FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 5: Introduction to Business Expenses

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 51

Multiple Choice

Review LaterAdd Note

Review Later

Jack and Cheryl own a cabin near Copper Mountain,Colorado.During the year,Jack and Cheryl rent the cabin for 30 days to friends for $1,800.Jack and Cheryl use the cabin a total of 60 days during the year.After making the appropriate allocation of planned expenses between personal and rental use,the following rental loss was determined: ​ How should Jack and Cheryl report the rental income and expenses for the forthcoming year? I.Only expenses up to the amount of $1,800 rental income may be deducted for the year. II.Only depreciation in the amount of $100 may be deducted. III.The amount of the disallowed depreciation deduction ($300) can be carried forward. IV.Nothing needs to be reported. ​

A) Only statement I is correct.
B) Statements II and III are correct.
C) Statements I, II and III are correct.
D) Statements III and IV are correct.
E) Statements I, II, III, and IV.

Correct Answer

verified

Show Answer

Question 52

Multiple Choice

Review LaterAdd Note

Review Later

Amy borrowed $25,000 for her business from a local bank two years ago.To increase her deductions for 2016,she pays December interest of $400 and prepays January and February interest totaling $800 on December 30,2016.The maturity date of the note is November 30,2017.How much of the interest that she paid in December is deductible in 2016? I.If she is a cash-basis taxpayer,Amy's interest deduction is $1,200. II.If she is an accrual-basis taxpayer,Amy's interest deduction is $400. ​

A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.

Correct Answer

verified

Show Answer

Question 53

Essay

Review LaterAdd Note

Using the tests for deductibility discussed in Chapter 5,explain why the following expenses may not be fully deductible in the current year. a.Antonio is the owner of a restaurant. His business has been growing, and Antonio determines that he needed to add more seating capacity. He builds a patio garden section onto the back of the restaurant at a cost of $70,000. b.Tina owns a construction company. Because she is behind schedule on a project, she pays a city building inspector $500 to get him to come out and do his inspection a week before he had scheduled the inspection. c.Claude is a graduate of State University and an avid supporter of the school's athletic program. During the summer he employed State's star running back in his pool cleaning business. He paid the football player $15 an hour, although other employees doing similar work are only paid $10 per hour. d.Melody owns a chain of coffeehouses. When she opened a coffeehouse in a new city this year, she spent $20,000 advertising the new store. Even though this is much more than she typically spends on advertising, she felt that it was reasonable because the new coffeehouse has the potential to be a very profitable venture for many years.

Which of the following expenditures are not deductible because they are personal in nature? I.Legal costs to acquire a personal residence. II.Losses resulting from the sale of personal residences. ​

Angela is an accrual basis taxpayer.On September 1 of the current year,she prepays the annual premium of $4,800 for a one-year fire insurance policy on the contents of her business warehouse.The expense is not material for either financial or tax purposes.The prepayment is necessary to activate the insurance coverage and maintain annual renewals.How much may Angela deduct in the current year?

If someone provides a taxpayer with either property or services,economic performance occurs when

Using the general tests for deductibility,explain why the following expenses are not fully deductible. a.Irene spends $1,600 on a trip to Florida to investigate opening up a consulting firm. Irene currently works for a consulting firm. b.Augie and his wife divorce during the current year. Augie pays $3,000 in legal fees related to the divorce. c.Peter owns a hardware store. During the current year, he pays $328,000 to acquire a new warehouse. d.Paul contributes $25 to a fund to be used for advertising to persuade voters to vote against a candidate running for Congress.

An ordinary expense I.is an expense commonly incurred in an income-producing activity. II.is an expenditure that provides future benefits to an income-producing activity. ​

Janine,a cash-basis taxpayer,borrowed $15,000 for her business from a local bank three years ago.To increase her deductions for 2016,she pays December interest of $150 and prepays January and February interest totaling $300.The maturity date of the note is November 30,2017.How much of the interest is deductible in 2016?

Match the proper deduction method with the correct expenditures. -Federal lobbying expenditures

All of the following are a required test for the deduction of a business expense except?

Bowen is planning to quit his job as a plumber and open a paint store.He has incurred expenses of $8,000 dealing with the opening of the store and will be able to deduct all of these expenses.

Oscar drives a taxi on weekends.In maximizing the amount of fares he earns,he occasionally gets tickets for speeding.Oscar figures that as long as he keeps his traffic violations under $100 over a weekend,he can more than offset those costs with additional fares.What is/are the tax effect(s) of Oscar's speeding ticket costs?

Wilson owns a condominium in Gatlinburg,Tennessee.During the current year,she incurs the following expenses before allocation related to the property: ​ a.For each of the following scenarios indicate whether Wilson would treat the condominium for income tax purposes as personal use property, a rental or a vacation home.​ ​ b.Consider Case C. Determine Wilson's deductions related to the condominium. Indicate the amount of each expense that can be deducted and how it would be deducted.

List the criteria necessary for an expenditure to be deductible as a trade or business expense or an expense for the production of income.

During 2016,Myca sells her car for $5,000.She acquired the car in 2012 for $11,000 and has used it 60% for business and 40% for personal use.She deducted $5,280 in depreciation.What is the taxable gain or loss from the sale of the car attributable to her business use?

Which of the following people is currently engaged in a trade or business? I.Barry spends 4 hours a day 5 days a week managing his investment portfolio.He watches the market and buys and sells securities when he thinks the market is right.His investment strategy is to realize income from dividends and long-term gains from holding investments for appreciation in value. II.Jennifer is a full-time realtor,and she owns a house that she rents to Barry and his family for $900 a month.Jennifer provides for the repairs and maintenance of the house,and she stops by monthly to collect the rent and visit with Barry and his family. ​

Which of the following factors are used to aid in determining whether an activity that earns income is profit motivated and should be treated as a business or is subject to the hobby loss rules? I.The taxpayer's financial status. II.Elements of personal pleasure derived from the activity. ​

Match the proper deduction method with the correct expenditures. -Organization costs

Which of the following factors are used to aid in determining whether an activity that earns income is profit motivated and should be treated as a business or is subject to the hobby loss rules? I.The amounts of occasional profits,if any. II.Taxpayer's success in similar activities. ​