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H&R Block Income Tax Course Assessment Exam
(2026)
which oft he following methods are the primary inventory cost flow
methods used for tax purposes? - ANSWER -LIFO, FIFO, specific
identification
T/F An accrual method business receiving an advance payment for
goods is will provide to customers in the future must account for the
prepayment for tax purposes under the deferral method, meaning that
the income recognition is deferred until the period the goods are
delivered/ - ANSWER -False
Despite the use of the accrual method, prepaid .... and prepaid ... are
taxed immediately upon receipt. - ANSWER -rent, interest
which of the following statements is correct regarding the recognition
of the cumulative difference in taxable income due to a change in
accounting method? - ANSWER -1. if the adjustment decreases taxable
income, it is recognized-in its entirety in the year of the change.
2. if the adjustment increases taxable income , it is recognized over 4
years by adding 25% of the increase each year
When is a business expense deemed to be reasonable in amount? -
ANSWER -when it is not extravagant
pg. 1
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The tax laws do not allow an ... method business to deduct accrued
expenses for a liability owed to a related party using the ... method until
the related party recognizes the related income from the transaction -
ANSWER -accrual, cash
Sonny incurred the following expenses last month: Khaki pants and a
blue button down shirt to wear to work, tuition for a course in
marketing to improve his current job skills as a fashion designer, and
groceries so that he could take his lunch to work. Which of these
expenses is/are deductible business expenses? - ANSWER -tuition for
the marketing course
A business may have a tax year that is shorter than a full 12 months
during its ... year in the business or its ... year in business. - ANSWER -
first, last
Which of the following choices are tests that need to be met in order to
deduct an expense under the accrual method? - ANSWER -all events
test, economic performance test
In the year that a business changes is accounting method, it must make
an adjustment to taxable income that represents the .... difference for
the amount that would have been taxed or deducted in prior years. If
the adjustment increases taxable income, the taxpayer includes ... of
the addition in the current year. If the adjustment decreases taxable
pg. 2
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income, the taxpayer includes ... of the deduction in the current year// -
ANSWER -cumulative, 25%, 100%
For accrual method businesses, bad debt expense is recognized using
the ... method for financial accounting and is deducted using the .....
method for tax purposes. - ANSWER -allowance, direct write off
Which of the following conditions must be met for a cash method
business to possibly be able to use the cash method to account for
gross profit? - ANSWER -1. primary business activity must be to provide
services to customers with sales of products being a secondary source
of income
2.annual gross receipts for the three year period prior to the current
year do not exceed 10 million
when is business deemed to have adopted an impermissible accounting
period? - ANSWER -after it has used the method for two consecutive
year
the ... ... ... deduction is designed to reduce the tax burden on domestic
manufacturers to make investments in domestic manufacturing facilities
more attractive - ANSWER -domestic production activities
How is it possible that a taxpayer could report revenue from a hobby
without getting any tax benefit from the expenses incurred in the
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hobby? - ANSWER -1. the taxpayers uses the standard deduction rather
than itemizing deductions
2.the expenses are NOT high enough to exceed the 2 % of AGI floor
needed for miscellaneous itemized deduction
the all events test generally requires businesses receiving advance
payments for services to recognize the income when they receive the
payment rather than when they perform the service. Which of the
following statements in INCORRECT Regarding this rule? - ANSWER -the
tax authorities give the business the option to report the income in the
current year or defer it to the period in which the revenue is earned
in addition to the all events test, an accrual basis business must meet an
... .. test with respect to a liability before the corresponding expense can
be deducted for tax purposes - ANSWER -economic performance
when a business wants to change an accounting method for tax
reporting, such as the cost-flow method used for inventory, what body
must give permission for the change? - ANSWER -internal revenue
service
the objective of business activities is to make a .... when a taxpayer's
activity is pursued for personal pleasure, that activity is treated as a ...
