answers Capitalization
Which of the following business assets is not depreciated - Answers Patent
Which of the following is a true statement? - Answers all of the above
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 - Answers 5000
Which depreciation convention is the general rule for tangible personal property - Answers Half year
Jasmine started a new business in the current year. She incurred $10,000 of start-up costs. How much of
the start-up costs can be immediately expensed (excluding amounts amortized over 180 months) for the
year?
A. $0
B. $2,500
C. $5,000
D. $10,000
E. None of these - Answers C. 5000
, Tax depreciation is currently calculated under what system - Answers Modified Accelerated Cost
Recovery System
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?
a) $4,000 for rent on his office that covers the next 24 months.
b) $3,000 for a new watch for the mayor to keep "good relations" with city hall.
c) $2,500 for professional hockey tickets distributed to a customer to generate "goodwill" for his
business.
d) $55 to collect an account receivable from a customer who has failed to pay for services rendered.
e) None of these is completely deductible. - Answers A. 4000 for rent on his office, which covers the next
45 months
The IRS would most likely apply the arm's length transaction test to determine which of the following? -
Answers REASONABLENESS of an expenditure
Real property is depreciated using the straight line method - Answers True
Riley operates a plumbing business and this year the 3-year old van he used in the business was
destroyed in a traffic accident. The van was originally purchased for $20,000 and the adjusted basis was
$5,800 at the time of the accident. Although the van was worth $6,000 at the time of accident,
insurance only paid Riley $1,200 for the loss. What is the amount of Riley's casualty loss deduction? -
Answers $4600
The test for whether an expenditure is reasonable in amount is whether the expenditure was for an
"arms length" amount - Answers True
Which of the following is not usually included in an assets tax basis - Answers All the choices are
included in an assets tax basis
The phase "ordinary and necessary" has been defined to mean that an expense must be essential and
indisputable to the conduct of a business - Answers False
Poplock LLC purchased a warehouse and land during the current year for $350,000. The purchase price
was allocated as follows: $275,000 to the building and $75,000 to the land. The property was placed
in service on August 12. Calculate Poplock's maximum depreciation for this first year, rounded to the
nearest whole number:
A. $2,648
