Question 1

The information in FAS 109 and the FIN 48 interpretation of FAS 109, have been incorporated into the Accounting Standards Codification Section 740-10-55.

Accepted Answer

FAS 109 (Accounting for Income Taxes) and FIN 48 (Accounting for Uncertainty in Income Taxes) have been incorporated into the FASB Accounting Standards Codification (ASC) as ASC 740-10-55, which is the authoritative source for U.S. GAAP related to accounting for income taxes.

Question 2

By 2014, all corporations with at least $5 million in assets will be required to file Form 1120, Schedule UTP with their tax returns.

Accepted Answer

The requirement to file Form 1120, Schedule UTP (Uncertain Tax Position Statement) is not based on a corporation having at least $5 million in assets. Instead, it applies to certain corporations that have assets equal to or exceeding $10 million and have issued, or been included in, audited financial statements. The threshold and requirements can vary, and the IRS updates these guidelines periodically.

Question 3

Crib Corporation, a cash-basis corporation, has $50,000 of expenses it could pay this year or it could postpone payment until next year. What is the present value effect of postponing the payment, using a 6 percent discount rate, if its current marginal tax rate is 34 percent but its marginal tax rate is expected to be 39 percent next year? How would your answer change if the next year's tax rate is expected to be 25 percent?

Accepted Answer

$50,000 x (.39 - .34) x .943 = $2,358 reduction in present value of tax liability
$50,000 x (.34 - .25) x .943 = $4,244 increase in the present value of the tax liability

Question 4

Jensen Corporation plans to take a deduction on its tax return that it believes it is more likely than not that it will be sustained. It is not sure, however, of the exact amount that will be realized. It has established the following amounts and probabilities:
 $$\begin{array} { | c | c | } 
\hline \text { Possible Deduction } & \text { Probability of Occurrence } \
\hline \$ 40,000 & .20 \
\hline \$ 35,000 & .30 \
\hline \$ 30,000 & .30 \
\hline \$ 20,000 & .20 \
\hline
\end{array}$$

Accepted Answer

The answer of Jensen Corporation plans to take a deduction...

Question 5

Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Transportation expenses on a business trip within the United States if business days exceed personal days.

Accepted Answer

Transportation expenses on a business trip within the United States are fully deductible if the business days exceed personal days, as the primary purpose of the trip is considered to be for business.

Question 6

Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Meals and lodging expenses for a foreign business trip if personal days exceed business days.

Accepted Answer

Meals and lodging expenses for a foreign business trip are partially deductible when personal days exceed business days. The expenses directly related to the business portion of the trip can be deducted, but costs associated with personal days are not deductible.

Question 7

Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Cost of a hunting lodge available for employees use on a nondiscriminatory basis.

Accepted Answer

The answer of Designate whether the following expenses are fully...

Question 8

Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Rent paid for one-year by contract on November 1 by an accrual-basis taxpayer.

Accepted Answer

For an accrual-basis taxpayer, rent paid in advance is typically deductible only for the portion that applies to the current tax year. Since the rent is paid on November 1 for one year, only the rent for November and December is deductible in the current year, making it partially deductible.

Question 9

Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Fines by the health department for unsanitary conditions.

Accepted Answer

Fines and penalties paid to the government for violating laws are generally nondeductible for tax purposes.

Question 10

Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-$200 interest on a loan that was used to purchase California State revenue bonds.

Accepted Answer

Interest on a loan used to purchase tax-exempt securities, such as California State revenue bonds, is generally nondeductible for tax purposes.

Question 11

Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Business investigation expenses incurred by a restaurant owner who investigates but abandons plans to open a hobby mart.

Accepted Answer

Business investigation expenses incurred by a taxpayer in connection with entering a new trade or business are generally considered capital expenses. If the business is not acquired or started, these expenses are nondeductible personal expenses.

Question 12

Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-$2,000 of start-up expenses paid to open a suburban branch of an existing shoe store.

Accepted Answer

The answer of Designate whether the following expenses are fully...

Question 13

Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Weekend meals and lodging when business meetings are held on Friday and Monday and these costs are less than the round-trip flight home.

Accepted Answer

Weekend meals and lodging are partially deductible because they are incurred for business purposes, but personal expenses like meals are typically only 50% deductible.

Question 14

Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Expenses for a vacation home rented for 275 days and used 20 days by the owner.

Accepted Answer

Expenses for a vacation home rented out for more than 14 days a year and used personally for more than the greater of 14 days or 10% of the days rented are partially deductible. The expenses must be allocated between rental use and personal use.

Question 15

Designate whether the following expenses are fully deductible (F), partially deductible (P), or nondeductible (N) in the year paid.
-Mortgage interest and taxes on the home in which a sole proprietor has a home office. Gross profit from the business is only $1,500.

Accepted Answer

Mortgage interest and taxes on a home are generally fully deductible expenses when itemizing deductions on a tax return. When a portion of the home is used for business purposes, such as a home office by a sole proprietor, these expenses can be apportioned between personal and business use. The business portion is fully deductible against the business income, while the personal portion remains fully deductible on Schedule A (if itemizing). The gross profit of the business does not affect the deductibility of these expenses.

Question 16

Fabricio, Inc. is an accrual basis corporation. Fabricio ages its receivables to calculate the addition to its reserve for bad debts. The following were reported during the current year:
$$\begin{array} { l r } 
\text { Credit sales } & \$ 300,000 \
\text { Collections on credit sales } & 260,000 \
\text { Amount added to the reserve for bad debts } & 25,000 \
\text { Beginning balance in the reserve } & 0 \
\text { Identifiable bad debts written off during the current year } & 18,000
\end{array}$$
The amount deductible for bad debt expense on Fabricio's tax return for the current year is:

Accepted Answer

For tax purposes, businesses can only deduct actual bad debts written off, not amounts added to a reserve. Fabricio wrote off $18,000 in bad debts, making that the deductible amount.

Quiz 5: Business Expenses

The information in FAS 109 and the FIN 48 interpretation of FAS 109, have been incorporated into the Accounting Standards Codification Section 740-10-55.

By 2014, all corporations with at least $5 million in assets will be required to file Form 1120, Schedule UTP with their tax returns.

Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid. -Transportation expenses on a business trip within the United States if business days exceed personal days.

Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid. -Meals and lodging expenses for a foreign business trip if personal days exceed business days.

Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid. -Cost of a hunting lodge available for employees use on a nondiscriminatory basis.

Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid. -Rent paid for one-year by contract on November 1 by an accrual-basis taxpayer.

Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid. -Fines by the health department for unsanitary conditions.

Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid. -$200 interest on a loan that was used to purchase California State revenue bonds.

Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid. -Business investigation expenses incurred by a restaurant owner who investigates but abandons plans to open a hobby mart.

Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid. -$2,000 of start-up expenses paid to open a suburban branch of an existing shoe store.

Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid. -Weekend meals and lodging when business meetings are held on Friday and Monday and these costs are less than the round-trip flight home.

Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid. -Expenses for a vacation home rented for 275 days and used 20 days by the owner.

Designate whether the following expenses are fully deductible (F) , partially deductible (P) , or nondeductible (N) in the year paid. -Mortgage interest and taxes on the home in which a sole proprietor has a home office. Gross profit from the business is only $1,500.