Federal Tax Accounting (Exam 1)100%
Correct!
The Business Purpose Concept means
I. that the economic purpose of the transaction must exceed the tax avoidance motive.
II. that the taxpayer's dominant motive for an expenditure is to reduce taxation..
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct. - ANSWERSa. Only statement I is correct.
Which of the following individuals is involved in a trade or business?
I. Lil owns a farm near Lafayette, Indiana. She leases the property to Cal, who operates
the farm for himself. Liz receives 10% of Cal's net income as part of the lease
agreement but has no responsibilities for the farming operation.
II. Lorraine owns a warehouse located in Brooklyn NY. She paid $250,000 for the real
estate several years ago. It is now appraised at over $1,000,000, but she still uses the
building only to store her painting collection.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct. - ANSWERSd. Neither statement is correct.
All of the following are required test for the deduction of a business expense except?
a. GAAP approved.
b. Ordinary.
c. Necessary.
d. Business purpose.
e. Reasonable in amount. - ANSWERSa. GAAP approved.
Which of the following is not deductible?
a. Expenses related to earning dividends on a portfolio of "blue chip" stocks.
b. Expenses related to interest income from municipal bonds.
c. Legal expenses related to rental real estate property.
d. Medical expenses of the taxpayer's dependent child. - ANSWERSb. Expenses
related to interest income from municipal bonds.
Jackie recently retired from the U.S. Coast Guard after 30 years of service. She would
like to open a boat shop to operate in her retirement years. Jackie incurs $3,800 of
expenses while investigating sites for her shop and while checking out boat franchises.
What are the tax effects of the expenses Jackie incurs?
, I. If Jackie enters the boat business, she can deduct the costs only by capitalizing them
and amortizing them over 180 months.
II. They are not deductible if Jackie does not enter the ski and boat business.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct. - ANSWERSb. Only statement II is correct.
Which of the following expenses is/are deductible?
I. Transportation and lodging expenses of $3,000 incurred to monitor state legislation
that may affect the taxpayer's business.
II. Lobby expenses of $300 during the year to influence local town legislators to support
pro-business legislation.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct. - ANSWERSc. Both statements are correct.
Which of the following production of income expenses would be deductible:
I. Interest expense on loan to acquire U.S. Treasury notes.
II. Interest expense on loan to acquire IBM Corporate bonds.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct. - ANSWERSc. Both statements are correct.
Virginia, a practicing CPA, receives $11,000 from the sale of rare orchids that she
grows. Her expenses of operating this hobby activity follow:
Property taxes on the structures $4,500
Seeds, fertilizer, and bug sprays. 8,000
Depreciation on the structures 5,000
How much of the expenses that Virginia incurs can be deducted as hobby expenses?
a. $ - 0 -
b. $ 4,500
c. $11,000
d. $12,500
e. $17,500 - ANSWERSc. $11,000
Tom and Rosemary own a cabin near Stowe, Vermont. During the current year the
cabin is rented for 31 days for $1,800. Tom and Rosemary used the cabin a total of 12
days during the year. After making the appropriate allocation of expenses between
personal and rental use, the following rental loss was determined:
Correct!
The Business Purpose Concept means
I. that the economic purpose of the transaction must exceed the tax avoidance motive.
II. that the taxpayer's dominant motive for an expenditure is to reduce taxation..
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct. - ANSWERSa. Only statement I is correct.
Which of the following individuals is involved in a trade or business?
I. Lil owns a farm near Lafayette, Indiana. She leases the property to Cal, who operates
the farm for himself. Liz receives 10% of Cal's net income as part of the lease
agreement but has no responsibilities for the farming operation.
II. Lorraine owns a warehouse located in Brooklyn NY. She paid $250,000 for the real
estate several years ago. It is now appraised at over $1,000,000, but she still uses the
building only to store her painting collection.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct. - ANSWERSd. Neither statement is correct.
All of the following are required test for the deduction of a business expense except?
a. GAAP approved.
b. Ordinary.
c. Necessary.
d. Business purpose.
e. Reasonable in amount. - ANSWERSa. GAAP approved.
Which of the following is not deductible?
a. Expenses related to earning dividends on a portfolio of "blue chip" stocks.
b. Expenses related to interest income from municipal bonds.
c. Legal expenses related to rental real estate property.
d. Medical expenses of the taxpayer's dependent child. - ANSWERSb. Expenses
related to interest income from municipal bonds.
Jackie recently retired from the U.S. Coast Guard after 30 years of service. She would
like to open a boat shop to operate in her retirement years. Jackie incurs $3,800 of
expenses while investigating sites for her shop and while checking out boat franchises.
What are the tax effects of the expenses Jackie incurs?
, I. If Jackie enters the boat business, she can deduct the costs only by capitalizing them
and amortizing them over 180 months.
II. They are not deductible if Jackie does not enter the ski and boat business.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct. - ANSWERSb. Only statement II is correct.
Which of the following expenses is/are deductible?
I. Transportation and lodging expenses of $3,000 incurred to monitor state legislation
that may affect the taxpayer's business.
II. Lobby expenses of $300 during the year to influence local town legislators to support
pro-business legislation.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct. - ANSWERSc. Both statements are correct.
Which of the following production of income expenses would be deductible:
I. Interest expense on loan to acquire U.S. Treasury notes.
II. Interest expense on loan to acquire IBM Corporate bonds.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct. - ANSWERSc. Both statements are correct.
Virginia, a practicing CPA, receives $11,000 from the sale of rare orchids that she
grows. Her expenses of operating this hobby activity follow:
Property taxes on the structures $4,500
Seeds, fertilizer, and bug sprays. 8,000
Depreciation on the structures 5,000
How much of the expenses that Virginia incurs can be deducted as hobby expenses?
a. $ - 0 -
b. $ 4,500
c. $11,000
d. $12,500
e. $17,500 - ANSWERSc. $11,000
Tom and Rosemary own a cabin near Stowe, Vermont. During the current year the
cabin is rented for 31 days for $1,800. Tom and Rosemary used the cabin a total of 12
days during the year. After making the appropriate allocation of expenses between
personal and rental use, the following rental loss was determined:
