Deck 5: Business Expenses

Question 1

_____ 7.A taxpayer can elect to expense immediately or amortize all organization costs over a 15-year period.

Answer 1

False

Question 2

Which of the following types of 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

Answer 2

D

Question 3

_____ 19.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.

Answer 3

False

Question 4

_____ 13.Home office expenses that exceed the income from the related business may be carried forward to offset future income.

Question 5

_____ 3.A cash basis taxpayer recognizes an expense when the cash is paid or the expense is charged to a credit card.

Question 6

_____ 14.Expenses of a hobby that exceed the income from the hobby may be carried forward to offset future income.

Question 7

_____ 10.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 8

_____ 1.Expenses must be ordinary,necessary,and reasonable to be fully deductible.

Question 9

_____ 16.A deferred tax liability can be the result of both timing and permanent differences between revenue recognition for tax and financial accounting.

Question 10

_____ 11.If a spouse accompanies an employee on a business trip to help entertain customers,the spouse's travel expenses are deductible.

Question 11

_____ 2.Under no circumstances will the IRS permit a business deduction for expenses that are not substantiated by a paper trail.

Question 12

_____ 17.The information in FAS 109 and the FIN 48 interpretation of FAS 109,have been incorporated into the Accounting Standards Codification Section 740.

Question 13

_____ 9.A temporary assignment cannot exceed one-year.

Question 14

_____ 6.A prepaid expense is always capitalized by a cash-basis taxpayer.

Question 15

_____ 15.A deferred tax asset is the result of the taxes paid exceeding the tax expense on the financial statements.

Question 16

_____ 12.The UNICAP rules require inventory to include a prorated portion of advertising and distribution expenses.

Question 17

_____ 4.An accrual-basis taxpayer recognizes an expense when the cash is paid even if the service for which the money is paid has not been rendered.

Question 18

_____ 8.If an employer reimburses an employee for meals and entertainment expenses,the employer can only deduct 50 percent of the reimbursement.

Question 19

_____ 5.The all-events test is met for an accrual-basis taxpayer when the liability is determined and the service has been performed.

Question 20

_____ 18.By 2014,all corporations with at least $10 million in assets will be required to file Form 1120,Schedule UTP with their tax returns.

Question 21

Inventory valuation under UNICAP does not include costs for

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

Question 22

Cleo spent $4,000 on organization costs for her business and $13,000 training staff.If the business is a calendar-year cash-basis business that starts operations on June 1,what is the current year's deduction for these expenses?

A)$17,000
B)$9,311
C)$9,000
D)$ 611

Question 23

Travel away from home requires that the taxpayer be 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 24

Waldo bought two tickets for a Packers game on Ebay for $400.The tickets had a face value of $50 each.He took a client to the game and they had a dinner afterwards where they discussed business.The cost of the dinner was $70.What is Waldo's deduction for these expenses?

A)$470
B)$235
C)$170
D)$85

Question 25

In April 2013,Tobias was assigned to a job in the next county for the day.He drove 75 miles each way to the job,paid $4 in tolls,$7 for parking and $9 for lunch.What is his allowable business expense deduction?

A)$84.70
B)$95.75
C)$100.25
D)$104.75

Question 26

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

A)Lion's Club dues
B)Athletic Booster Club membership
C)Country Club dues
D)Admiral's Club of American Airlines membership

Question 27

Bob works for Brandon Corporation.Brandon reimburses Bob for the following expenses but does not include the reimbursement in his income: $800 country club dues,$1,200 business meals at the country club,and $200 transportation costs to out-of-town meetings.What is Brandon's deduction for these reimbursed expenses?

A)$2,200
B)$1,100
C)$800
D)$700

Question 28

Which of the following business expenses is not deductible?

A)Seminar on a Canadian cruise ship
B)Business meeting in China
C)Seminar in Las Vegas
D)Business course at Oxford University

Question 29

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 30

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 31

Claudia went to the West Coast to attend several meetings with prospective clients for her business.She flew out on Wednesday afternoon,spent all day Thursday,Friday,Monday and Tuesday attending meetings,and then spent the rest of the week touring the area,returning home on Saturday.She spent $800 on airfare,$1,600 on hotels (10 nights at $160 per night),$400 for a rental car ($40 per day from Wednesday night through Saturday of the following week),and $300 for meals ($30 per day Thursday through the following Friday and $15 on each of her travel days),what is her allowable deduction for travel away from home.

