Test Bank for McGraw-Hill's Taxation of Business Entities 2023 Edition 14th Edition by Brian Spilker, Benjamin Ayers, John Barrick Troy Lewis John Robinson

Test Bank for McGraw-Hill's Taxation of Business Entities 2023 Edition 14th Edition by Brian Spilker, Benjamin Ayers, John Barrick Troy Lewis John Robinson 3) Bryon operates a consulting business and he usually works alone. However, during the summer Bryon will sometimes hire undergraduate students to collect data for his projects. This past summer Bryon hired Fred, the son of a prominent businessman, for a part-time summer job. The summer job usually pays about $17,000, but Bryon paid Fred $27,000 to gain favor with Fred's father. What amount of Fred's summer wages can Bryon deduct for tax purposes? Bryon is on the cash method and calendar year. 4) Bryon operates a consulting business and he usually works alone. However, during the summer Bryon will sometimes hire undergraduate students to collect data for his projects. This past summer Bryon hired Fred, the son of a prominent businessman, for a part-time summer job. The summer job usually pays about $17,350, but Bryon paid Fred $28,400 to gain favor with Fred's father. What amount of Fred's summer wages can Bryon deduct for tax purposes? Bryon is on the cash method and calendar year. 5) Werner is the president and CEO of Acme, Incorporated, and this year, he took a prospective client to dinner. During the dinner, Werner and the client discussed a proposed contract for over $6 million as well as personal matters. After dinner, Werner took the client to a football game and no business was discussed. Werner paid $1,220 for an expensive (but not extravagant) dinner at a restaurant and spent $600 for tickets to the game. What is the deductible amount of these expenses? Version 1 2 6) Crystal operates a business that provides typing and delivery services. This year, Crystal spent $2,500 to purchase special shirts that identify her employees and provide some notoriety for her business. The shirts are especially colorful and include logos on the front pocket and the back. Besides salary payments, Crystal also compensates her employees by offering to pay whole life insurance premiums for any that want to provide insurance coverage for their beneficiaries. This year, Crystal paid $5,000 in life insurance premiums. What amount of these payments can Crystal deduct? Crystal is on the cash method and calendar year. 7) Crystal operates a business that provides typing and delivery services. This year, Crystal spent $2,570 to purchase special shirts that identify her employees and provide some notoriety for her business. The shirts are especially colorful and include logos on the front pocket and the back. Besides salary payments, Crystal also compensates her employees by offering to pay whole life insurance premiums for any that want to provide insurance coverage for their beneficiaries. This year, Crystal paid $5,350 in life insurance premiums. What amount of these payments can Crystal deduct? Crystal is on the cash method and calendar year. Version 1 3 8) Judy is a self-employed musician who performs for a variety of events. This year, Judy was fined $250 by the city for violating the city's noise ordinance with a relatively loud performance. As a result, Judy contributed $1,000 to a campaign committee formed to recall the city's mayor. Judy normally hires three part-time employees to help her schedule events and transport equipment. Judy paid a total of $33,000 to her employees through June of this year. In June, Judy fired her part-time employees and hired her husband to replace them. However, Judy paid him $55,000 rather than $33,000. Judy is on the cash method and calendar year, and she wants to know what amount of these expenditures is deductible as business expenses. 9) Judy is a self-employed musician who performs for a variety of events. This year, Judy was fined $305 by the city for violating the city's noise ordinance with a relatively loud performance. As a result, Judy contributed $890 to a campaign committee formed to recall the city's mayor. Judy normally hires three part-time employees to help her schedule events and transport equipment. Judy paid a total of $34,100 to her employees through June of this year. In June, Judy fired her part-time employees and hired her husband to replace them. However, Judy paid him $53,900 rather than $34,100. Judy is on the cash method and calendar year, and she wants to know what amount of these expenditures is deductible as business expenses. 10) Danny owns an electronics outlet in Dallas. This year, he paid $600 to register for a fourday course in management in Chicago. Danny paid $800 in airfare and $1,000 for five nights' lodging. After the course, Danny spent the last day sightseeing. During the trip, Danny also paid $140 a day for meals at restaurants, and $80 a day for a rental car. What amount of these travel expenditures may Danny deduct as business expenses? Version 1 4 11) Danny owns an electronics outlet in Dallas. This year, he paid $680 to register for a fourday course in management in Chicago. Danny paid $720 in airfare and $680 for five nights’ lodging. After the course, Danny spent the last day sightseeing. During the trip, Danny also paid $300 a day for meals at restaurants, and $240 a day for a rental car. What amount of these travel expenditures may Danny deduct as business expenses? 12) Sam operates a small chain of pizza outlets in Fort Collins, Colorado. In November of this year, Sam decided to attend a two-day management training course. Sam could choose to attend the course in Denver or Los Angeles. Sam decided to attend the course in Los Angeles and take an eight-day vacation immediately after the course. Sam reported the following expenditures from the trip: Course Tuition $ 2,500 Airfare 800 Hotel (10 nights) 1,200 Rental car (10 days) 900 Meals at restaurants (10 days) 1,500 What amount of travel expenditures can Sam deduct? Version 1 5 13) Sam operates a small chain of pizza outlets in Fort Collins, Colorado. In November of this year, Sam decided to attend a two-day management training course. Sam could choose to attend the course in Denver or Los Angeles. Sam decided to attend the course in Los Angeles and take an eight-day vacation immediately after the course. Sam reported the following expenditures from the trip: Course Tuition $ 3,000 Airfare 970 Hotel (10 nights) 2,900 Rental car (10 days) 730 Meals at restaurants (10 days) 3,200 What amount of travel expenditures can Sam deduct? 