Deck 5: Business Expenses

Question 1

Expenses of a hobby that exceed the income from the hobby may be carried forward to offset future income.

Answer 1

False

Question 2

A prepaid expense is always capitalized by a cash-basis taxpayer.

Answer 2

False

Question 3

A deferred tax liability can be the result of both timing and permanent differences between revenue recognition for tax and financial accounting.

Answer 3

False

Question 4

What are the basic requirements for a business expense to be deductible?

Question 5

Home office expenses that exceed the income from the related business may be carried forward to offset future income.

Question 6

The UNICAP rules require inventory to include a prorated portion of advertising and distribution expenses.

Question 7

An accrual-basis taxpayer deducts an expense when the cash is paid even if the service for which the money is paid has not been rendered.

Question 8

In 2015,all corporations with at least $10 million in assets will be required to file Form 1120,Schedule UTP with their tax returns.

Question 9

Under no circumstances will the IRS permit a business deduction for expenses that are not substantiated by a paper trail.

Question 10

Expenses must be ordinary,necessary,and reasonable to be fully deductible.

Question 11

If an employer reimburses an employee for business meals and entertainment expenses,the employer can only deduct 50 percent of the reimbursement.

Question 12

For transportation expenses for foreign travel of less than one week to be fully deductible,the days spent on business must exceed personal days.

Question 13

A taxpayer can elect to expense immediately or amortize all organization costs over a 15-year period.

Question 14

If a spouse accompanies an employee on a business trip to help entertain customers,the spouse's travel expenses are deductible.

Question 15

A cash basis taxpayer recognizes an expense when the cash is paid or the expense is charged to a credit card.

Question 16

A temporary assignment cannot exceed one-year.

Question 17

A deferred tax asset is the result of the taxes paid exceeding the tax expense on the financial statements.

Question 18

Foreign subsidiary income of a U.S.corporation must be reported along with the parent's income for financial accounting and must also include this income in the determination of its tax expense and deferred tax liability.

Question 19

The all events test is met for an accrual-basis taxpayer when the liability is determined and the service has been performed.

Question 20

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

Question 21

What are three types of expenses for which a deduction is denied?

Question 22

What effect do the UNICAP rules generally have on business expenses?

Question 23

Contrast business investigation,start-up,and organization expenses.

Question 24

What is the difference between a "directly-related" and an "associated with" business expense classified as entertainment?

Question 25

What limitations are placed on the deductibility of expenses incurred in the rental of residential property?

Question 26

What is the effect of the exception in APB 23 included in ASC 740 to the reporting of all income on consolidated statements?

Question 27

Differentiate a deferred tax asset from a deferred tax liability.

Question 28

What information is required to substantiate a business expense?

Question 29

George and Jeannie want to open a restaurant.They contribute $3,000 each for a survey to locate an appropriate area for their restaurant and $2,000 each for a real estate agent to locate a suitable building for them to buy.Shortly after this,Jeannie and George have a disagreement and Jeannie walks away from the plan.Although she asks George to reimburse her,he refuses.George then continues the project by himself.He spends $4,000 for legal and accounting fees to set the business up and $8,000 for staff training.What are the tax consequences to George and Jeannie for these expenditures when the restaurant opens in July?

Question 30

What are the restrictions placed on a cash-basis taxpayer in deducting prepaid expenses?

Question 31

Explain the difference between timing differences and permanent differences as related to tax and financial accounting?

Question 32

What is a tax home?

Question 33

Briefly describe the process that a corporation must complete in order to recognize a tax benefit from an uncertain tax position that reduces a business's current or future income tax liability,

Question 34

In year 1,Braid Corporation,a calendar-year cash-basis corporation,bought office supplies for the next six months in October for $4,500,paid $6,000 for a three-year insurance policy beginning November 1,and borrowed $200,000 on a five-year 6 percent note receiving proceeds of $198,000 on December 1.What is Braid Corporation's total expense deduction in year 1 for these transactions?

Question 35

When may an employee deduct home office expenses?

Question 36

Carl,an employee of a Miami CPA firm,was sent to work in Tampa for eight months on March 1,year 1,on a financial audit.His monthly transportation expenses were $400,his monthly lodging was $1,200,and his meals were $800 per month.At the end of the sixth month,his employer determined that the audit was going to continue for eight more months due to an SEC investigation.How much of his expenses may Carl deduct if Carl's employer reimburses him for all of the expenses and includes the reimbursements in his income in years 1 and 2? How much may the employer deduct for these expenses in years 1 and 2?

