Question 1

Brandi operates a small business and employs three staff members, all of which perform the same tasks with more or less the same level of skill.Two of the staff members are paid wages of $10 per hour; however, the third staff member, Whiski, is Brandi's sister and earns $17 per hour.What amount per hour can Brandi deduct for wages paid to Whiski?

Accepted Answer

Brandi will only be able to deduct $10 per hour as that appears to be the reasonable wage rate for an employee in that position.

Question 2

Which of the following is not a test to deduct business expenses:
A)The expense must be ordinary and necessary
B)The expense must have a legitimate business purpose
C)The expense must be reasonable
D)The expense must be lavish and extravagant

Accepted Answer

The IRS does not allow deductions for expenses that are considered lavish or extravagant. A, B, and C are all tests used to determine if an expense is deductible.

Question 3

Stone Pine Corporation, a calendar year taxpayer, has ending inventory of $150,000 on December 31, 20X2.During the year 20X2, the corporation purchased additional inventory of $375,000.If cost of goods sold for 20X2 is $470,000, what was the beginning inventory at January 1, 20X2?
A)$55,000
B)$245,000
C)$255,000
D)$310,000
E)None of the above

Accepted Answer

B

Question 4

Maria runs a small business out of her home.She has expenses of $2,000 per year and uses the cash basis method of accounting.Her only employee is her cousin who works for her part-time.What form should she use to report her business income?
A)Schedule A
B)Schedule C
C)Schedule F
D)Schedule C-EZ
E)Schedule B

Accepted Answer

Maria should use Schedule C to report her business income since she is operating as a sole proprietor using the cash basis accounting method. Schedule A is used for itemized deductions, Schedule F is used for farm income, and Schedule B is used for interest and dividends. Schedule C-EZ is no longer available as an option.

Question 5

Acacia Company had inventory of $300,000 on December 31, 20X1.Other information is as follows: $$\begin{array} { | l | r | } 
\hline \text { Purchases } & \$ 1,500,000 \
\hline \text { Sales } & 1,800,000 \
\hline \text { Inventory } 1 / 1 / 20 \mathrm { X } 1 & 500,000 \
\hline
\end{array}$$ What is the amount of Acacia's cost of goods sold for 20X1?
A)$2,000,000
B)$1,600,000
C)$1,700,000
D)$1,800,000
E)None of the above

Accepted Answer

The cost of goods sold equation is:

Cost of goods sold = Beginning inventory + Purchases - Ending inventory

Using the information given:

Beginning inventory = $500,000 
Purchases = $1,500,000 
Ending inventory = $300,000

Cost of goods sold = $500,000 + $1,500,000 - $300,000 = $1,700,000

Therefore, the correct answer is C) $1,700,000.

Question 6

Once the election to use the LIFO inventory method has been made by a taxpayer, the inventory method may be changed only with the consent of the IRS.

Accepted Answer

Once the LIFO inventory method has been elected, it can only be changed with the consent of the IRS.

Question 7

A taxpayer who adopts the LIFO method of inventory valuation for tax purposes may use the FIFO method for preparing financial statements.

Accepted Answer

The answer of A taxpayer who adopts the LIFO method...

Question 8

To file a Schedule C-EZ, the taxpayer must:
A)Have gross receipts of $25,000 or less from the business.
B)Have business expenses of $5,000 or less.
C)Have inventory of less than $2,000 during the year.
D)Have no more than 2 businesses.
E)Have no more than 5 employees during the year.

Accepted Answer

To file a Schedule C-EZ, the taxpayer must have business expenses of $5,000 or less.

Question 9

Patricia is a business owner who is trying to determine her cost of goods sold for the current year.She bought 20 units of inventory at $11, then 26 units at $10, and finally 18 units at $14.She sold 30 units at an average price of $16 per unit during the current year and uses FIFO for her inventory valuation.What was her cost of goods sold in the current year, assuming that there was no inventory at the beginning of the year?
A)$320
B)$330
C)$480
D)$732
E)None of the above

Accepted Answer

The answer of Patricia is a business owner who is...

