Taxation of Individuals and Business Entities
2025 Q&A|100% Verified
d
Jim operates his business on the accrual method and this year he received $4,000 for services that he intends to provide
to his clients next year. Under what circumstances can Jim defer the recognition of the $4,000 of income until next year?
a) Jim can defer the recognition of the income if he absolutely promises not to provide the services until next year.
b) Jim must defer the recognition of the income until the income is earned.
c) Jim can defer the recognition of the income if he has requested that the client not pay for the services until the
services are provided.
d) Jim can elect to defer the recognition of the income if the income is not recognized for financial accounting purposes.
e) Jim can never defer the recognition of the prepayments of income.
e
Bill operates a proprietorship using the cash method of accounting, and this year he received the following payments:
• $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
How much income should Bill realize on Schedule C?
a) $100
b) $300
c) $350
d) $270
e) $520
True
Sole proprietorships must use the same tax year as the proprietor of the business.
True
False
c
Individual proprietors report their business income and deductions on:
a) Form 1065
b) Form 1120S
c) Schedule C
d) Schedule A
e) Form 1041
b
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?
, Airfare to NJ $2,000
Meals 220
Lodging in NJ 450
Rental Car 180
a) $2,850.
b) $2,740.
c) $1,850 if Shelley's AGI is $50,000.
d) All of these are deductible if Shelley is reimbursed under an accountable plan.
e) None of the expenses are deductible - only employers can deduct travel expenses.
d
The IRS would most likely apply the arm's length transaction test to determine which of the following?
a) whether an expenditure is related to a business activity
b) whether an expenditure will be likely to produce income
c) timeliness of an expenditure
d) reasonableness of an expenditure
e) All of these
d
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.
True
Qualified production activity income for calculating the domestic manufacturing deduction is limited to taxable income
for a business or modified AGI for an individual.
True
False
a
Which of the following is an explanation for why insurance premiums on a key employee are not deductible?
a) The insurance deduction would offset taxable income without the potential for the proceeds generating taxable
income.
b) The federal government does not want to subsidize insurance companies.
c) It is impractical to trace insurance premiums to the receipt of proceeds.
d) Congress presumes that all expenses are not deductible unless specifically allowed in the Internal Revenue Code.
e) This rule was grandfathered from a time when the IRC disallowed all insurance premiums deductions.
True
A business generally adopts a fiscal or calendar year by using that year end on the first tax return for the business.
True
False
a
2025 Q&A|100% Verified
d
Jim operates his business on the accrual method and this year he received $4,000 for services that he intends to provide
to his clients next year. Under what circumstances can Jim defer the recognition of the $4,000 of income until next year?
a) Jim can defer the recognition of the income if he absolutely promises not to provide the services until next year.
b) Jim must defer the recognition of the income until the income is earned.
c) Jim can defer the recognition of the income if he has requested that the client not pay for the services until the
services are provided.
d) Jim can elect to defer the recognition of the income if the income is not recognized for financial accounting purposes.
e) Jim can never defer the recognition of the prepayments of income.
e
Bill operates a proprietorship using the cash method of accounting, and this year he received the following payments:
• $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
How much income should Bill realize on Schedule C?
a) $100
b) $300
c) $350
d) $270
e) $520
True
Sole proprietorships must use the same tax year as the proprietor of the business.
True
False
c
Individual proprietors report their business income and deductions on:
a) Form 1065
b) Form 1120S
c) Schedule C
d) Schedule A
e) Form 1041
b
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?
, Airfare to NJ $2,000
Meals 220
Lodging in NJ 450
Rental Car 180
a) $2,850.
b) $2,740.
c) $1,850 if Shelley's AGI is $50,000.
d) All of these are deductible if Shelley is reimbursed under an accountable plan.
e) None of the expenses are deductible - only employers can deduct travel expenses.
d
The IRS would most likely apply the arm's length transaction test to determine which of the following?
a) whether an expenditure is related to a business activity
b) whether an expenditure will be likely to produce income
c) timeliness of an expenditure
d) reasonableness of an expenditure
e) All of these
d
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.
True
Qualified production activity income for calculating the domestic manufacturing deduction is limited to taxable income
for a business or modified AGI for an individual.
True
False
a
Which of the following is an explanation for why insurance premiums on a key employee are not deductible?
a) The insurance deduction would offset taxable income without the potential for the proceeds generating taxable
income.
b) The federal government does not want to subsidize insurance companies.
c) It is impractical to trace insurance premiums to the receipt of proceeds.
d) Congress presumes that all expenses are not deductible unless specifically allowed in the Internal Revenue Code.
e) This rule was grandfathered from a time when the IRC disallowed all insurance premiums deductions.
True
A business generally adopts a fiscal or calendar year by using that year end on the first tax return for the business.
True
False
a