Question 37

What are the rules regarding the deduction for transportation expenses related to foreign business travel?

Question 38

Explain the all events test for expense recognition.

Question 39

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 effect of postponing the payment,using a 6 percent discount rate,if its current marginal tax rate is 34 percent but 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? (The present value of $1 at 6% is .943.

Question 40

George took a customer to dinner where they discussed business and then went to see a play.He spent $120 for the meal and left a $25 tip.Cab fare to the theater was $10 and George paid a scalper $200 for the two play tickets with a face value of $80 each.What is George's allowable deduction for these expenses?

Question 41

Attendance at business-related seminars or meetings would be deductible for all of the following except:

A)Political conventions
B)Trade shows
C)Continuing education
D)Research seminars

Question 42

Sam owns a vacation villa in Hawaii.This year he used the villa for 25 days and rented out the villa for 125 days earning $14,000 from the rentals.His total expenses for the year for the vacation home were: mortgage interest = $9,000; taxes = $4,000; utilities = $2,000; repairs and maintenance = $1,500; and depreciation = $12,000.How much can Sam deduct in total for the expenses related to the villa?

Question 43

Sarah has a three-day meeting in Berlin.She takes an overnight flight arriving early Sunday morning.After resting several hours,she spends the rest of the day sightseeing.She attends the meetings on Monday,Tuesday,and Wednesday.She spends Thursday sightseeing and returns home on Friday.Her transportation cost $1,200 and her five night's hotel cost $1,250.Her meals were $50 per day from Monday through Thursday and $30 each on Sunday and Friday.How much can Sara deduct for this business trip?

Question 44

Travel away from home on business is defined as being away from home for:

A)At least 8 hours
B)A period of time that requiring rest would be reasonable
C)No less than 24 hours
D)More than one day and night

Question 45

Which of the following employee meals is not deductible fully by the employer?

A)Meals furnished by a restaurant to its waiters during working hours
B)A meal reimbursement treated as compensation to the recipient
C)Meals at a convention for which the employee is reimbursed
D)Food at the annual employee picnic

Question 46

A taxpayer may deduct a fine for illegal parking if:

A)No parking spaces are available
B)Persons making deliveries to this business regularly receive parking tickets
C)The fine does not exceed $50
D)Fines are not deductible

Question 47

Attendance at a hockey game with a client would be deductible if:

A)Some business was discussed on the phone when plans were made to meet for the game
B)Business was discussed for about a minute while in the restroom
C)Business was discussed at dinner before the game
D)Business is not require to be discussed as long as this was to secure the client's goodwill

Question 48

Matthew,a car dealer in Atlanta,wants to open a restaurant in Miami.He spends $8,000 investigating the location and feasibility of opening the restaurant in 2015,Matthew opens the restaurant in Miami in November and spends an additional $7,000 in start-up costs.In 2015 Matthew can:

A)Deduct the entire $15,000
B)Deduct $8,000 with the remaining $7,000 amortized over 15 years
C)Deduct $5,000 with the remaining $10,000 amortized over 15 years
D)Only amortize the entire $15,000 over 15 years

Question 49

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:
What deduction should Jensen record on its financial statement?

Question 50

Which of the following may qualify as a deductible business expense?

A)Membership in the local Chamber of Commerce
B)Athletic Booster Club membership
C)Country Club dues
D)Admiral's Club of American Airlines membership

Question 51

In April 2015,Tobias was assigned to a job in the next county for the day.He drove 75 miles each way for the job,paid $4 in tolls,$7 for parking and $9 for lunch.What is his allowable business expense deduction?

A)$84
B)$97.25
C)$100
D)$106.25

Question 52

Carlos,a self-employed construction contractor,contributed $5,000 to the re-election campaign of the local mayor in the hopes that his planned construction project will be approved.How much is Carlos's deduction for this political contribution?

A)$0
B)$25
C)$2,500
D)$5,000

Question 53

Stephanie,a taxpayer in the 28% marginal tax bracket,borrows $100,000 at 7% interest to invest in 6% tax-exempt municipal bonds (annual loan interest expense is $7,000).What is Stephanie's interest expense deduction?
a.$0
b.$1,000
c.$6,000
d.$7,000

Question 54

Which of the following taxes cannot be deducted by a business?

