HRB-27 FINAL EXAM REVIEW QUESTIONS AND
ANSWERS GRADED A+ LATEST UPDATE.
What income reporting form should an independent contractor
sometimes receive from the person who paid him for his services? ANS
>>> Form 1099-MISC (15.6)
Schedule C, Line F asks for the accounting method used in the business.
What is the difference between the cash method and the accrual
method of accounting? ANS >>> • Under the accrual method, total sales
and total charges for services are included in income even though
payment may be received in another tax year.
• Under the cash method, only income actually received or expenses
actually paid during the year are included. (15.5)
What does it mean if a proprietor "materially participates" in the
business? ANS >>> He is active in running the business in a substantial
way on a day-to-day basis. (15.5)
Why is it important to know whether or not the proprietor materially
participates? ANS >>> If the proprietor does not materially participate,
,any loss from the business is a passive loss and generally may be
currently deducted only against passive income. (15.6)
What are returns and allowances? ANS >>> • Amounts that were
refunded to customers who returned merchandise for refund or partial
refund.
• These amounts are subtracted from gross receipts. (15.6)
How is cost of goods sold determined? ANS >>> Beginning inventory plus
purchases, plus Labor, supplies, depreciation, etc. attributable to
product manufacture or preparation for sale, minus ending inventory.
(15.7)
If the client has contract Labor, what should you remind the client that
they should do? ANS >>> • Provide a Form 1099-MISC to any
independent contractor who worked and earned $600 or more. (15.9)
What is the purpose of self-employment tax? ANS >>> To pay social
security and Medicare taxes. (15.14)
What amounts does a proprietor have "at risk"? ANS >>> Amounts
invested in the business plus any business debts for which the
proprietor is personally liable. (15.16)
, What difference does it make if the proprietor is "at risk" or not? ANS >>>
Only amounts at risk may be used to determine the actual loss on
Schedule C. (15.16)
How does a Tax Professional meet due diligence requirement? ANS >>> •
Tax Professionals fulfill due diligence requirements by making every
effort to prepare accurate and complete returns.
• Tax Professionals must have knowledge of tax law, and apply a
reasonability check to the information provided by their clients. (26.1)
What is a thorough interview? ANS >>> A thorough interview consists of
asking general information questions, then asking additional questions
whenever information is incomplete or seems inaccurate or
inconsistent. (26.2)
What is a conflict of interest? ANS >>> A conflict of interest is when one's
situation might benefit at the expense of another's situation. (26.3)
What actions can resolve a conflict of interest? ANS >>> A conflict of
interest is resolved when it is acknowledged, disclosed to all parties,
and the parties have consented to waiving the conflict. (26.3)
What client information is confidential? ANS >>> Any information that
could potentially identify the client is confidential.
Information includes (but is not limited to):
ANSWERS GRADED A+ LATEST UPDATE.
What income reporting form should an independent contractor
sometimes receive from the person who paid him for his services? ANS
>>> Form 1099-MISC (15.6)
Schedule C, Line F asks for the accounting method used in the business.
What is the difference between the cash method and the accrual
method of accounting? ANS >>> • Under the accrual method, total sales
and total charges for services are included in income even though
payment may be received in another tax year.
• Under the cash method, only income actually received or expenses
actually paid during the year are included. (15.5)
What does it mean if a proprietor "materially participates" in the
business? ANS >>> He is active in running the business in a substantial
way on a day-to-day basis. (15.5)
Why is it important to know whether or not the proprietor materially
participates? ANS >>> If the proprietor does not materially participate,
,any loss from the business is a passive loss and generally may be
currently deducted only against passive income. (15.6)
What are returns and allowances? ANS >>> • Amounts that were
refunded to customers who returned merchandise for refund or partial
refund.
• These amounts are subtracted from gross receipts. (15.6)
How is cost of goods sold determined? ANS >>> Beginning inventory plus
purchases, plus Labor, supplies, depreciation, etc. attributable to
product manufacture or preparation for sale, minus ending inventory.
(15.7)
If the client has contract Labor, what should you remind the client that
they should do? ANS >>> • Provide a Form 1099-MISC to any
independent contractor who worked and earned $600 or more. (15.9)
What is the purpose of self-employment tax? ANS >>> To pay social
security and Medicare taxes. (15.14)
What amounts does a proprietor have "at risk"? ANS >>> Amounts
invested in the business plus any business debts for which the
proprietor is personally liable. (15.16)
, What difference does it make if the proprietor is "at risk" or not? ANS >>>
Only amounts at risk may be used to determine the actual loss on
Schedule C. (15.16)
How does a Tax Professional meet due diligence requirement? ANS >>> •
Tax Professionals fulfill due diligence requirements by making every
effort to prepare accurate and complete returns.
• Tax Professionals must have knowledge of tax law, and apply a
reasonability check to the information provided by their clients. (26.1)
What is a thorough interview? ANS >>> A thorough interview consists of
asking general information questions, then asking additional questions
whenever information is incomplete or seems inaccurate or
inconsistent. (26.2)
What is a conflict of interest? ANS >>> A conflict of interest is when one's
situation might benefit at the expense of another's situation. (26.3)
What actions can resolve a conflict of interest? ANS >>> A conflict of
interest is resolved when it is acknowledged, disclosed to all parties,
and the parties have consented to waiving the conflict. (26.3)
What client information is confidential? ANS >>> Any information that
could potentially identify the client is confidential.
Information includes (but is not limited to):