Question 10

Lew started a business writing a popular syndicated Japanese gardening column in the current year and will report a profit for his first year.His results of operations are as follows: $$\begin{array} { l r } 
\text { Gross income } & \$ 38,000 \
\text { Travel expense } & 4,000 \
\text { Business suits, to visit magazine editors } & 1,000 \
\text { Transportation, } 884 \text { miles (at } 54.5 \text { cents per mile) } & 482 \
\text { Entertainment } & 800 \
\text { Subscription to bonsai and Japanese gardening magazines } & 500 \
\text { Gifts: } 8 \text { at } \$ 100 \text { each; } 2 \text { at } \$ 20 \text { each } & 840 \
\text { Rent and utilities for apartment, in total } & 10,000 \
( 15 \text { percent is used for a home office) } &
\end{array}$$ What is the net income Lew should show on his Schedule C? Show the calculation of his taxable income.​ $\begin{array}{c}
\begin{array}{lll}
 \text {Gross income}\
 \text {Expenses (describe each)}\
\
\
\
\
\
\
\
 \text {Taxable income}
\end{array}
\begin{array}{lll}
\$\
\
\
\
\
\
\
\
\
\$\

\end{array}
\end{array}$

Accepted Answer

The answer of Lew started a business writing a popular...

Question 11

Generally, for an activity to be treated as a trade or business, which of the following is required:
A)Always generate a profit
B)No more than intermittent effort toward the activity
C)Regular and continual effort designed to seek profit
D)Organization as a corporation or partnership

Accepted Answer

To be classified as a trade or business, the taxpayer must engage in regular and continual effort with the intention of seeking profit. The activity does not need to always generate a profit, nor does it need to be organized as a corporation or partnership. Intermittent effort toward the activity would not qualify it as a trade or business.

Question 12

What income tax form does a self-employed sole proprietor usually use to report business income and expense?
A)Schedule A, Miscellaneous Itemized Deductions
B)Schedule B
C)Schedule C
D)Form 2106, Employee Business Expenses
E)None of the above

Accepted Answer

A self-employed sole proprietor typically uses Schedule C to report business income and expenses on their personal income tax return. This form calculates their net profit or loss for the year, which is then reported on their Form 1040. Schedule A is used for itemized deductions other than business expenses, Schedule B is used for interest and dividend income, and Form 2106 is used for employee business expenses (which would not apply to a sole proprietor).

Question 13

Peter is a self-employed attorney.He gives the following information about his business to his CPA for use in preparing his 2018 tax return: $\begin{array}{c}
\begin{array}{lll}
\text {Income}\
\text {Fees from law practice}\
\
\underline{\text {Expenses}}\
\text {Malpractice insurance}\
\text {Office rent}\
\text {Office supplies}\
\text {Travel expense}\
\text {Meals}\
\text {Entertainment}\
\text {Paral egal wages}\
\text {Country club dues (Peter uses the club for business entertainment)}
\end{array}
\begin{array}{lll}
\
\$153,000\
\
\
\$8,000\
12,000\
5,600\
2,000\
3,800\
4,000\
25,500\
2,500
\end{array}
\end{array}$
 Peter also drove his car 5,580 miles for business and used the standard mileage method for computing transportation costs.How much will Peter show on his Schedule C for 2018 for: 
a.Income
b.Tax deductible expenses
c.Taxable income

Accepted Answer

The answer of Peter is a self-employed attorney.He gives the...

Question 14

In the current year, Johnice started a profitable bookkeeping business as a sole proprietor.Johnice made $38,000 in her first year of operation.What two forms must Johnice file for her business?
A)Schedules A and C
B)Schedules D and E
C)Schedule SE and C
D)Schedules B and C
E)None of the above

Accepted Answer

As a sole proprietor, Johnice is required to file both Schedule SE (Self-Employment Tax) and Schedule C (Profit or Loss from Business) with her personal tax return. These forms report her business income and expenses and determine the amount of self-employment tax she owes. Therefore, the correct choice is C – Schedule SE and C. A, B, D, and E are not the correct answers, as they either do not apply to Johnice's business or are not required for sole proprietors.

Question 15

Schedule C or Schedule C-EZ may be used to report the net profit or loss from a partnership with business expenses of $2,500 or less.