A)Sales taxes on supplies
B)Property taxes on real property
C)FICA taxes on employees' wages
D)All of these taxes are deductible

Question 55

Taylor Corporation manufactures lawn mowers.Its annual gross receipts are in excess of $10 million.It has 200 factory personnel,25 office employees,and 10 sales persons.The cost of office staff is $1,000,000.How much of the cost of the office staff must be allocated to inventory.

Question 56

Shelley has a small photographic studio in her home where she takes portraits of a variety of pets for her clients and develops and prints the photos.Last year she earned only $5,500 and had expenses for supplies and film of $2,500.The studio takes up 300 square feet of her 1,500 square foot home.Total relevant home expenses are: Taxes = $2,100; Interest = $9,000; Utilities = $1,500; Repairs and maintenance = $600.Depreciation for the studio portion of the home = $1,000.How much of each expense can Shelley deduct for her photo studio?

Question 57

Perez Corporation paid the following expenses: $14,000 country club dues and $8,000 business meals at the country club.How much can Perez deduct for these expenses?

A)$18,000
B)$11,000
C)$4,400
D)$4,000

Question 58

To deduct a bad debt expense for tax purposes,the taxpayer must use:

A)The specific charge-off method
B)The aging of receivables method
C)The reserve method
D)Any other method permitted for financial accounting

Question 59

Allison Corporation (marginal tax rate of 34%)has $44,000 of tax depreciation in the current year.It also has a $40,000 bad debt deduction.For financial accounting,it has a total depreciation deduction of $28,000 and adds $50,000 to its bad debt reserve,the first year it has established a reserve.Determine if the corporation has a deferred tax asset or a deferred tax liability and its amount.

Question 60

Robert's adjusted gross income is $70,000 and his qualified investment expenses are $2,500 during the year.Robert has no other miscellaneous itemized deductions,but he does have $14,000 in other itemized deductions.If Robert itemizes,what is his investment expense deduction?

A)$2,500
B)$1,750
C)$1,250
D)$1,100

Question 61

All of the following expenses are deductible except:

A)Safety deposit box rental to hold investment securities
B)A paid bill by a business that is now being disputed
C)Interest incurred to purchase and hold corporate bonds
D)Costs of locating an apartment prior to moving on a job transfer.

Question 62

Fabricio,Inc.is an accrual-basis corporation.It ages its receivables to calculate the addition to its reserve for bad debts.The following were reported during the current year: The amount deductible for bad debt expense on Fabricio's tax return for the current year is:

A)$18,000
B)$25,000
C)$40,000
D)$43,000

Question 63

Which of the following would not be used to determine if an activity is a business or a hobby?

A)The time spent by the taxpayer in the business
B)The number of relatives employed by the taxpayer
C)The actual profits of the business
D)The expertise of the taxpayer's consultants

Question 64

Andrew's hobby is painting.During the current year,Andrew sold three of his paintings for a total of $2,200.His related expenses include $800 utilities,$1,200 supplies,and $400 in depreciation.Of these expenses incurred,how much can Andrew deduct in the current year?

A)$0
B)$2,000
C)$2,200
D)$2,400

Question 65

Corinne's primary business is writing music.She uses one room in her home exclusively and regularly for the activity.The office occupies 300 of the 1,500 square feet in her apartment.She earned $2,100 this last year from her music.Her expenses for the entire home were $9,000 for rent and $2,000 for utilities.What is her home office expense deduction this year?

A)$1,800
B)$2,100
C)$2,200
D)$4,000

Question 66

In 2014,Jasmin loaned her friend Janelle $5,000 to invest in various stocks.Janelle signed a note to repay the principal with interest.In 2015,Janelle made risky stock investments and incurred large losses.In late 2015,Janelle declared personal bankruptcy and Jasmin was unable to collect any of her loan.Jasmin had no other gains or losses in 2014 or 2015.Her income from wages in both 2014 and 2015 was $50,000.The result is:

A)Jasmin deducts a business bad debt of $5,000 in 2015.
B)Jasmin deducts a $5,000 capital loss in 2015.
C)Jasmin deducts a business bad debt of $3,000 in 2015 and carries $2,000 over to subsequent years.
D)Jasmin deducts a $3,000 capital loss in 2015 and carries $2,000 over to subsequent years.
E)Jasmin must amend her 2014 tax return to deduct the loss.

Question 67

Gina flew from Miami to San Diego for a business meeting.The meeting lasted four days and she stayed in San Diego for two additional days to do some sightseeing.With respect to the expenses of the trip,Gina should:

A)Prorate the airfare based on the time devoted to business and personal activities and deduct the business portion.
B)Prorate the airfare equally between business and personal activities and deduct the business portion.
C)Deduct the entire airfare.
D)Deduct none of the airfare.