14) Gabby operates a pizza delivery service. This year, she paid delivery personnel $18,000 in salary. She carefully documented the business use of the auto (11,700 miles this year), and her $7,350 of vehicle expenses (for gas, oil, repairs, and auto lease payments). What amount of these expenses may Gabby deduct as business expenses? Gabby is on the cash method and calendar year. 15) Alvin is a self-employed sound technician who reports on the cash method and calendar year. Alvin has a shop in Austin, Texas, but he spends much of his time away from his shop traveling to and from various concerts around the country. Alvin leases a truck to move his equipment around the country, and this year, he spent $12,000 in lease payments and paid $18,000 for gas, oil, and repairs. Alvin keeps records of his personal use of the truck and he estimates that 6,000 of the total 36,000 miles put on the truck this year were for personal trips. What amount of these expenses may Alvin deduct as business expenses? Version 1 6 16) Sandy Bottoms Corporation generated $50,000,000 of revenue this year and reported taxable income (before depreciation, and any tax loss carryovers) of $1.3 million. Taxable income included $350,000 of interest income and interest expense of $1.25 million. What is Sandy Bottoms' maximum interest expense deduction for the year? 17) Sandy Bottoms Corporation generated $50,000,000 of revenue this year and reported taxable income (before depreciation, and any tax loss carryovers) of $1.5 million. Taxable income included $354,000 of interest income and interest expense of $1.35 million. What is Sandy Bottoms' maximum interest expense deduction for the year? 18) Sandy Bottoms Corporation generated taxable income of $700,000. Taxable income included $70,000,000 of revenue, $400,000 of interest expense, $50,000 of interest income, $230,000 of depreciation deductions, and a $100,000 deduction for an NOL carryover from a prior year. What is Sandy Bottoms' maximum interest expense deduction for the year? Version 1 7 19) Rock Island Corporation generated taxable income (before deductions for depreciation, interest expense, and net operating loss carryovers) of $1 million this year. Taxable income was computed on $50 million of revenues and included $50,000 of interest income. The company paid $450,000 in interest expense. What is Rock Island's maximum business interest deduction for the year? 20) Rock Island Corporation generated taxable income (before deductions for depreciation, interest expense, and net operating loss carryovers) of $3.0 million this year. Taxable income was computed on $50 million of revenues and included $150,000 of interest income. The company paid $455,000 in interest expense. What is Rock Island's maximum business interest deduction for the year? 21) Rock Island Corporation generated taxable income (before deductions for depreciation, interest expense, and net operating loss carryovers) of $100,000. Taxable income was computed on $50 million of revenues and included $5,000 of interest income and $40,000 in interest expense. What is Rock Island's maximum business interest deduction for the year? Version 1 8 22) Otto operates a bakery and is on the cash method and calendar year. This year, one of Otto's ovens caught fire and was partially destroyed. Otto bought it a few years ago for $20,000 and claimed depreciation of $12,000 up to the fire. Otto was charged $4,400 for repairs to the oven but the insurance company paid Otto $1,500 for the damage. What is Otto's casualty loss deduction? 23) Otto operates a bakery and is on the cash method and calendar year. This year, one of Otto's ovens caught fire and was partially destroyed. Otto bought it a few years ago for $30,000 and claimed depreciation of $14,000 up to the fire. Otto was charged $3,400 for repairs to the oven but the insurance company paid Otto $2,000 for the damage. What is Otto's casualty loss deduction? 24) David purchased a deli shop on February 1 st of last year and began to operate it as a sole proprietorship. David reports his personal taxes using the cash method over a calendar year, and he wants to use the cash method and fiscal year for his sole proprietorship. He has summarized his receipts and expenses through January 31st of this year as follows: Receipts Expenses February through December last year $ 112,000 $ 84,500 Version 1 9 January this year 10,400 6,200 What income should David report from his sole proprietorship? 25) David purchased a deli shop on February 1 st of last year and began to operate it as a sole proprietorship. David reports his personal taxes using the cash method over a calendar year, and he wants to use the cash method and fiscal year for his sole proprietorship. He has summarized his receipts and expenses through January 31st of this year as follows: Receipts Expenses February through December last year $ 113,900 $ 81,650 January this year 12,300 8,100 What income should David report from his sole proprietorship? 26) Marilyn operates a day care center as a cash-method sole proprietorship. On August 1 st of this year, Marilyn received a prepayment of $4,000 for child care services to be rendered evenly over the next 20 months. How much income must Marilyn recognize this year if she is attempting to minimize her tax burden? Version 1 10 27) Mike operates a fishing outfitter as an accrual-method sole proprietorship. On March 1st of this year, Mike received $15,000 for three outfitting trips. This is the first time Mike agreed to such a payment and he is obligated to outfit one trip per year for the next three summers, beginning this year. How much income must Mike recognize in each of the next three years if he is attempting to minimize his tax burden? 28) Mike operates a fishing outfitter as an accrual-method sole proprietorship. On March 1 st of this year, Mike received $18,900 for five outfitting trips. This is the first time Mike agreed to such a payment and he is obligated to outfit one trip per year for the next five summers, beginning this year. How much income must Mike recognize in each of the next five years if he is attempting to minimize his tax burden? 29) Anne is a self-employed electrician who reports her business income using the accrual method over a calendar year. On September 1st of this year, Anne paid $2,280 of interest on a loan. The interest accrues evenly over 19 months ($120 per month) from June 1st of this year through December 31st of next year. In addition, on September 1 st Anne also paid $2,700 for 18 months of professional liability insurance ($150 per month). What amount of interest and insurance can Anne deduct this year?