Accepted Answer

Schedule C or Schedule C-EZ is used by sole proprietors to report business income and expenses, not by partnerships. Partnerships typically use Form 1065 to report income and expenses.

Question 16

Jasper owns a small retail store as a sole proprietor.The business records show that the cost of the store's inventory items has been steadily increasing.The cost of the end of the year inventory is $200,000 and the cost of the beginning of the year inventory was $250,000.Jasper uses the FIFO method of inventory valuation.Which of the following statements is true?
A)Jasper purchased more inventory during the year than he sold during the same one-year period.
B)Jasper would have a higher net income if he used the LIFO method of inventory valuation instead of the FIFO method.
C)Jasper has apparently decreased the volume of items in his ending inventory as compared to the number of items in his beginning inventory.
D)Since the cost of the store's inventory items is increasing, Jasper will have a greater cost of goods sold figure under FIFO than LIFO.
E)None of the above.

Accepted Answer

Jasper's ending inventory cost is lower than the beginning inventory cost, indicating that he has decreased the volume of items in his ending inventory compared to the beginning inventory.

Question 17

What is the purpose of Schedule C?

Accepted Answer

The answer of What is the purpose of Schedule C?...

Question 18

Janine is a sole proprietor owning a small specialty store.The business records show that the cost of the store's individual inventory items has been steadily increasing.The cost of the end of the year inventory is $125,000 and the cost of the beginning of the year inventory was $150,000.Janine uses the LIFO method of inventory valuation.Which of the following statements is true?
A)Janine purchased more inventory during the year than she sold during the same one-year period.
B)Janine would have a higher net income if she used the FIFO method of inventory valuation instead of the LIFO method.
C)Janine has apparently increased the volume of items in her ending inventory as compared to the number of items in her beginning inventory.
D)Since the cost of the store's inventory items is increasing, Janine will have a smaller cost of goods sold amount on a LIFO basis than on a FIFO basis.
E)None of the above.

Accepted Answer

The answer of Janine is a sole proprietor owning a...

Question 19

When a taxpayer uses the FIFO inventory valuation method, the assumption on which the method is based is that the inventory on hand at the end of the year consists of the most recently acquired items.

Accepted Answer

The answer of When a taxpayer uses the FIFO inventory...

Question 20

The taxpayer must use either the FIFO or LIFO method of valuing inventory, depending upon which method reflects the actual goods the taxpayer has on hand.

Accepted Answer

The taxpayer can choose either the FIFO (First-In, First-Out) or LIFO (Last-In, First-Out) method for valuing inventory based on financial and tax planning strategies, not necessarily on which method reflects the actual goods on hand.

Quiz 3: Additional Income Part 1

Which of the following is not a test to deduct business expenses:

Stone Pine Corporation, a calendar year taxpayer, has ending inventory of $150,000 on December 31, 20X2.During the year 20X2, the corporation purchased additional inventory of $375,000.If cost of goods sold for 20X2 is $470,000, what was the beginning inventory at January 1, 20X2?

Maria runs a small business out of her home.She has expenses of $2,000 per year and uses the cash basis method of accounting.Her only employee is her cousin who works for her part-time.What form should she use to report her business income?

Once the election to use the LIFO inventory method has been made by a taxpayer, the inventory method may be changed only with the consent of the IRS.

A taxpayer who adopts the LIFO method of inventory valuation for tax purposes may use the FIFO method for preparing financial statements.

To file a Schedule C-EZ, the taxpayer must:

Generally, for an activity to be treated as a trade or business, which of the following is required:

What income tax form does a self-employed sole proprietor usually use to report business income and expense?

In the current year, Johnice started a profitable bookkeeping business as a sole proprietor.Johnice made $38,000 in her first year of operation.What two forms must Johnice file for her business?

Schedule C or Schedule C-EZ may be used to report the net profit or loss from a partnership with business expenses of $2,500 or less.

What is the purpose of Schedule C?

When a taxpayer uses the FIFO inventory valuation method, the assumption on which the method is based is that the inventory on hand at the end of the year consists of the most recently acquired items.

The taxpayer must use either the FIFO or LIFO method of valuing inventory, depending upon which method reflects the actual goods the taxpayer has on hand.