when revenues and expenses are incurred - ANSWER -profit, hobby
pg. 4
H&R Block Income Tax Course Assessment Exam
(2026)
which oft he following methods are the primary inventory cost flow
methods used for tax purposes? - ANSWER -LIFO, FIFO, specific
identification
T/F An accrual method business receiving an advance payment for
goods is will provide to customers in the future must account for the
prepayment for tax purposes under the deferral method, meaning that
the income recognition is deferred until the period the goods are
delivered/ - ANSWER -False
Despite the use of the accrual method, prepaid .... and prepaid ... are
taxed immediately upon receipt. - ANSWER -rent, interest
which of the following statements is correct regarding the recognition
of the cumulative difference in taxable income due to a change in
accounting method? - ANSWER -1. if the adjustment decreases taxable
income, it is recognized-in its entirety in the year of the change.
2. if the adjustment increases taxable income , it is recognized over 4
years by adding 25% of the increase each year
When is a business expense deemed to be reasonable in amount? -
ANSWER -when it is not extravagant
pg. 1
,2|Page
The tax laws do not allow an ... method business to deduct accrued
expenses for a liability owed to a related party using the ... method until
the related party recognizes the related income from the transaction -
ANSWER -accrual, cash
Sonny incurred the following expenses last month: Khaki pants and a
blue button down shirt to wear to work, tuition for a course in
marketing to improve his current job skills as a fashion designer, and
groceries so that he could take his lunch to work. Which of these
expenses is/are deductible business expenses? - ANSWER -tuition for
the marketing course
A business may have a tax year that is shorter than a full 12 months
during its ... year in the business or its ... year in business. - ANSWER -
first, last
Which of the following choices are tests that need to be met in order to
deduct an expense under the accrual method? - ANSWER -all events
test, economic performance test
In the year that a business changes is accounting method, it must make
an adjustment to taxable income that represents the .... difference for
the amount that would have been taxed or deducted in prior years. If
the adjustment increases taxable income, the taxpayer includes ... of
the addition in the current year. If the adjustment decreases taxable
pg. 2
,3|Page
income, the taxpayer includes ... of the deduction in the current year// -
ANSWER -cumulative, 25%, 100%
For accrual method businesses, bad debt expense is recognized using
the ... method for financial accounting and is deducted using the .....
method for tax purposes. - ANSWER -allowance, direct write off
Which of the following conditions must be met for a cash method
business to possibly be able to use the cash method to account for
gross profit? - ANSWER -1. primary business activity must be to provide
services to customers with sales of products being a secondary source
of income
2.annual gross receipts for the three year period prior to the current
year do not exceed 10 million
when is business deemed to have adopted an impermissible accounting
period? - ANSWER -after it has used the method for two consecutive
year
the ... ... ... deduction is designed to reduce the tax burden on domestic
manufacturers to make investments in domestic manufacturing facilities
more attractive - ANSWER -domestic production activities
How is it possible that a taxpayer could report revenue from a hobby
without getting any tax benefit from the expenses incurred in the
pg. 3
, 4|Page
hobby? - ANSWER -1. the taxpayers uses the standard deduction rather
than itemizing deductions
2.the expenses are NOT high enough to exceed the 2 % of AGI floor
needed for miscellaneous itemized deduction
the all events test generally requires businesses receiving advance
payments for services to recognize the income when they receive the
payment rather than when they perform the service. Which of the
following statements in INCORRECT Regarding this rule? - ANSWER -the
tax authorities give the business the option to report the income in the
current year or defer it to the period in which the revenue is earned
in addition to the all events test, an accrual basis business must meet an
... .. test with respect to a liability before the corresponding expense can
be deducted for tax purposes - ANSWER -economic performance
when a business wants to change an accounting method for tax
reporting, such as the cost-flow method used for inventory, what body
must give permission for the change? - ANSWER -internal revenue
service
the objective of business activities is to make a .... when a taxpayer's
activity is pursued for personal pleasure, that activity is treated as a ...
when revenues and expenses are incurred - ANSWER -profit, hobby
pg. 4
