accounts data bank true false ques

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31.Which
of the following expenses are completely deductible?

a)
$1,000 spent on compensating your brother for a personal expense.

b)
$50 spent on meals while traveling on business.

c)
$2,000 spent by the employer on reimbursing an employee for entertainment.

d)
All of these expenses are fully deductible.

e)
None of these expenses can be deducted in full.

32.Which
of the following business expense deductions is most likely to be unreasonable
in amount?

a)
Compensation paid to the taxpayer’s spouse in excess of salary payments to
other employees.

b)
Amounts paid to a subsidiary corporation for services where the amount is in
excess of the cost of comparable services by

competing
corporations.

c)
Cost of entertaining a former client when there is no possibility of any future
benefits from a relation with that client.

d)
None of these is likely to be unreasonable in amount.

e)
Compensation paid to the taxpayer’s spouse in excess of salary payments to
other employees, amounts paid to a subsidiary

corporation
for services where the amount is in excess of the cost of comparable services
by competing corporations, and cost of

entertaining
a former client when there is no possibility of any future benefits from a
relation with that client are all likely to be

considered
unreasonable in amount.

33.The
domestic manufacturing deduction is a deduction for the incremental cost of
manufacturing tangible assets in the United

States.

•
True

•
False

34.Reasonable
in amount means that expenditures can be exorbitant as long as the activity is
motivated by profit.

True

False

35.All
taxpayers must account for taxable income using a calendar year.

•
True

•
False

36.The full-inclusion
method requires cash basis taxpayers to include prepayments for goods or
services into realized income.

True

False

37.The
phase “ordinary and necessary” has been defined to mean that an
expense must be essential and indispensable to the conduct

of
a business.

True

False

38.Illegal
bribes and kickbacks are not deductible as business expenses, but this
prohibition does not include fines incurred in the

ordinary
course of business.

•
True

•
False

39.Qualified
production activity income for calculating the domestic manufacturing deduction
is limited to taxable income for a

business
or modified AGI for an individual.

True

False

40.A
business generally adopts a fiscal or calendar year by using that year end on
the first tax return for the business.

True

False

41.The
domestic manufacturing deduction cannot exceed 50 percent of the wages paid to
employees engaged in domestic

manufacturing
activities during the year.

True

False

42.Only
half the cost of a business meal is deductible even if the meal is associated
with the active conduct of business.

True

False

43.A
fiscal tax year can end on the last day of any month other than December.

True

False

44.Uniform
capitalization of indirect inventory costs is required for most large
taxpayers.

True

False

45.The
test for whether an expenditure is reasonable in amount is whether the
expenditure was for an “arm’s length” amount.

True

False

46.The
Internal Revenue Code authorizes deductions for trade or business activities if
the expenditure is “ordinary and necessary”.

•
True

•
False

47.Sole
proprietorships must use the same tax year as the proprietor of the business.

True

False

48.The
all-events test for income determines the period in which income will be
recognized for tax purposes.

True

False

49.The
12-month rule allows taxpayers to deduct the entire amount of certain prepaid
business expenses.

True

False

50.When a
taxpayer borrows money and invests the loan proceeds in municipal bonds, the
interest paid by the taxpayer on the debt

will
not be deductible.

True

False

51.Business activities are distinguished
from personal activities in that business activities are motivated by the
pursuit of profits.

True

False

52.Employees cannot deduct the cost of
uniforms if the uniforms are also appropriate for normal wear.

True

False

53.The Internal Revenue Code authorizes
deductions for trade or business activities if the expenditure is
“ordinary and necessary”.

True

False

54.The
domestic manufacturing deduction cannot exceed 50 percent of the wages paid to
employees engaged in domestic

manufacturing
activities during the year.

•
True

• False

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