Deck 6: Business Expenses

Question 1

A taxpayer cannot take a deduction for a disputed amount until the amount in dispute is settled.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

A temporary assignment cannot exceed one-year.

Question 5

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

Question 6

In 2019, all corporations with at least $10 million in assets will be required to file Form 1120, Schedule UTP with their tax returns.

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

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

Question 9

Under no circumstances are business deductions allowed for expenses that are not substantiated by a paper trail.

Question 10

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

Question 11

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

Question 12

Expenses of a hobby are deductible to the extent of the gross profit from the hobby, but only as miscellaneous itemized deductions before 2018 and after 2025.

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

For financial accounting purposes, the future tax savings expected from a net operating loss carryforward is reported as a deferred tax liability.

Question 18

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

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

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

Question 21

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 22

Chico Corporation, a calendar-year accrual-basis corporation, paid $3,000 on April 1 for a property 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.What is his deduction in the current year for these expenses?

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

Question 23

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 24

On October 1, 2019, Fine Brands Corporation (a cash-basis, calendar-year taxpayer) borrowed $200,000 from the bank at 9% annual interest.On December 30, 2019, Fine Brands paid $18,000 to the bank for the first year's interest on the loan.How much can Garcia deduct in 2019 for interest expense?

A)$1,500
B)$1,620
C)$4,500
D)$18,000

Question 25

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 26

Tickets to attend a hockey game with a client would be deductible in 2019 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 is not require to be discussed as long as this was to secure the client's goodwill
D)Entertainment expenses are not deductible in 2019.

Question 27

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 28

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

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

Question 29

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 30

Stephanie, a taxpayer in the 24% 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 31

Claudia went to the West Coast to attend several business meetings with clients.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 from 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

John and his family were living in New Jersey when he accepted a full-time job in Philadelphia.During the week, John lives in a rental apartment in Philadelphia that is within walking distance of his office; on weekends he drives home to be with his family in New Jersey where he also does a few hours of consulting work.Where is John's tax home?

A)Philadelphia
B)New Jersey
C)He can choose either Philadelphia or New Jersey
D)Clay has no tax home.

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

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 2019, Matthew opens the restaurant in Miami in November and spends an additional $7,000 in start-up costs.In 2019 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 35

Which of the following expenditures would not be deductible as a business expense?

A)Costs of holding a business training session at a local hotel
B)The fare for flying business class to an overseas meeting
C)Paying the interest on a loan for the owner's grandfather
D)Paying the owner's 17 year old son a salary of $9 per hour for cleaning and janitor services

Question 36

In April 2019, Tobias, a sole proprietor, worked for a new client 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? In 2019 the standard mileage rate is 58 cents per mile.

A)$56
B)$87
C)$98
D)$91

Question 37

On November 1, 2019, Hernandez Corporation (a cash-basis, calendar-year taxpayer) signed a 36-month lease with Taylor Realty Corporation for rental office space.The market rental rate for this office space is $2,000 per month but Hernandez was able to rent it for $1,900 per month by agreeing to prepay the rent for the entire 36-month period.How much can Hernandez deduct in 2019 rent expense?

A)$68,400
B)$22,800
C)$4,000
D)$3,800

Question 38

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 39

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 40

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 41

Cailey incurs $3,600 for business meals while traveling for her employer, Lewis Corporation.Cailey is reimbursed in full by Lewis under an accountable plan.What amounts can Cailey and Lewis deduct?

A)zero for Cailey and $3,600 for Lewis
B)zero for Cailey and $1,800 for Lewis
C)$1,800 for Cailey and $1,800 for Lewis
D)$3,600 for Cailey and zero for Lewis

Question 42

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 43

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 44

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 45

Donald, a sole proprietor, lived in Chicago and chose to commute to his office in Rockford in 2019.He drove 55 miles each way; tolls were $4, and parking $6.Generally he spent $12 on lunch while in Rockford.How much of these expenses can Donald deduct as travel away from home expenses?

A)$85.80
B)$73.80
C)$63.80
D)$0

Question 46

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 47

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.Which of her legal expenses qualify as deductible?

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

Question 48

Bob works for Brandon Corporation.Brandon reimburses Bob for the following expenses in 2019 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 Corporation's travel and entertainment deduction for these reimbursed expenses for 2019?

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

Question 49

Andrew's hobby is painting.During 2019, 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 50

Which of the following employee meals is fully deductible by the employer?

A)Meals charged directly on the corporate credit card by employees traveling on business
B)A meal reimbursement treated as compensation to the recipient
C)Meals at a business convention for which the employee is reimbursed
D)Food provided to employees in an on-premises cafeteria

Question 51

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 52

Waldo, a sole proprietor, 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 if they were incurred in 2019?

A)$470
B)$235
C)$85
D)$35

Question 53

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: $\begin{array}{llcc} \text { Credit sales} & \$300,000 \\ \text {Collections on credit sales } &260,000\\ \text { Amount added to the reserve for bad debts } &25,000\\ \text { Begining balance in the reserve } &0\\ \text {Identifiable bad debts written off during the current year } &18,000\\\end{array}$
The amount deductible for bad debt expense on Fabricio's tax return for the current year is:

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

Question 54

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 55

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 56

Jordan is a self-employed tax attorney who frequently entertains his clients at his country club.Jordan's club expenses include the following: $\$ 6,000$ Annual dues
1,000 Initiation fees
2,000 Charges for personal meals with his family
4,000 Business meal expenses How much can Jordan deduct?

A)$2,000
B)$5,000
C)$8,000
D)$9,000

Question 57

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 58

Donald, a sole proprietor, worked in Chicago but had to go to Rockford in March for the day on a business assignment.He drove 55 miles each way.Tolls were $4 and parking $6.He had lunch while there at a cost of $12.How much are Donald's deductible expenses in 2019?

A)$85.80
B)$63.80
C)$73.80
D)$69.80

Question 59

All of the following expenses are deductible except:

A)Cost of investigating a new business similar in nature to the taxpayer's existing business
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 60

In 2018, Jasmin loaned her friend Janelle $5,000 to invest in various stocks.Janelle signed a note to repay the principal with interest.In 2019, Janelle made risky stock investments and incurred large losses.In late 2019, Janelle declared personal bankruptcy and Jasmin was unable to collect any of her loan.Jasmin had no other gains or losses in 2018 or 2019.Her income from wages in both 2018 and 2019 was $50,000.The result is:

A)Jasmin deducts a business bad debt of $5,000 in 2019.
B)Jasmin deducts a $5,000 capital loss in 2019.
C)Jasmin deducts a business bad debt of $3,000 in 2019 and carries $2,000 over to subsequent years.
D)Jasmin deducts a $3,000 capital loss in 2019 and carries $2,000 over to subsequent years.
E)Jasmin must amend her 2018 tax return to deduct the loss.

Question 61

Inventory valuation under UNICAP does not include costs for

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

Question 62

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 63

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 64

Tachibana Corporation has income per books before tax of $286,000.In computing income per books, Tachibana deducted $20,000 for business meal 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 65

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 66

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 67

Lopez Corporation has income per books before tax of $323,000.In computing income per books, Lopez deducted $20,000 for business meals, $3,000 for premiums on officers' life insurance policies (the corporation is the beneficiary for these policies), and $100 for fines.What is Lopez Corporation's taxable income?

A)$340,100
B)$333,100
C)$336,100
D)$323,100

Question 68

Robinson Corporation has income per books before tax of $2,000,000.In computing income per books, Robinson included $8,000 interest income from tax-exempt municipal bonds and $500,000 life insurance proceeds it received as the beneficiary on a policy for the corporate vice president who was killed in a plane crash while on company business, and it deducted $50,000 for business meal expenses, $4,000 for premiums on officers' life insurance policies (the corporation is the beneficiary for these policies), $40,000 for a series of advertisements on current products, and $500 for fines.What is Robinson Corporation's taxable income?

A)$1,467,500
B)$1,471,500
C)$1,521,500
D)$1,975,500

Question 69

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 70

Clark Corporation has income per books before tax of $1,500,000.In computing income per books, Clark included $7,000 interest income from tax-exempt municipal bonds and deducted $10,000 for business meal expenses, $50,000 for depreciation expense using the straight-line method and $15,000 accrued for bad debt expense using the allowance method.It actually wrote off only $9,000 in bad debts this year and its tax depreciation expense was $80,000.What is Clark Corporation's taxable income?

A)$1,493,000
B)$1,474,000
C)$1,463,000
D)$1,458,000

Question 71

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 72

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 73

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 74

Rachel owns a vacation condo in Colorado.During the year she rented it for 14 days for $2,800.Rachel and her family members used the condo for 65 days during the year and it was vacant the rest of the year.The total expenses for the year were: $8,000 interest expense, $2,000 property taxes, and $1,800 utilities.How much net rental income must Rachel report on her tax return for the year?

A)$0
B)$711
C)$2,347
D)$2,800

Question 75

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 76

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

A)Business meal expenses
B)Depreciation expense
C)Interest income on municipal bonds
D)Government fines