Taxation of Individuals and Business Entities
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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
Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?
a) selling expenditures.
b) cost of manufacturing labor.
c) compensation of managers who supervise production.
d) cost of raw materials.
e) All of these are subject to capitalization under the UNICAP rules.
a
Clyde operates a sole proprietorship using the cash method. This year, Clyde made the following expenditures:
, $480 to US Bank for 12 months of interest accruing on a business loan from September 1st of this year through August
31st of next year
$600 for 12 months of property insurance beginning on July 1 of this year.
What is the maximum amount Clyde can deduct this year?
a) $760
b) $600
c) $480
d) $160
e) $360
d
When does the all-events test under the accrual method require the recognition of income from the sale of goods?
a) when the title of the goods passes to the buyer.
b) when the business receives payment.
c) when payment is due from the buyer.
d) the earliest of the above three dates.
e) None of these.
b
Brad operates a storage business on the accrual method. On July 1 Brad paid $48,000 for rent on his storage warehouse
and $18,000 for insurance on the contents of the warehouse. The rent and insurance covers the next 12 months. What is
Brad's deduction for the rent and insurance?
a) $48,000 for the rent and $18,000 for the insurance.
b) $24,000 for the rent and $18,000 for the insurance.
c) $24,000 for the rent and $9,000 for the insurance.
d) $48,000 for the rent and $9,000 for the insurance.
e) None of these is true.
a
Ed is a self-employed heart surgeon who has incurred the following reasonable expenses.
$1,000 in air fare to repair investment rental property in Colorado.
$500 in meals while attending a medical convention in New York.
$300 for tuition for an investment seminar "How to pick stocks."
$100 for tickets to a football game with hospital administrators to celebrate successful negotiation of a surgical contract
earlier in the day.
How much can Ed deduct?
a) $1,300 "for AGI."
b) $1,300 "for AGI" and $300 "from AGI."
c) $480 "for AGI."
d) $80 "for AGI" and $1,300 "from AGI."
e) None of these.
a
Ajax Computer Company is an accrual method calendar year taxpayer. Ajax has never advertised in the national media
prior to this year. In November of this year, however, Ajax paid $1 million for television advertising time during a "super"
sporting event scheduled to take place in early February of next year. In addition, in November of this year the company
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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
Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?
a) selling expenditures.
b) cost of manufacturing labor.
c) compensation of managers who supervise production.
d) cost of raw materials.
e) All of these are subject to capitalization under the UNICAP rules.
a
Clyde operates a sole proprietorship using the cash method. This year, Clyde made the following expenditures:
, $480 to US Bank for 12 months of interest accruing on a business loan from September 1st of this year through August
31st of next year
$600 for 12 months of property insurance beginning on July 1 of this year.
What is the maximum amount Clyde can deduct this year?
a) $760
b) $600
c) $480
d) $160
e) $360
d
When does the all-events test under the accrual method require the recognition of income from the sale of goods?
a) when the title of the goods passes to the buyer.
b) when the business receives payment.
c) when payment is due from the buyer.
d) the earliest of the above three dates.
e) None of these.
b
Brad operates a storage business on the accrual method. On July 1 Brad paid $48,000 for rent on his storage warehouse
and $18,000 for insurance on the contents of the warehouse. The rent and insurance covers the next 12 months. What is
Brad's deduction for the rent and insurance?
a) $48,000 for the rent and $18,000 for the insurance.
b) $24,000 for the rent and $18,000 for the insurance.
c) $24,000 for the rent and $9,000 for the insurance.
d) $48,000 for the rent and $9,000 for the insurance.
e) None of these is true.
a
Ed is a self-employed heart surgeon who has incurred the following reasonable expenses.
$1,000 in air fare to repair investment rental property in Colorado.
$500 in meals while attending a medical convention in New York.
$300 for tuition for an investment seminar "How to pick stocks."
$100 for tickets to a football game with hospital administrators to celebrate successful negotiation of a surgical contract
earlier in the day.
How much can Ed deduct?
a) $1,300 "for AGI."
b) $1,300 "for AGI" and $300 "from AGI."
c) $480 "for AGI."
d) $80 "for AGI" and $1,300 "from AGI."
e) None of these.
a
Ajax Computer Company is an accrual method calendar year taxpayer. Ajax has never advertised in the national media
prior to this year. In November of this year, however, Ajax paid $1 million for television advertising time during a "super"
sporting event scheduled to take place in early February of next year. In addition, in November of this year the company
