HRB-
27 Final Exam Review Questions With Correct Answers
// // // // // // //
What /
/income /
/reporting /
/form /
/should /
/an /
/independent /
/contractor /
/sometimes /
/receive /
/from //the //person //who //paid //him //for //his //services? //- //CORRECT //ANSWERS(S)✔✔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? //- //CORRECT //ANSWERS(S)✔✔• //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? //- /
/CORRECT /
/ANSWERS(S)✔✔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? //- /
/CORRECT /
/ANSWERS(S)✔✔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? //- /
/CORRECT /
/ANSWERS(S)✔✔• /
/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? //- /
/CORRECT /
/ANSWERS(S)✔✔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? //- //CORRECT //ANSWERS(S)✔✔• //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? //- //CORRECT //ANSWERS(S)✔✔To //pay //social //security //and //medicare //taxes. //(15.14)
What /
/amounts /
/does //
a/
/proprietor /
/have //"at /
/risk"? //- /
/CORRECT /
/ANSWERS(S)✔✔Amounts /
/invested /
27 Final Exam Review Questions With Correct Answers
// // // // // // //
What /
/income /
/reporting /
/form /
/should /
/an /
/independent /
/contractor /
/sometimes /
/receive /
/from //the //person //who //paid //him //for //his //services? //- //CORRECT //ANSWERS(S)✔✔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? //- //CORRECT //ANSWERS(S)✔✔• //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? //- /
/CORRECT /
/ANSWERS(S)✔✔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? //- /
/CORRECT /
/ANSWERS(S)✔✔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? //- /
/CORRECT /
/ANSWERS(S)✔✔• /
/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? //- /
/CORRECT /
/ANSWERS(S)✔✔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? //- //CORRECT //ANSWERS(S)✔✔• //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? //- //CORRECT //ANSWERS(S)✔✔To //pay //social //security //and //medicare //taxes. //(15.14)
What /
/amounts /
/does //
a/
/proprietor /
/have //"at /
/risk"? //- /
/CORRECT /
/ANSWERS(S)✔✔Amounts /
/invested /
