Question 16.According to the Internal Revenue C

29 Jun Question 16.According to the Internal Revenue C

Question
16.According to the Internal Revenue Code §162, deductible business expenses must be one of the following?

a) incurred for the production of investment income

b) ordinary and necessary

c) minimized

d) appropriate and measurable

e) personal and justifiable

17.Individual proprietors report their business income and deductions on:

a) Form 1065

b) Form 1120S

c) Schedule C

d) Schedule A

e) Form 1041

18.Mike started a calendar year business on September 1st of this year by paying 12 months’ rent on his shop at $1,000 per month. What

is the maximum amount of rent that Mike can deduct this year under each type of accounting method?

a) $12,000 under the cash method and $12,000 under the accrual method

b)$4,000 under the cash method and $12,000 under the accrual method

c)$12,000 under the cash method and $4,000 under the accrual method

d)$4,000 under the cash method and $4,000 under the accrual method

e)$4,000 under the cash method and zero under the accrual method

19.Big Homes Corporation is an accrual method calendar year taxpayer that manufactures and sells modular homes. This year for the first

time Big Homes was forced to offer a rebate on the purchase of new homes. At year end, Big Homes had paid $12,000 in rebates and

was liable for an additional $7,500 in rebates to buyers. What amount of the rebates, if any, can Big Homes deduct this year?

a) $12,000 because rebates are payment liabilities.

b) $19,500 because Big Homes is an accrual method taxpayer.

c) $19,500 if this amount is not material, Big Homes expects to continue the practice of offering rebates in future years, and Big Homes

expects to pay the accrued rebates before filing their tax return for this year.

d) $12,000 because the $7,500 liability is not fixed and determinable.

e) Big Homes is not entitled to a deduction because rebates are against public policy.

20.Which of the following is a true statement about the domestic manufacturing deduction?

a) This deduction is determined by the amount of goods manufactured in the United States for export abroad.

b) The deduction is calculated as a percentage of the cost of goods manufactured in the United States.

c) This deduction represents a subsidy to taxpayers who manufacture or construct goods in the United States.

d) The domestic manufacturing deduction is not affected by the cost of labor.

e) All of these are true.

21.Which of the following is a true statement?

a) Meals are never deductible as a business expense.

b) An employer can only deduct half of any meals provided to employees.

c) The cost of business meals must be reasonable.

d) A taxpayer can only deduct a meal for a client if business is discussed during the meal.

e) None of these is true.

22.The IRS would most likely apply the arm’s length transaction test to determine which of the following?

a) whether an expenditure is related to a business activity

b) whether an expenditure will be likely to produce income

c) timeliness of an expenditure

d) reasonableness of an expenditure

e) All of these

23.Jim operates his business on the accrual method and this year he received $4,000 for services that he intends to provide to his clients

next year. Under what circumstances can Jim defer the recognition of the $4,000 of income until next year?

a) Jim can defer the recognition of the income if he absolutely promises not to provide the services until next year.

b) Jim must defer the recognition of the income until the income is earned.

c) Jim can defer the recognition of the income if he has requested that the client not pay for the services until the services are