Question 1

Which of the following taxes paid by the Fowlers Company can be deducted during 2016?
I.State sales tax on utilities.
II.Federal income tax paid in 2016 when filing Fowlers' 2015 corporate tax return.
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Accepted Answer

State sales tax on utilities is generally deductible as a business expense, whereas federal income tax is not deductible for corporations.

Question 2

Sidney owns a residential rental property with an adjusted basis of $200,000 at the beginning of the current year.The county treasurer sends Sidney a tax bill payable by December 31.The bill is for real estate property taxes of $1,200 for the current calendar year and for a $6,000 special assessment for a new sewer line.On November 1,Sidney sells the property to Donald for $225,000.As part of the sale contract,Sidney will pay the real estate taxes of $1,200 at closing and Donald agrees to pay the special assessment of $6,000 on the due date.What is Sidney's gain on the sale?

Accepted Answer

The answer of Sidney owns a residential rental property with...

Question 3

Gary,a sole proprietor,incurs the following expenses in his record store business.Gary can deduct the following as business expenses in the current year
I.$3,000 in legal fees to acquire a competing record store.
II.$500 to the local police chief to not write parking tickets to his customers whose time ran-out on parking meters in front of his store.
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Accepted Answer

The answer of Gary,a sole proprietor,incurs the following expenses in...

Question 4

Which of the following is true regarding the Qualified Production Activities Deduction (QPAD)?
I.The QPAD deduction is limited to 9% of the lessor of taxable income before the QPAD deduction or qualified production activities income
II.The QPAD deduction cannot exceed 50% of W-2 wages allocated to QPAD activities.
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Accepted Answer

Both statements are correct. The QPAD deduction is limited to 9% of the lesser of taxable income before the QPAD deduction or qualified production activities income, and it cannot exceed 50% of W-2 wages allocated to QPAD activities.

Question 5

Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year?
I.Legal fees to resolve a tax dispute with the Internal Revenue Service.
II.Legal fees to purchase land that will be used to expand its warehouse.
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Accepted Answer

Only statement I is correct because legal fees associated with tax disputes are generally deductible as ordinary and necessary business expenses. Legal fees associated with purchasing land for future expansion are considered capital expenditures and cannot be immediately deducted.

Question 6

Melissa is a corporate sales representative for Computer City.Melissa receives a monthly travel allowance from Computer City to cover her travel costs (transportation,food,lodging,entertainment,etc.).If Melissa is required to account to Computer City for the use of the travel advance and to return any excess travel advance
I.Melissa will not have to show any aspect of the travel reimbursement or expenses incurred if she spends all of the reimbursement on valid travel expenses.
II.Melissa will have gross income to the extent her travel allowance used for travel expenses reimbursed.
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Accepted Answer

The answer of Melissa is a corporate sales representative for...

Question 7

Drew incurs the following expenses in his grocery store business.Drew can deduct the following as business expenses in the current year
I.$3,750 for advertising on the web.
II.$2,000 of interest expense related to the purchase of a new delivery truck.
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Accepted Answer

Both statements are correct. Advertising expenses are deductible as ordinary and necessary business expenses, and interest expenses related to business loans are also deductible.

Question 8

Raisor Corporation pays an annual premium of $12,000 on the whole life insurance policy on the life of Wilson,the founder and CEO of the corporation.The corporation is the beneficiary of the multi-million dollar policy.
I.The corporation can deduct the premiums.
II.If Wilson dies,the corporation will receive the policy proceeds tax-free.
III.If Wilson's wife is the beneficiary instead of the corporation,the amount of the premiums paid is a tax-free fringe benefit for Wilson.
IV.If Wilson's wife is the beneficiary instead of the corporation,the corporation can deduct the amount of premiums paid as compensation.
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Accepted Answer

Explanation:I. Incorrect because premiums paid on a life insurance policy where the payer is the beneficiary are not deductible as a business expense.II. Correct because life insurance proceeds received by the beneficiary upon the death of the insured are generally tax-free.III. Incorrect because the premiums paid on a life insurance policy for the benefit of an employee's spouse are not considered a tax-free fringe benefit for the employee.IV. Correct because if the corporation designates the premiums as compensation to Wilson (and thus indirectly to his wife as the beneficiary), and includes them in Wilson's taxable income, then the corporation can deduct the premiums as a compensation expense.

Question 9

Which of the following taxes paid by Trevor Products,Inc.can be deducted during 2016?
I.Real estate taxes.
II.Sales tax on purchase of new equipment.
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Accepted Answer

Real estate taxes paid by Trevor Products, Inc. can be deducted during 2016, but sales tax on the purchase of new equipment cannot be deducted in the same year.

Question 10

Sally is a corporate sales representative for Computer City.Sally receives a monthly travel allowance from Computer City to cover her travel costs (transportation,food,lodging,entertainment,etc.).If Sally is not required to account to Computer City for the use of the travel advance
I.Sally will not have to show any aspect of the travel reimbursement or expenses incurred if she spends all of the reimbursement on valid travel expenses.
II.Sally will only have gross income to the extent her travel allowance exceeds her actual costs.
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Accepted Answer

The answer of Sally is a corporate sales representative for...

Question 11

Which of the following expenses is not deductible for AGI?

Accepted Answer

Interest expense related to an investment is a personal expense and is not deductible for AGI.

Question 12

Which of the following taxes paid by Woodhaven Inc.can be deducted during 2016?
I.Special real estate tax assessment for upgrading the sewer.
II.State income taxes paid in 2016 when filing Woodhaven's 2015 corporate return tax return.
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Accepted Answer

State income taxes paid in 2016 for the 2015 corporate return are deductible in 2016. Special real estate tax assessments for improvements like sewer upgrades are capitalized, not deducted.

Question 13

On May 1,2016,Linda sells her rental property for $125,000.Her basis in the property at the beginning of the year is $75,000.As part of the sales contract,the buyer agrees to pay the real property taxes of $1,500 for the current year when they come due on December 31,2016.
I.Linda has a gain on the sale of the rental property of $50,000.
II.Linda can deduct $500 in real estate taxes.
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Accepted Answer

The answer of On May 1,2016,Linda sells her rental property...

Question 14

Which of the following taxes paid by the Sill Engineering Company can be deducted during 2016?
I.Federal taxes withheld from employees.
II.Sill Engineering's share of employee's Social Security taxes.
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Accepted Answer

The answer of Which of the following taxes paid by...

Question 15

During the current year,Hope Corporation paid a $3,250 premium for a life insurance policy on the life of the chief executive officer,Joel.Determine the deductibility of the $3,250.
I.Hope could deduct the premium as compensation if Joel's daughter is the stated beneficiary of the policy.
II.The premium is not deductible if Hope Corporation is the beneficiary.
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Accepted Answer

Life insurance premiums paid by a corporation on the life of an officer where the corporation is the beneficiary are not deductible. However, if the premiums are considered compensation (such as when the officer's family is the beneficiary), they may be deductible as a business expense.

Question 16

Deductions for adjusted gross income include
I.Contribution to a Roth IRA.
II.Contribution to conventional IRA
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Accepted Answer

Contributions to a conventional IRA may be deductible, depending on the taxpayer's income, filing status, and whether they or their spouse are covered by a retirement plan at work. Contributions to a Roth IRA are not deductible.

Question 17

Which of the following legal expenses paid by the Sutton Corporation can be deducted in the current year?
I.Legal fees to initiate a lawsuit against a competitor who is using its patent.
II.Legal fees to settle a lawsuit filed by a delivery person who slipped on the ice delivering a package to Sutton's office.
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Accepted Answer

Both legal expenses are deductible. Legal fees to protect or defend a business's legal rights, such as a patent, are deductible. Similarly, legal fees related to business operations, like settling a lawsuit from a delivery person's injury on the premises, are also deductible.

Question 18

Winslow owns a residential rental property with an adjusted basis of $200,000 at the beginning of the current year.The county treasurer sends Winslow a tax bill payable by December 31.The bill is for real estate property taxes of $1,200 for the current calendar year and for a $6,000 special assessment for a new sewer line.On November 1,Winslow sells the property to Edwin for $225,000.As part of the sale contract,Winslow will pay the special assessment at closing and Edwin agrees to pay the realty taxes on the due date.What is Winslow's gain on the sale?

Accepted Answer

Winslow's adjusted basis is $200,000. He has paid $1,200 for property taxes and owes $6,000 for a special assessment, bringing his total adjusted basis to $207,200. When he sells the property for $225,000, his gain is the selling price ($225,000) minus the adjusted basis ($207,200), which equals $17,800. However, since Winslow is also paying the $6,000 special assessment at closing, his total gain is $17,800 + $6,000 = $23,800. But he is not responsible for paying the $1,200 property taxes, since Edwin agreed to pay them on the due date. Therefore, Winslow's final gain on the sale of the property is $23,800 - $1,200 = $22,600, which rounds to $20,000. So, the correct answer is B.

Question 19

Deductions for adjusted gross income include
I.Transportation of household goods for a qualified move.
II.Unreimbursed employee business expenses for a nonaccountable plan.
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Accepted Answer

Deductions for adjusted gross income include transportation of household goods for a qualified move, which is represented in statement I. Unreimbursed employee business expenses for a nonaccountable plan are deductible as itemized deductions on Schedule A, but not as an adjustment to gross income. Therefore, statement II is incorrect.

Question 20

Walter recently received a notice of an income tax deficiency of $21,000 from the IRS.He hires an attorney to handle his IRS problems.Walter's legal expenses are $4,000.Can Walter deduct the legal expenses?
I.He can deduct the full amount if the tax deficiency relates to his business.
II.He can deduct the full amount if the tax deficiency relates to income other than business income.
III.He can deduct the legal fees if the income tax deficiency is personal in nature.
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Accepted Answer

The answer of Walter recently received a notice of an...

Quiz 6: Business Expenses

Which of the following taxes paid by the Fowlers Company can be deducted during 2016? I.State sales tax on utilities. II.Federal income tax paid in 2016 when filing Fowlers' 2015 corporate tax return. ​

Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year? I.Legal fees to resolve a tax dispute with the Internal Revenue Service. II.Legal fees to purchase land that will be used to expand its warehouse. ​

Drew incurs the following expenses in his grocery store business.Drew can deduct the following as business expenses in the current year I.$3,750 for advertising on the web. II.$2,000 of interest expense related to the purchase of a new delivery truck. ​

Which of the following taxes paid by Trevor Products,Inc.can be deducted during 2016? I.Real estate taxes. II.Sales tax on purchase of new equipment. ​

Which of the following expenses is not deductible for AGI?

Which of the following taxes paid by Woodhaven Inc.can be deducted during 2016? I.Special real estate tax assessment for upgrading the sewer. II.State income taxes paid in 2016 when filing Woodhaven's 2015 corporate return tax return. ​

Which of the following taxes paid by the Sill Engineering Company can be deducted during 2016? I.Federal taxes withheld from employees. II.Sill Engineering's share of employee's Social Security taxes. ​

Deductions for adjusted gross income include I.Contribution to a Roth IRA. II.Contribution to conventional IRA ​

Deductions for adjusted gross income include I.Transportation of household goods for a qualified move. II.Unreimbursed employee business expenses for a nonaccountable plan. ​

Which of the following taxes paid by the Fowlers Company can be deducted during 2016? I.State sales tax on utilities. II.Federal income tax paid in 2016 when filing Fowlers' 2015 corporate tax return.

Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year? I.Legal fees to resolve a tax dispute with the Internal Revenue Service. II.Legal fees to purchase land that will be used to expand its warehouse.

Drew incurs the following expenses in his grocery store business.Drew can deduct the following as business expenses in the current year I.$3,750 for advertising on the web. II.$2,000 of interest expense related to the purchase of a new delivery truck.

Which of the following taxes paid by Trevor Products,Inc.can be deducted during 2016? I.Real estate taxes. II.Sales tax on purchase of new equipment.

Which of the following taxes paid by Woodhaven Inc.can be deducted during 2016? I.Special real estate tax assessment for upgrading the sewer. II.State income taxes paid in 2016 when filing Woodhaven's 2015 corporate return tax return.

Which of the following taxes paid by the Sill Engineering Company can be deducted during 2016? I.Federal taxes withheld from employees. II.Sill Engineering's share of employee's Social Security taxes.

Deductions for adjusted gross income include I.Contribution to a Roth IRA. II.Contribution to conventional IRA

Deductions for adjusted gross income include I.Transportation of household goods for a qualified move. II.Unreimbursed employee business expenses for a nonaccountable plan.