Question 68

Jonathan is a self-employed consultant with a qualifying office in his home.The gross income from his business is $18,000 and he has $14,000 of business expenses other than those for his home office.His home office occupies 20% of the square footage of his home and the total expenses for his home include: $12,000 for mortgage interest,$4,000 for property taxes,$3,600 for utilities,and $1,500 for homeowner's insurance.Depreciation for the business portion of his home is $500.How much can Jonathan deduct for his home office expenses?

A)$0
B)$4,000
C)$4,220
D)$4,720

Question 69

Deductible home office expenses include the following expenses except:

A)Allocated rent or mortgage interest
B)Depreciation in excess of income from the business
C)Office telephone and fax machine costs
D)Supplies related to the home office

Question 70

If FIFO is used for inventory valuation instead of LIFO when prices are falling:

A)Cost of goods sold will be less under FIFO than LIFO.
B)Cost of goods sold will be more under FIFO than LIFO.
C)Inventory value will be less under FIFO than LIFO.
D)There is no difference in inventory or cost of goods sold.

Question 71

Nicholas wanted to take an important customer to a hockey game.Although the face value of a ticket was only $50,the only way he could get tickets was by paying a scalper $160 for each ticket.Assuming all other deductibility requirements are met,how much can Nicholas deduct for each ticket?

A)$0
B)$25
C)$50
D)$80
E)$160

Question 72

Which of the following business expenses is not deductible?

A)Business seminar on a Canadian cruise ship
B)Business meeting in China
C)Product sales seminar in Las Vegas
D)Continuing professional education (CPE)course at Oxford University

Question 73

Isabel owns a vacation home in Hawaii.During the year she rented it out for one week and used it for personal purposes three weeks.Her expenses directly related to renting out the property were: rental commission ($30)and maid service ($25).The allocated portion of taxes and interest was $400.Income from the rental was $300.Isabel should:

A)Report income of $300 and deduct $300 in expenses
B)Report income of $300 and deduct $455 in expenses
C)Report $300 of income and deduct no expenses
D)Report no income and deduct $400 along with her other itemized interest and taxes

Question 74

Inventory valuation under UNICAP does not include costs for

A)spoilage.
B)warehousing.
C)property taxes.
D)income taxes.

Question 75

Ashley runs a business out of her rental apartment.She uses part of her home exclusively and regularly for this business,her only office space.The office occupies 400 of the 1,600 square feet in her apartment.She earned $3,200 for the year from this business.Her expenses for the entire apartment were $12,000 for rent and $2,200 for utilities.How much is the maximum she can deduct this year for her home office expenses?

A)$2,450
B)$3,000
C)$3,200
D)$3,550

Question 76

Tom flew to Madrid on Wednesday; he had business meetings on Thursday and Friday.He visited museums on Saturday and Sunday and had meetings on Monday through Thursday and flew home on Friday.How many business days does Tom have for this trip for tax purposes?

A)10
B)8
C)7
D)6

Question 77

Jacob Corporation decides to use the LIFO method of inventory valuation.Which of the following is true?

A)Jacob can change to FIFO whenever it wishes.
B)Jacob must use LIFO in its financial statements.
C)Jacob will have higher taxable income if prices are rising.
D)Jacob can include FIFO information on the face of the income statements.

Question 78

An employee must meet which of the following added requirements to deduct expenses of a home office?

A)Clients or patients must be met in the home office
B)The office must be in a separate structure
C)The office must be for the convenience of the employer
D)The office must be the principal place of business

Question 79

Nick owns a home in Daytona Beach,Florida where his wife and children live.He recently accepted a full-time job in Tampa.During the week,Nick lives in a rental apartment in Tampa and on weekends he drives home to be with his family in Daytona Beach.If Nick continues to maintain and pay all of the expenses of the residence in Daytona,where is Nick's tax home?

A)Daytona Beach
B)Tampa
C)He can choose either Daytona Beach or Tampa
D)Nick has no tax home.

Question 80

Tachibana Corporation has income per books before tax of $286,000.In computing income per books,Tachibana deducted $20,000 for meals and entertainment expenses,$3,000 for premiums on officers' life insurance policies (the corporation is the beneficiary for these policies),and $100 for fines.What is Tachibana Corporation's taxable income?

A)$286,100
B)$289,000
C)$289,100
D)$299,100
E)$303,100