Question 1

A taxpayer must use the same accounting method on the personal tax return that the taxpayer uses in the taxpayer's trade or business.

Accepted Answer

A taxpayer can use different accounting methods for personal and business tax returns, as long as each method is consistently applied and complies with IRS regulations.

Question 2

Which of the following partnerships can use the cash method of accounting?

Accepted Answer

The answer of Which of the following partnerships can use...

Question 3

One criterion which will permit a deduction for an expenditure by the accrual- basis taxpayer prior to economic performance is that either the amount is not material or the earlier accrual of the item results in a better matching of income and expense.

Accepted Answer

For accrual-basis taxpayers, deductions can be taken before economic performance if the amount is immaterial or if it results in better matching of income and expenses, aligning with the matching principle in accounting.

Question 4

A taxpayer may use a combination of accounting methods as long as income is clearly reflected.

Accepted Answer

As long as income is clearly reflected, a taxpayer may use a combination of accounting methods such as cash and accrual.

Question 5

CPA Associates, a cash- basis partnership with a calendar tax year, signs a contract for a 20- month subscription to an online tax research service, effective as of April 1. The firm pays the full $10,000 subscription bill on the April 1, 2018 subscription start date. For 2018 the firm can deduct

Accepted Answer

Under the cash basis method, expenses are generally deductible in the year they are paid. Since CPA Associates paid the full $10,000 in 2018, they can deduct the entire amount in that year.

Question 6

A cash- basis lawyer purchases an office building to use in her legal practice. To acquire the mortgage, the taxpayer must pay $5,000 in points. The taxpayer will deduct the points in the year paid.

Accepted Answer

The answer of A cash- basis lawyer purchases an office...

Question 7

If a cash- basis taxpayer gives a note in payment of an expense, the deduction may not be taken until the note is paid.

Accepted Answer

The answer of If a cash- basis taxpayer gives a...

Question 8

CPA Associates, a cash- basis partnership with a calendar tax year, signs a contract for a 30- month subscription to an online tax research service, effective as of November 1. The firm pays the full $15,000 subscription bill on the November 1, 2018 subscription start date. For 2018 the firm can deduct

Accepted Answer

The answer of CPA Associates, a cash- basis partnership with...

Question 9

Under the cash method of accounting, all expenses are deductible when paid.

Accepted Answer

The answer of Under the cash method of accounting, all...

Question 10

Points paid on a mortgage to buy a personal residence are deductible in the year paid.

Accepted Answer

Points paid on a mortgage to buy a personal residence are generally deductible in the year paid, subject to certain limitations and conditions. This deduction is allowed for both the main home and any second residence, and can also be claimed when refinancing a mortgage on a personal residence. However, there are some exceptions and limitations to this deduction, so it's best to consult a tax professional or refer to IRS guidelines for more information.

Question 11

A cash- basis taxpayer pays a bill with a credit card. The underlying expenditure is not deductible until the credit card bill is paid.

Accepted Answer

Even though the taxpayer paid the bill with a credit card, the underlying expenditure is considered deductible in the year it was charged to the credit card, regardless of when the credit card bill is paid. This is because the credit card payment is treated as a separate transaction from the original expenditure.

Question 12

Alvin, a practicing attorney who also owns an office supplies store, may use the cash basis for his legal practice and the accrual basis for his office supplies store.

Accepted Answer

It is possible for Alvin to use different accounting methods for different business activities. The choice of accounting method depends on the nature of the business and the applicable tax laws.

Question 13

A taxpayer who uses the cash method in computing gross income from his or her business must use the cash method in computing expenses of such business.

Accepted Answer

The IRS requires consistency in accounting methods, so if a taxpayer uses cash method to compute gross income they must also use cash method to compute expenses.

Question 14

Under the cash method of accounting, income is reported for the tax year in which payments are actually or constructively received.

Accepted Answer

Under the cash method of accounting, income is reported for the tax year in which payments are actually or constructively received.

Question 15

Under the cash method of accounting, all of the following are true with the exception of

Accepted Answer

Under the cash method of accounting, fixed assets are not expensed immediately as they are paid for; instead, they are capitalized and depreciated over their useful life.

Question 16

Generally, if inventories are an income- producing factor to a small business, the accrual method must be used for sales and cost of goods sold.

Accepted Answer

The answer of Generally, if inventories are an income- producing...

Question 17

The all- events test requires that the accrual- basis taxpayer report income when all events have occurred that fix the taxpayer's right to the income and when the amount can be determined with reasonable accuracy.

Accepted Answer

The statement accurately describes the all-events test.

Question 18

A business which provides a warranty on goods sold will deduct a reserve for warranty expense consistent with the reporting on its financial statements.

Accepted Answer

The answer of A business which provides a warranty on...

Question 19

Under the accrual method of accounting, the two tests to determine when income must be reported and expenses deducted are the all- events test and the economic performance test.

Accepted Answer

This statement is true. Under the accrual method, income is recognized when all the events that determine the amount and timing of the income have occurred, and expenses are deducted when economic performance has occurred, regardless of when payment is made. These two tests help ensure that income and expenses are reported in the correct period, matching revenues with related expenses.

Question 20

An accrual of a reserve for bad debt expense by an accrual- basis taxpayer meets the standards of all- events and economic performance.

Accepted Answer

The answer of An accrual of a reserve for bad...

Quiz 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

A taxpayer must use the same accounting method on the personal tax return that the taxpayer uses in the taxpayer's trade or business.

Which of the following partnerships can use the cash method of accounting?

One criterion which will permit a deduction for an expenditure by the accrual- basis taxpayer prior to economic performance is that either the amount is not material or the earlier accrual of the item results in a better matching of income and expense.

A taxpayer may use a combination of accounting methods as long as income is clearly reflected.

CPA Associates, a cash- basis partnership with a calendar tax year, signs a contract for a 20- month subscription to an online tax research service, effective as of April 1. The firm pays the full $10,000 subscription bill on the April 1, 2018 subscription start date. For 2018 the firm can deduct

A cash- basis lawyer purchases an office building to use in her legal practice. To acquire the mortgage, the taxpayer must pay $5,000 in points. The taxpayer will deduct the points in the year paid.

If a cash- basis taxpayer gives a note in payment of an expense, the deduction may not be taken until the note is paid.

Under the cash method of accounting, all expenses are deductible when paid.

Points paid on a mortgage to buy a personal residence are deductible in the year paid.

A cash- basis taxpayer pays a bill with a credit card. The underlying expenditure is not deductible until the credit card bill is paid.

Alvin, a practicing attorney who also owns an office supplies store, may use the cash basis for his legal practice and the accrual basis for his office supplies store.

A taxpayer who uses the cash method in computing gross income from his or her business must use the cash method in computing expenses of such business.

Under the cash method of accounting, income is reported for the tax year in which payments are actually or constructively received.

Under the cash method of accounting, all of the following are true with the exception of

Generally, if inventories are an income- producing factor to a small business, the accrual method must be used for sales and cost of goods sold.

The all- events test requires that the accrual- basis taxpayer report income when all events have occurred that fix the taxpayer's right to the income and when the amount can be determined with reasonable accuracy.

A business which provides a warranty on goods sold will deduct a reserve for warranty expense consistent with the reporting on its financial statements.

Under the accrual method of accounting, the two tests to determine when income must be reported and expenses deducted are the all- events test and the economic performance test.

An accrual of a reserve for bad debt expense by an accrual- basis taxpayer meets the standards of all- events and economic performance.