A)$1,505
B)$1,610
C)$2,305
D)$2,410

Question 32

Which of the following meals is not deductible fully by an 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 33

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 34

Attendance at seminars or meetings related to business is deductible for all of the following except:

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

Question 35

How much may Chico Corporation,a calendar-year accrual-basis corporation,deduct if it paid $3,000 on April 1 for an insurance policy for the next three years,prepaid six months interest of $450 on November 1,and paid $2,000 rent for December and January on December 1.

A)$1,900
B)$2,450
C)$2,600
D)$5,450

Question 36

To deduct 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 37

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 38

Gigi's legal expenses for the year included $800 for writing her will,$300 for making a change to her partnership agreement,$6,000 to defend a liability claim against the partnership,and $900 to clear the title to her home when a dispute arose with a previous owner.What is her deduction for legal expenses?

A)$8,000
B)$7,200
C)$6,300
D)$6,000

Question 39

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 40

Donald worked in Chicago but had to go to Rockford in March for the day on an assignment.He drove 55 miles each way.Tolls were $4 and parking $6.He had lunch while there at a cost of $12.If Donald is not reimbursed by his employer,how much can he deduct for these expenses in 2013?
a.$72.15
b.$71.10
c.$67.15
d.$62.15

Question 41

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 42

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

Question 43

In 2012,Jasmin loaned her friend Janelle $5,000 to invest in various stocks.Janelle signed a note to repay the principal with interest.In 2013,the stock market plunged and Janelle incurred large losses.In late 2013,Janelle declared personal bankruptcy and Jasmin was unable to collect any of her loan.Jasmin had no other gains or losses in 2012 or 2013.Her income from wages in both 2012 and 2013 was $50,000.The result is:

A)Jasmin deducts a business bad debt of $5,000 in 2013.
B)Jasmin deducts a $5,000 capital loss in 2013.
C)Jasmin deducts a business bad debt of $3,000 in 2013 and carries $2,000 over to subsequent years.
D)Jasmin deducts a $3,000 capital loss in 2013 and carries $2,000 over to subsequent years.
E)Jasmin must amend her 2012 tax return to deduct the loss.

Question 44

The more-likely-than-not standard

A)is based on a more-than 50 percent probability.
B)applies only to contested liabilities
C)is used to determine if a deferred tax liability should be recognized.
D)is spelled out in APB 23.

Question 45

If an expense is reported on the tax return before it is reported on the financial accounting books

A)the result is a deferred tax asset
B)the result is a deferred tax liability
C)there could be either a deferred tax asset or liability
D)there is no effect as this is not a timing difference

Question 46

John,a rental car dealer on Miami Beach,is considering opening a beauty salon in San Francisco.After spending $8,000 investigating such possibilities in San Francisco,John decides not to open the salon.As a consequence,the $8,000 is:

A)Capitalized and amortized over 189 months
B)Capitalized and deductible over the life of the business
C)Deduct $5,000 and amortize the balance over 180 months
D)Not deductible

Question 47

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 48

All of the following would normally result in timing (temporary)differences between tax and financial accounting except:

A)Amortization of start-up expenses
B)Prepaid income
C)Penalty for late payment of taxes
D)Installment sales

Question 49

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 50

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 51

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 52

All of the following would normally result in permanent differences between tax and financial accounting except:

A)Meal and entertainment expenses
B)Depreciation expense
C)Interest income on municipal bonds
D)Government fines

Question 53

Which of the following is not included as part of ASC 740?

A)UNICAP Rules
B)ABP 23
C)FIN 48
D)FAS 109

Question 54

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?

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

Question 55

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 will Nicholas be able to deduct for each ticket?

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

Question 56

A deferred tax liability

A)causes a business's effective tax rate to differ from the statutory rate.
B)can result from financial accounting revenues exceeding those recognized for tax purposes.
C)is effectively an interest-free loan from the government.
D)All of the above
E)(a)and (b)only

Question 57

Nick owns a home in Daytona Beach,Florida where his wife and children live.He decides to accept a full-time job in Tamp a.During the week,Nick lives in a rental apartment in Tampa within walking distance of his office and on weekends he drives home to be with his family in Daytona Beach where he also does some part-time consulting work.Where is Nick's tax home?

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

Question 58

Which of the following is an additional requirement for employees 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 59

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 60

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: 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 61

Which of the following is included as part of APB 23?

A)A parent corporation can exclude a foreign subsidiary's income if earnings will not be repatriated.
B)A parent corporation can exclude deferred taxes on foreign income if earnings will not be repatriated.
C)A parent must meet a more-likely-than not standard to determine the effect of a tax benefit.
D)A parent must disclose details relating to tax uncertainties of its subsidiaries.