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Exam 1: Business Income,Deductions,and Accounting Methods

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Question 41

Multiple Choice

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Which of the following is a true statement about a request for a change in accounting method?

A) Some requests are automatically granted.
B) Most requests require the permission of the Commissioner.
C) Many requests require payment of a fee and a good business purpose for the change.
D) Form 3115 is required to be filed with a request for change in accounting method.
E) All of the choices are true.

F) C) and E)
G) A) and E)

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Question 42

True/False

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Only half the cost of a business meal is deductible even if the meal is associated with the active conduct of business.

A) True
B) False

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Question 43

Multiple Choice

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Which of the following is a true statement?

Uniform capitalization of indirect inventory costs is required for most large taxpayers.

Which of the following is a true statement?

Which of the following is a true statement about impermissible accounting methods?

Which of the following is a true statement about the domestic production activities deduction?

Paris operates a talent agency as a sole proprietorship,and this year she incurred the following expenses in operating her talent agency.What is the total deductible amount of these expenditures? $1,000 dinner with a film producer where no business was discussed. $500 lunch with sister Nicky where no business was discussed. $700 business dinner with a client but Paris forgot to keep any records (oops!) . $900 tickets to the opera with a client following a business meeting.

Shelley is employed in Texas and recently attended a two-day business conference in New Jersey.Shelley spent the entire time at the conference and documented her expenditures (described below) .What amount can Shelley deduct as an employee business expense (before considering any miscellaneous itemized deduction limitations) ?

Sandy Bottoms Corporation generated taxable income (before the domestic manufacturing deduction)of $3 million this year.The total income included $2,350,000 of qualified production activities income.The company paid $460,000 in W-2 wages to generate the qualified production activity income.What is Sandy Bottoms' domestic manufacturing deduction for the year?

George operates a business that generated adjusted gross income of $250,000 and taxable income of $170,000 this year (before the domestic production activities deduction) .Included in income was $70,000 of qualified production activities income.George paid $60,000 of wages to employees engaged in domestic manufacturing.What domestic production activities deduction will George be eligible to claim this year?

Colbert operates a catering service on the accrual method.In November of year 1 Colbert received a payment of $9,000 for 18 months of catering services to be rendered from December 1^st of year 1 through May 31^st year 3.When must Colbert recognize the income if his accounting methods are selected to minimize income recognition?

Dick pays insurance premiums for his employees.What type of insurance premium is not deductible as compensation paid to the employee?

Mike operates a fishing outfitter as an accrual-method sole proprietorship.On March 1^st of this year Mike received $15,000 for three outfitting trips.This is the first time Mike agreed to such a payment and he is obligated to outfit one trip per year for the next three summers beginning this year.How much income must Mike recognize in each of the next three years if he is attempting to minimize his tax burden?

Which of the following expenditures is NOT likely to be allowed as a current deduction for a landscaping and nursery business?

Judy is a self-employed musician who performs for a variety of events.This year Judy was fined $250 by the city for violating the city's noise ordinance with a relatively loud performance.As a consequence,Judy contributed $1,000 to a campaign committee formed to recall the city's mayor.Judy normally hires three part-time employees to help her schedule events and transport equipment.Judy paid a total of $33,000 to her employees through June of this year.In June Judy fired her part-time employees and hired her husband to replace them.However,Judy paid him $55,000 rather than $33,000.Judy is on the cash method and calendar year,and she wants to know what amount of these expenditures is deductible as business expenses.

Todd operates a business using the cash basis of accounting.At the end of last year,Todd was granted permission to switch his sales on account to the accrual method.Last year Todd made $420,000 of sales on account and $64,000 was uncollected at the end of the year.What is Todd's §481 adjustment for this year?

Jones operates an upscale restaurant and he pays experienced cooks $35,000 per year.This year he hired his son as an apprentice cook.Jones agreed to pay his son $40,000 per year.Which of the following is a true statement about this transaction?

Sole proprietorships must use the same tax year as the proprietor of the business.

According to the Internal Revenue Code §162,deductible trade or business expenses must be one of the following: