Income Tax Fundamentals 2017 35th Edition by Gerald E. Whittenburg – Test Bank

 

To Purchase this Complete Test Bank with Answers Click the link Below

 

https://tbzuiqe.com/product/income-tax-fundamentals-2017-35th-edition-by-gerald-e-whittenburg-test-bank/

 

If face any problem or Further information contact us At tbzuiqe@gmail.com

 

 

Sample Test

Chapter_3_Business_Income_and_Expenses_Part_I   1. 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: Gross income $38,000 Travel expense 4,000 Business suits, to visit magazine editors  1,000 Transportation, 893 miles (at 54 cents per mile)  482 Entertainment 800 Subscription to bonsai and Japanese gardening magazines  500 Gifts: 8 at $100 each; 2 at $20 each  840 Rent and utilities for apartment, in total (15 percent is used for a home office) 10,000 ​ What is the net income Lew should show on his Schedule C? Show the calculation of his taxable income. Gross income $_________ Expenses (describe each)     _________   _________   _________   _________   _________   _________   _________     Taxable income $_________   ANSWER:   Gross income $38,000 Expenses   Travel $ 4,000 Transportation-mileage 482 Entertainment ($800 × 50%) 400 Subscriptions 500 Gifts, 8 at $25, 2 at $20 240 Rent and utilities allocated to home office (15% × $10,000) 1,500 ​ Total expenses ​ $ 7,122 ​ Taxable income $30,878 POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-01 – LO:3-01 ITF.WABG.16.LO:3-03 – LO:3-03 ITF.WABG.16.LO:3-04 – LO:3-04 ITF.WABG.16.LO:3-05 – LO:3-05 ITF.WABG.16.LO:3-07 – LO:3-07 ITF.WABG.16.LO:3-09 – LO:3-09 ITF.WABG.16.LO:3-11 – LO:3-11 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

2. 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.   a. True   b. False   ANSWER:   False RATIONALE:   Schedule C or Schedule C-EZ are used to report income and expenses for an individual taxpayer who operates a trade or business as a sole proprietor. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-01 – LO:3-01 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

3. 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.   ANSWER:   b POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-01 – LO:3-01 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

4. 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   ANSWER:   c POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-01 – LO:3-01 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

5. 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   ANSWER:   c POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-01 – LO:3-01 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

6. 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   ANSWER:   b RATIONALE:   Schedule C-EZ cannot be used if the business has employees. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-01 – LO:3-01 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

7. Peter is a self-employed attorney. He gives the following information about his business to his CPA for use in preparing his 2016 tax return: Income      Fees from law practice $153,000     Expenses      Malpractice insurance $ 8,000    Office rent 12,000    Office supplies 5,600    Travel expense 2,000    Meals and entertainment 7,800    Paralegal wages 25,500    Country club dues (Peter uses the club for business entertainment) 2,500 Peter also drove his car 5,528 miles for business and used the standard mileage method for computing transportation costs. How much will Peter show on his Schedule C for 2016 for: a. Income b. Tax deductible expenses c. Taxable income   ANSWER:   a. ​ Income $153,000 ​ b. Tax deductible expenses          Malpractice insurance $  8,000        Office rent 12,000        Office supplies 5,600        Travel expense 2,000        Meals and entertainment ($6,800 × 50%) 3,900        Paralegal wages 25,500        Mileage: 5,528 miles × $0.575 ​    2,985        Total expenses ​ $ 59,985 c. Taxable income $ 93,015 POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-01 – LO:3-01 ITF.WABG.16.LO:3-03 – LO:3-03 ITF.WABG.16.LO:3-04 – LO:3-04 ITF.WABG.16.LO:3-05 – LO:3-05 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

8. What is the purpose of Schedule C? ANSWER:   Schedule C is used by self-employed taxpayers to report the income or loss from a trade or business. Taxpayers who use Schedule C include self-employed accountants, attorneys, plumbers, gardeners, manufacturers, restaurant owners, and hundreds of other businesses owned by individuals as sole proprietorships. The type of business and the address where the business is operated are shown on Schedule C. Schedule C reports gross income from the business and expenses, which must be broken down by category. If the business holds inventory, information related to the beginning and ending inventory, as well as cost of goods sold, must also be reported. If the business requires the use of the owner’s automobile, additional information related to the auto must be reported as well. POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Essay HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-01 – LO:3-01 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

9. 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   ANSWER:   c POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-01 – LO:3-01 NATIONAL STANDARDS:   United States – BUSPORG: Comprehension – BUSPORG:Comprehension STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

10. 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   ANSWER:   d POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-01 – LO:3-01 NATIONAL STANDARDS:   United States – BUSPORG: Comprehension – BUSPORG:Comprehension STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

11. 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? 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.​ POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Objective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-01 – LO:3-01 NATIONAL STANDARDS:   United States – BUSPORG: Comprehension – BUSPORG:Comprehension STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

12. 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.   a. True   b. False   ANSWER:   True POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-02 – LO:3-02 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

13. A taxpayer who adopts the LIFO method of inventory valuation for tax purposes may use the FIFO method for preparing financial statements.   a. True   b. False   ANSWER:   False RATIONALE:   If the LIFO method of inventory valuation is used for reporting taxable income, then the taxpayer must use LIFO when preparing his financial statements. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-02 – LO:3-02 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

14. 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.   a. True   b. False   ANSWER:   False RATIONALE:   A taxpayer must choose an inventory valuation method and use that method each year. FIFO and LIFO are simply calculation assumptions; the goods that are actually on hand do not have to correspond to the assumptions of the method selected. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-02 – LO:3-02 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

15. 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. True   b. False   ANSWER:   True POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-02 – LO:3-02 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

16. 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   ANSWER:   b RATIONALE:   ($470,000 – $375,000 + $150,000) POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-02 – LO:3-02 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

17. 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.   ANSWER:   b POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-02 – LO:3-02 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Analysis

 

18. Acacia Company had inventory of $300,000 on December 31, 20X1. Other information is as follows: ​ ​  Purchases $1,500,000  Sales 1,800,000 Inventory 1/1/20X1 500,000 ​ ​ ​ 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   ANSWER:   c RATIONALE:   ($500,000 + $1,500,000 – $300,000) POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-02 – LO:3-02 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

19. 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.   ANSWER:   c POINTS:   1 DIFFICULTY:   Challenging QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-02 – LO:3-02 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Analysis

 

20. Patricia is a business owner who is trying to determine her cost of goods sold for 2016. 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 in 2016 and uses FIFO for her inventory valuation. What was her cost of goods sold in 2016, 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   ANSWER:   a RATIONALE:   (20 x $11) + (10 x $10) POINTS:   1 DIFFICULTY:   Challenging QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-02 – LO:3-02 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Analysis

 

21. Vinnie has a small retail store and sells one product. His beginning inventory consisted of 1,000 products at $4 each for a total of $4,000. During the year, Vinnie made the following purchases of the product: March 1 5,000 products at $5 each = $25,000 August 1 1,000 products at $6 each = $ 6,000 ​ Vinnie uses the FIFO method of inventory valuation and he sells 5,000 products during the current year. a. Calculate the total cost of goods available for sale. b. Calculate the cost of the ending inventory. c. Calculate the cost of goods sold. ANSWER:   a. Beginning inventory $ 4,000   Add: Purchases ($25,000 + $6,000)  31,000   Cost of goods available for sale $35,000   b. Ending inventory is equal to 2,000 units (7,000 units available for sale less 5,000 units sold), consisting of:   1,000 units at $6 $ 6,000   1,000 units at $5   5,000   Cost of ending inventory $11,000   c. Cost of goods available for sale $35,000   Less: Ending inventory (11,000)   Cost of goods sold $24,000 POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-02 – LO:3-02 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

22. Vinnie has a small retail store and sells one product. His beginning inventory consisted of 1,000 products at $4 each for a total of $4,000. During the year, Vinnie made the following purchases of the product: March 1 5,000 products at $5 each = $25,000 August 1 1,000 products at $6 each = $ 6,000 ​ Vinnie uses the LIFO method of inventory valuation and he sells 5,000 products during the current year. a. Calculate the total cost of goods available for sale. b. Calculate the cost of the ending inventory. c. Calculate the cost of goods sold. ANSWER:   a. Beginning inventory $ 4,000   Add: Purchases ($25,000 + $6,000)  31,000   Cost of goods available for sale $35,000 ​ b. Ending inventory is equal to 2,000 units (7,000 units available for sale less 5,000 units sold), consisting of:   1,000 units at $4 $ 4,000   1,000 units at $5   5,000   Cost of ending inventory $ 9,000 ​ c. Cost of goods available for sale $35,000   Less: Ending inventory (9,000)   Cost of goods sold $26,000 POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-02 – LO:3-02 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

23. Once a taxpayer uses the standard mileage method to determine the deduction for automobile expenses for the tax year, the standard mileage method must be used in all subsequent years.   a. True   b. False   ANSWER:   False RATIONALE:   If a taxpayer uses the standard mileage method in the first year, then the taxpayer may use the standard mileage method or the actual cost method in subsequent years, whichever gives the taxpayer the largest deduction as long as the taxpayer maintains adequate records of the actual costs. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-03 – LO:3-03 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

24. The standard mileage rate for automobiles in 2016 is 56 cents per mile.   a. True   b. False   ANSWER:   False RATIONALE:   The standard mileage rate in 2016 is $0.54 per mile. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-03 – LO:3-03 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

25. If the taxpayer does not maintain adequate records of car expenses (i.e., gas, tires, car insurance, etc.), the standard mileage rate cannot be used.   a. True   b. False   ANSWER:   False RATIONALE:   In order to use the actual cost method to calculate transportation deductions, the taxpayer must keep adequate cost records of the car expenses. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-03 – LO:3-03 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

26. If a taxpayer works at two or more jobs during the same day, he or she may deduct the cost of transportation from one job to the other.   a. True   b. False   ANSWER:   True POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-03 – LO:3-03 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

27. Greg, a self-employed plumber, commutes from his home to his office which is 10 miles away. At his office, he loads his truck for the day with the parts that he needs. Then he is off to see his first customer of the day, Mr. Smith. Mr. Smith is 5 miles away from the office. After Mr. Smith’s job, Greg goes to his next plumbing client, Martin’s Dry Cleaning, which is 21 miles away from Mr. Smith. Greg spends the rest of the day at Martin’s Dry Cleaning. From Martin’s Dry Cleaning, Greg goes home which is now only 7 miles away. How much can Greg count as deductible transportation miles? ​   a. None of it   b. 21 miles   c. 26 miles   d. 43 miles   ANSWER:   c RATIONALE:   (5 miles + 21 miles)  The trip to and from home is generally considered non-deductible commuting. POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-03 – LO:3-03 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

28. Deductible transportation expenses:   a. Include meals and lodging.   b. Include only costs incurred while away from home.   c. Do not include the normal costs of commuting.   d. Do not include daily expenses for transportation between the taxpayer’s home and temporary work locations if the taxpayer has a regular place of business.   ANSWER:   c POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-03 – LO:3-03 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

29. Which of the following taxpayers may not use the standard mileage method of calculating transportation costs?   a. A self-employed CPA who drives a computer-equipped minivan to visit clients.   b. A taxpayer who has a fleet of 10 business automobiles.   c. A real estate salesperson who drives a $70,000 Mercedes while showing houses.   d. An attorney who uses his Yaris for calling on clients.   e. All of the above taxpayers may use the standard mileage method.   ANSWER:   b POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-03 – LO:3-03 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

30. Rick is a business adviser who lives in Escondido, California and works in San Diego. He makes a 70-mile round trip commute to his job every workday, for a total of 14,000 miles a year. In addition, he drives 1,000 miles throughout the year to visit clients from his office in San Diego. If Rick uses the standard mileage method for computing automobile expenses, what is his automobile expense deduction for 2016? ANSWER:   $540 = 1,000 miles × $0.54. Costs of commuting are not deductible. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-03 – LO:3-03 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

31. Christine is a self-employed tax accountant who drives her car to visit clients occasionally throughout the year. She drives her car 1,000 miles for business, 5,000 miles for commuting and 5,000 miles for personal use. Assuming that Christine uses the standard mileage method, how much is her auto expense for 2016? Where in her tax return should Christine claim this deduction? ANSWER:   The business auto expense is $540 (1,000 miles × $0.54). Commuting and personal use are not tax deductible expenses. The deductible expense should be reported on Christine’s Schedule C. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-03 – LO:3-03 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

32. Curt is self-employed as a real estate salesman and drives his car frequently to take clients to see homes for sale. Curt drove his car 20,000 miles for business purposes and 25,000 miles in total. His actual expenses for operating the auto including depreciation are $10,000 since he drove it so much during the year. Curt has used the actual cost method since he started his business in 2013. How much is Curt’s deductible auto expense for the year? ANSWER:   $8,000 (20,000 / 25,000 miles × $10,000). Since Curt has used the actual cost method in the previous tax year, he is not entitled to use the standard mileage method. POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-03 – LO:3-03 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

33. Paul is a self-employed investment adviser who uses his automobile for business. Paul drove his automobile a total of 20,000 miles during 2016; 75 percent was business mileage. The actual cost of gasoline, oil, depreciation, repairs, and insurance for the year was $6,200. a. How much is Paul’s transportation deduction based on the standard mileage method? b. How much is Paul’s transportation deduction based on the actual cost method? c. ​ Which method should Paul use to calculate his transportation deduction, assuming he used the standard mileage method in 2015? Why? d. Where should he deduct the transportation expense on his 2016 tax return?   ANSWER:   a. $8,100 = 20,000 miles × 75% = 15,000 miles × $0.54 b. $4,650 = $6,200 × 75% c. The standard mileage method; it results in the larger deduction. d. On his Schedule C. POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-03 – LO:3-03 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

34. Chris opens a chiropractic office in Houston on January 1, 2016. In 2016, Chris drives a total of 4,200 miles from his office to clients’ homes to do chiropractic adjustments. In addition, he drives a total of 3,000 miles for commuting between his home and his office in 2016. He elects to use the standard mileage method. On January 1, 2016, Chris purchases an annual subscription to a chiropractic journal for $200 and a 1-year medical reference service for $500. Calculate Chris’s deduction for the above items for the 2016 tax year. ANSWER:   Mileage: 4,200 miles at $0.54 $2,268 Annual subscription 200 One-year medical reference service     500 Total deduction for business expense $2,968 POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-03 – LO:3-03 ITF.WABG.16.LO:3-07 – LO:3-07 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

35. If a taxpayer takes a trip within the United States which is primarily for business, the cost of travel to and from the destination need not be prorated between the business and personal portion of the trip.   a. True   b. False   ANSWER:   True POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

36. If an employee is transferred to a distant location for an indefinite period of time, the new location typically will be considered the employee’s new tax home.   a. True   b. False   ANSWER:   True POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

37. The cost of transportation from New York to London for a trip that is for both business and pleasure may be deducted in full as a travel expense.   a. True   b. False   ANSWER:   False RATIONALE:   For business trips outside of the United States, the cost of traveling to and from the destination must be allocated between business and personal based on the number of business days compared to the total number of days outside the United States. POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

38. For an expense to qualify as a travel expense, the taxpayer must be away from home for at least 24 hours.   a. True   b. False   ANSWER:   False RATIONALE:   For an expense to qualify as a travel expense, the taxpayer must be away from home “overnight”. Overnight does not need to be 24 hours away from home; it just needs to be a period of time longer than an ordinary work day in which rest or relief from work is required. POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

39. The IRS has approved only two per diem methods to substantiate travel expenses, the high-low method and the meals and incidental expenses method.   a. True   b. False   ANSWER:   False RATIONALE:   The IRS has approved three per diem methods to substantiate travel expenses. The regular federal rate method is the third method. POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

40. Barry is a self-employed attorney who travels to New York on a business trip during the year. Barry’s expenses were as follows: Airfare $560 Taxis  40 Meals 100 Lodging 350 How much may Barry deduct as travel expenses for the trip?   a. $0   b. $950   c. $1,000   d. $1,050   e. None of the above   ANSWER:   c RATIONALE:   [$560 + $40 + $350 + (50% x $100)] POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

41. If an employer chooses a per diem method of substantiation for travel expenses,   a. The Regular Federal Rate method allows employees the same per diem rate no matter where they travel in the United States.   b. The high-low method averages the high-cost locality and low-cost locality per diem rates to arrive at an average rate.   c. The meals and incidental expenses method requires actual cost records to substantiate lodging expenses.   d. Actual expense records substantiating the business reason for the trip and the dates of arrival and departure are not required.   e. The employer need not use an accountable plan for reimbursing employees for travel expenses.   ANSWER:   c POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

42. During the current year, Harry, a self-employed accountant, travels from Kansas City to Miami for a 1-week business trip. While in Miami, Harry decides to stay for an additional 5 days of vacation. Harry pays $600 for airfare, $200 for meals, and $500 for lodging while on business. The cost of meals and lodging while on vacation was $300 and $500, respectively. How much may Harry deduct as travel expenses for the trip?   a. $600   b. $1,100   c. $1,200   d. $1,300   e. None of the above   ANSWER:   c RATIONALE:   $600 + (50% × $200) + $500 POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

43. Which of the following items incurred while on travel is not considered a travel expense?   a. The cost of meals   b. The cost of lodging   c. Transportation costs   d. Cost of entertaining clients   e. None of the above   ANSWER:   d POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

44. Taxpayers who make a combined business and pleasure trip:   a. Must allocate the travel cost between the business and pleasure parts of the trip if the travel is within the United States.   b. Must allocate the travel cost between the business and pleasure parts of the trip if the travel is outside the United States.   c. Can deduct the cost of meals, lodging, local transportation, and incidental expenses in full.   d. Can take a tax deduction only for the personal part of the trip.   ANSWER:   b POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

45. Which of the following expenses, incurred while on travel, does not qualify as a travel expense?   a. Tips   b. Dry cleaning of suit   c. Dinner at a steak house   d. Gift purchased for a prospective customer ($20)   e. None of the above   ANSWER:   d POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

46. Mikey is a self-employed computer game software designer. He takes a week-long trip to Maui, primarily for business. He takes 2 personal days at the beach. How should he treat the expenses related to this trip?   a. None of the expenses are deductible since there was an element of personal enjoyment in the trip.   b. 100 percent of the trip should be deducted as a business expense since the trip was primarily for business.   c. 50 percent of the trip should be deducted as a business expense.   d. The cost of all of the airfare and the expenses related to the business days should be deducted, while the expenses related to the personal days are not deductible.   ANSWER:   d POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

47. If a per diem method is not used, which of the following items is not required as substantiation for the deduction of a travel expense?   a. Amount spent   b. Destination   c. Business reason for the trip   d. Departure and return dates   e. All of the above must be substantiated   ANSWER:   e POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

48. Carlos drives to Oregon to consult with a client. He works for 1 day and spends 3 days enjoying Oregon since the consultation was right before a 3-day weekend. His expenses were $175 to drive to Oregon and back, $600 for lodging, $50 for food on the day that he worked, and $125 for food on the other 3 days. How much of his travel expenses are deductible?   a. $0   b. $175   c. $200   d. $350   e. $800   ANSWER:   b RATIONALE:   ($6004 days) + (50% x $50); the auto expenses are not deductible because the trip was not primarily for business POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

49. Sally and Martha are tax accountant partners operating a tax firm in San Diego. Every year, they attend the Tax Planning Forum in Las Vegas featuring nationally renowned tax experts. The Forum lasts for 2 days. One evening Sally and Martha attend a show and another evening they lose $10 gambling on the nickel slot machines. Their expenses are as follows: Airfare $  400 Hotels 300 Meals 180 Forum registration 1,000 Tickets to show 100 Gambling loss      10   $1,990 ​ Calculate the firm’s deduction for attending this event. ANSWER:   $1,790 = $400 + $300 + ($180 × 50%) + $1,000 POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

50. Ruth is a self-employed surgeon and is required to take a week of continuing medical education every year to keep her license. This year she paid $2,000 in course fees for her continuing medical education in Honolulu. She also paid $1,500 for airfare and a hotel room and $400 for meals. What is the total amount she can deduct on her Schedule C related to these expenses? ANSWER:   Ruth may deduct 100 percent of the medical education fees and travel and 50 percent of the meals, a total of $3,700. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

51. Dennis, the owner of Dennis Company, incurs the following expenses while away from home on a 3-week business trip during 2016: Airfare from Chicago to Boston $ 800 Hotel charges 1,800 Meal charges  740 Dry cleaning and laundry  100 Local transportation  40 Business entertainment  150 Business gift to Boston customer  45 In addition to the above expenses, Dennis incurred the following expenses for a weekend sightseeing trip to Washington D.C.: Transportation to Washington D.C. $200 Hotel charges 125 Meal charges  95 ​ Calculate the amount Dennis may deduct for 2016 as travel expenses for the trip. Calculate the amount Dennis may deduct for 2016 as entertainment. Calculate the amount Dennis may deduct for 2016 as business gifts. ANSWER:   Airfare from Chicago to Boston $ 800 Hotel charges 1,800 Meal charges (50% × $740) 370 Dry cleaning and laundry 100 Local transportation      40 Total travel expense deduction $3,110     Entertainment (50% × $150) $    75     Business gift (limited to $25 per gift) $    25 POINTS:   1 DIFFICULTY:   Challenging QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-04 – LO:3-04 ITF.WABG.16.LO:3-05 – LO:3-05 ITF.WABG.16.LO:3-09 – LO:3-09 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

52. Taxpayers who use their country club more than 50 percent for business may deduct the total amount of their membership dues.   a. True   b. False   ANSWER:   False RATIONALE:   Generally, club dues are not deductible. Nondeductible club dues include dues paid to country clubs, business luncheon clubs, and airline and hotel clubs. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-05 – LO:3-05 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

53. The expense of a sales luncheon may be deductible (50 percent in the current year) even if no sale is made.   a. True   b. False   ANSWER:   True POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-05 – LO:3-05 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

54. Gary is a self-employed accountant who pays $2,000 for business meals. How much of a deduction can he claim for the meals and where should the deduction be claimed?   a. 50 percent, miscellaneous itemized deduction   b. 50 percent, Schedule C deduction   c. 100 percent, miscellaneous itemized deduction   d. 100 percent, Schedule C deduction   ANSWER:   b POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-05 – LO:3-05 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

55. Jack is a lawyer who is a member at Ocean Spray Country Club where he spends $7,200 in dues, $4,000 in meals, and $2,000 in green fees to entertain clients. He is also a member of the local Rotary club where he meets potential clients. The dues for the Rotary club are $1,200 a year. How much of the above expenses can Jack deduct as business expenses?   a. $4,200   b. $6,000   c. $7,200   d. $14,400   e. None of the above   ANSWER:   a RATIONALE:   [50% × ($4,000 + $2,000)] + $1,200 POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-05 – LO:3-05 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

56. Linda is self-employed and spends $600 for business meals and $900 for business entertainment in the current year. What is Linda allowed to deduct in the current year for these expenses?   a. $600   b. $750   c. $800   d. $1,000   e. None of the above   ANSWER:   b RATIONALE:   50% × ($600 + $900) POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-05 – LO:3-05 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

57. Choose the correct statement:   a. If a taxpayer does a lot of business travel, the taxpayer may deduct the amount paid for an airline club membership.   b. Membership dues to a golf club are deductible as long as there is a business purpose.   c. In order to be deductible, dues and subscriptions must be related to the taxpayer’s occupation.   d. If a financial planner becomes certified, then he/she may not deduct the Certified Financial Planner (CFP) dues because it is not necessary to be certified in order to engage in the business of being a financial planner.   ANSWER:   c POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-05 – LO:3-05 ITF.WABG.16.LO:3-07 – LO:3-07 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

58. Mary is an insurance salesperson and a member of the Country Club. During 2016, Mary used the club 40 percent for entertaining clients (directly-related use) and 60 percent for pleasure. She incurred the following expenses at the Country Club: Annual dues $8,000 Business meals 1,800 Personal meals 2,000 Tennis fees (business use)  600 Calculate the amount that Mary is allowed to deduct as entertainment expense. ANSWER:   $1,200 = 50% × ($1,800 + $600). POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-05 – LO:3-05 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

59. Girard is a self-employed marketing consultant who spends significant time entertaining potential customers. He keeps all the appropriate records to substantiate his entertainment. He has the following business-related expenses in the current year. Business meals $7,000 Tickets to baseball games  500 Tickets to football games  500 Yacht maintenance (the yacht is all business use) 6,000 ​ What is the tax deductible entertainment expense Girard may claim in the current year. On which tax form should he claim the deduction? ANSWER:   $4,000. Girard may deduct 50 percent of $8,000 ($7,000 + $500 + $500). The yacht maintenance is nondeductible. The deduction is claimed on Schedule C. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-05 – LO:3-05 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

60. David purchases a yacht solely for the purpose of entertaining real estate clients. He wishes to position himself as a high-end real estate salesperson specializing in very expensive residences and uses the yacht only for business entertainment. During 2016, his expenses for maintaining and operating the yacht, including depreciation, were $28,000. In addition, he incurred $9,000 of catering expenses for meals he provided to business clients on the yacht. What is David’s tax deduction in 2016? ​ Explain. ANSWER:   $4,500 = $9,000 × 50%. Costs relating to the yacht are not tax deductible. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-05 – LO:3-05 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

61. ​Wanda is a single taxpayer and an elementary school teacher.  She also tutors students in her home as a small business.  During 2016, Wanda purchased $200 in school supplies for her classroom.  She also purchased $400 in supplies and materials for her tutoring business.  Lastly, she uses a 200 square foot spare bedroom in her house to tutor her clients.  Occasionally, her mother also stays in that room during holidays.  If Wanda elects to use the simplified method for her home office and the educator’s expense is extended for 2016, what are her deductions based on the information provided (ignore any income limitations)? ANSWER:   $600.  Wanda may deduct $200 as an educator’s expense before AGI.  She may also deduct the $400 of supplies as a business expense on her Schedule C (or C-EZ depending on the size of her tutoring business).  Wanda is not eligible for a home office deduction because she does not use the space exclusively for her business.​ POINTS:   1 DIFFICULTY:   Challenging QUESTION TYPE:   Objective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-06 – LO:3-06 ITF.WABG.16.LO:3-11 – LO:3-11 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

62. The expense of travel as a form of education is not deductible.   a. True   b. False   ANSWER:   True POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-06 – LO:3-06 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

63. In which of the following situations may the taxpayer take an education expense on Schedule C?   a. John, a plumber by trade, is taking classes to qualify as an electrician so he may take on more complex contrator jobs.   b. Henry, a self-employed administrative assistant, is taking an advanced Word computer program class through an adult school program.   c. Barbie is flying on numerous commercial airplanes in order to observe the flight attendants so that she may improve her public relations skills.   d. Ann Marie is taking a review course in order to pass the certified financial planner examination.   ANSWER:   b POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-06 – LO:3-06 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

64. Choose the correct answer.   a. Education expenses are deductible on Schedule C even if the education qualifies the taxpayer for a new trade or business.   b. Expenses required for education to maintain skills for the taxpayer’s current business are not deductible.   c. The cost of a CPA review course is deductible by a bookkeeper on his Schedule C.   d. Expenses for travel as a form of education are not deductible.   ANSWER:   d POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-06 – LO:3-06 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

65. Natasha is a self-employed private language tutor. In 2016, she obtained her teaching credentials, hoping to receive a job as a seventh grade public school English teacher. She had the following education expenses for the year: Tuition to finish her credentials program $ 5,000 Review course for the Teacher Certification Exam 1,000 Natasha also attended a seminar in Washington, D.C., titled “The Motivated Student.” Her expenses for the trip are as follows: Fee for the course $ 700 Airplane ticket 500 Hotel 1,000 Meals      400 Total $ 2,600 Determine how much of the above expenses are deductible on her Schedule C. ANSWER:   The travel expenses are deductible on her Schedule C as they directly relate to her tutoring business. However, the tuition and the review course were expenses to meet the minimum education requirement for teaching at a public school and therefore are not deductible. Fee for the course $    700 Airplane ticket 500 Hotel 1,000 Meals (50%)      200 Total $ 2,400 ​ POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-06 – LO:3-06 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

66. Michael has a very successful business as a financial consultant. Michael attends the following seminars: “Zen Your Way to Riches” $800 “Backyard Gardening”  50 “Computer Marketing Tools” 200 “Passing the Bar Exam” 500 “Beating the Market” 300 How much can Michael deduct as business education expenses? ANSWER:   “Zen Your Way to Riches” $ 800 “Computer Marketing Tools” 200 “Beating the Market”    300 Total education expenses $1,300 The “Backyard Gardening” seminar is a personal expense and the “Passing the Bar Exam” seminar prepares Michael for a new career. Therefore, the cost of these seminars is not deductible. POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-06 – LO:3-06 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

67. ​Teachers at the kindergarten through high school level may deduct up to $225 of education supplies and materials cost each year ($400 married filing jointly).   a. True   b. False   ANSWER:   False RATIONALE:   The educator’s expense deduction for 2016 is up to $250 (single) and up to $500 (married filing jointly) if both spouses are educators. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-06 – LO:3-06 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

68. ​Sally is a high school math teacher.  In 2016, she purchases $400 worth of supplies related to her teaching.  Her spouse, Gabe, is a high school math teacher and spends $100 in education supplies for his classes.  If married filing jointly, what is the 2016 for-AGI educator’s expenses deduction?   a. ​$0   b. ​$250   c. ​$350   d. ​$500   e. ​None of the above   ANSWER:   c RATIONALE:   As both Sally and Gabe are teachers, they are eligible for the educator’s deduction but are limited to up to $250 each. Thus Sally can deduct up to $250 of her costs while Gabe can deduct all of his $100 costs. Sally could attempt to deduct her excess expenses as unreimbursed employee expenses subject to the 2% floor (which is a from-AGI itemized deduction – see LO 5.6). POINTS:   1 DIFFICULTY:   Challenging QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-06 – LO:3-06 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

69. The cost of a subscription to the New England Journal of Medicine is a deductible expense for a hospital intern.   a. True   b. False   ANSWER:   True POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-07 – LO:3-07 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

70. Which of the following is deductible as dues, subscriptions or publications?   a. Dues to a health club for a doctor   b. Subscription to “Vogue” magazine for a corporate president   c. Dues to the drama club for a student   d. Subscription to the “Journal of Taxation” for a tax attorney   e. None of the above   ANSWER:   d POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-07 – LO:3-07 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

71. Paul is a general contractor. How much of the following expenses may Paul deduct? Dues paid to the Associated Builders Society $250 Dues paid to the Masonry Society 325 Dues paid to the Wine of the Month Club 200 Subscription to “Dwell”, a home design magazine  25 Subscription to “Sports Illustrated” magazine 40 ​ ANSWER:   Paul may deduct: Dues paid to the Associated Builders Society $250 Dues paid to the Masonry Society 325 Subscription to “Dwell”, a home design magazine    25   $600 The Wine of the Month Club and the subscription to “Sports Illustrated” are personal in nature and are not deductible. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-07 – LO:3-07 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

72. Indicate which of the following dues, subscriptions, and publications are deductible and which are not deductible: 1. Subscription to “The New England Journal of Medicine” for an electrician 2. Ford truck shop manual for an auto mechanic 3. Subscription to “Shape” magazine for an aerobics teacher 4. Dues for a hairstyle video club for a hairdresser 5. Movie of the Month club for an appraiser ANSWER:   1. Not deductible 2. Deductible 3. Deductible 4. Deductible 5. Not deductible POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-07 – LO:3-07 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

73. The cost of a blue wool suit for an accountant is a deductible expense.   a. True   b. False   ANSWER:   False RATIONALE:   To be a deductible expense, clothing needs to be (1) required as a condition of employment, and (2) not suitable for everyday use. A blue wool suit for an accountant is suitable for everyday use. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-08 – LO:3-08 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

74. Which of the following does not give rise to a business expense for uniforms or special clothing?   a. A lawyer buys a business suit.   b. A mascot buys his costume.   c. A baseball player buys his team uniform.   d. A scientist buys his hazmat suit.   e. All of the above are deductible.   ANSWER:   a POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-08 – LO:3-08 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

75. To be deductible as the cost of special work clothing or uniforms:   a. The clothing must not be suitable for everyday use and must be required as a condition of the job.   b. The clothing must be required as a condition of the job, but can also be suitable for everyday use.   c. The clothing need not be required as a condition of the job, but must not be suitable for everyday use.   d. Only the cost of the clothing is included; upkeep is not deductible.   ANSWER:   a POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-08 – LO:3-08 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

76. Terry is a policeman employed by the city. He must purchase and maintain his uniforms. The total cost of purchasing and maintaining uniforms is $1,000 for the current year. How much may he deduct, why, and where on his tax return? ANSWER:   Terry may deduct the full $1,000. His police uniforms meet the requirements that they be a condition of employment and not suitable for everyday use. The deduction will be reported on Schedule A as a miscellaneous itemized deduction since Terry is an employee and his expenses have not been reimbursed. POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-08 – LO:3-08 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

77. Carol, a CPA, is always required by her employer to wear to work either a gray or a blue business suit with matching shoes. Carol would never consider wearing her gray or blue suits and matching shoes anywhere other than work since she considers them uncomfortable as well as unattractive. Can Carol deduct the cost of the suits and shoes as special work clothing or uniforms? Explain. ANSWER:   No. The suits and shoes can be worn as ordinary dress clothes; there is nothing special about them that would classify them as uniforms. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-08 – LO:3-08 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

78. A business gift with a value of $35 presented to a client and his non-client spouse is fully deductible by the donor.   a. True   b. False   ANSWER:   False RATIONALE:   For purposes of the limitation on business gifts, a husband and wife count as one donee. Therefore, a taxpayer may deduct up to $25 per year for gifts to a client or potential client and to the client’s spouse. If the husband and the wife are both clients, then the husband may receive a deductible gift up to $25 per year and the wife may receive a deductible gift up to $25 per year. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-09 – LO:3-09 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

79. There is a limitation of $25 per donee on the deduction of gifts to employees for length of service.   a. True   b. False   ANSWER:   False RATIONALE:   Costs of gifts of tangible personal property made to employees for length of service on the job or for safety achievement may be deducted up to a limit of $400 per employee per year, and up to $1,600 if the gift is made in conjunction with a “qualified plan”. POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-09 – LO:3-09 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

80. A gift to a foreman by a worker is considered business related and therefore subject to the $25 limit.   a. True   b. False   ANSWER:   False RATIONALE:   Personal gifts made to a taxpayer’s supervisor are not deductible. Such gifts are considered nondeductible personal expenses. POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-09 – LO:3-09 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

81. Sue is a small business owner who often gives gifts to clients. She gives a $40 gift to her client, Mr. Smith, and his wife. Sue spent $6 to wrap the gift. She also gave out 400 calendars with her company name on them. Each calendar cost $1. Sue also gave her secretary a $370 watch for his 10 years of service. How much of the above expenses may she deduct?   a. $816   b. $446   c. $795   d. $801   e. None of the above   ANSWER:   d RATIONALE:   $25 limit + $6 + (400 × $1) + $370 POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-09 – LO:3-09 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

82. Nancy owns a small dress store. During 2016, Nancy gives business gifts having the indicated cost to the following individuals: Mrs. Johns (a customer) $37 plus $3 shipping Mr. Johns (non-client husband of Mrs. Johns) $10 Ms. Brown (a customer) $22 What is the amount of Nancy’s deduction for business gifts?   a. $0   b. $50   c. $53   d. $62   e. None of the above   ANSWER:   b RATIONALE:   $25 limit + $3 + $22 POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-09 – LO:3-09 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

83. During the 2016 holiday season, Bob, a barber, gave business gifts to 34 customers. The values of the gifts, which were not of a promotional nature, were as follows: ​ 10 at $10 each 8 at $25 each 8 at $50 each 8 at $100 each ​ For 2016, what is the amount of Bob’s business gift deduction?   a. $0   b. $700   c. $850   d. $1,500   e. None of the above   ANSWER:   b RATIONALE:   (10 × $10) + (24 × $25 limit) POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-09 – LO:3-09 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

84. Marco makes the following business gifts during the year: Miss Scarlett (a potential client) $30 Mr. and Mrs. White (both are clients) $40 Professor Plum (a client) $18 Mrs. Plum (the nonclient wife of Professor Plum) $12 Charles Mustard (Marco’s boss) $27 Marco also spent $15 on wrapping paper and a card for the above gift to the Whites. Calculate Marco’s total allowed deduction for gifts. ANSWER:   Miss Scarlett $ 25   limitation Mr. and Mrs. White 40   Professor and Mrs. Plum 25   limitation Wrapping paper and card     15   Total $ 105   ​ POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-09 – LO:3-09 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

85. Acme Corporation had the following expenses: 1. 1,000 pads of paper embossed with the company logo to hand out at the Big Time Convention $ 700 2. Display racks to use at the convention center  200 3. An all-expense vacation for Susie’s 25 years of service awarded under a qualified plan 2,500 4. A golden cone to recognize Wayne’s on the job safety record   320 Acme has a qualified plan for the job awards. Calculate Acme’s total deductions for the above expenses. ANSWER:   1. Pads of paper $ 700   2. Display racks 200   3. Susie’s service award 1,600   limitation 4. Wayne’s safety award     320     Total $2,820   ​ POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Subjective Short Answer HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-09 – LO:3-09 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Comprehension

 

86. Under the specific charge-off method, a deduction for a bad debt is taken when the debt is determined to be worthless.   a. True   b. False   ANSWER:   True POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-10 – LO:3-10 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

87. A deduction for a business bad debt is allowed to the extent that income related to the debt was previously included in taxable income.   a. True   b. False   ANSWER:   True POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-10 – LO:3-10 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

88. Most taxpayers must use the specific charge-off method in calculating the bad debt deduction.   a. True   b. False   ANSWER:   True POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   True / False HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-10 – LO:3-10 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge

 

89. Ellen loans Nicole $45,000 to start a hair salon. Unfortunately, the business fails in 2016 and she is unable to pay back Ellen. In 2016, Ellen also had $20,000 of income from her part-time job and $15,000 of capital gain from the sale of stock. How much of the $45,000 bad debt can Ellen claim as a capital loss in 2016? ​   a. $12,000, with $33,000 carried forward to 2017   b. $18,000, with $27,000 carried forward to 2017   c. $35,000   d. $15,000, with $30,000 carried forward to 2017   e. $0   ANSWER:   b RATIONALE:   Nonbusiness bad debts are considered short-term capital losses. Short-term and long-term capital gains may be offset by short-term capital losses. Ellen may offset $15,000 of her $45,000 bad debt from Nicole against the $15,000 capital gain from the sale of stock. In addition, Ellen may claim up to the annual limitation amount of $3,000 in short-term capital losses. In total, $18,000 of the bad debt can be claimed as a capital loss in the current year with $27,000 in unused short-term capital losses carried forward. POINTS:   1 DIFFICULTY:   Moderate QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-10 – LO:3-10 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Analysis

 

90. Splashy Fish Store allows qualified customers to purchase items on credit. During the current year, Lisa, the owner of the store, determines that $3,500 of accounts receivable are not collectible. Which of the following statements is true with respect to Splashy Fish Store’s deduction for the uncollectible accounts receivable? ​   a. Splashy is not allowed a deduction for the uncollectible accounts if the income arising from the accounts has not been previously included in taxable income.   b. Any deduction for the uncollectible accounts receivable will be treated as a short-term capital loss.   c. Only $3,000 of the uncollectible accounts receivable may be deducted in the current year.   d. All of the above statements are true.   e. Two of the above statements are true.   ANSWER:   a POINTS:   1 DIFFICULTY:   Easy QUESTION TYPE:   Multiple Choice HAS VARIABLES:   False LEARNING OBJECTIVES:   ITF.WABG.16.LO:3-10 – LO:3-10 NATIONAL STANDARDS:   United States – BUSPROG: Analytic STATE STANDARDS:   United States – AK – AICPA: FN-Reporting KEYWORDS:   Bloom’s: Knowledge