ACC-130 CH 1 Business Income, Deductions, and Accounting Methods

50%

Due to the personal enjoyment element involved with business meals not purchased from a restaurant, taxpayers may only deduct % of the actual cost.

Income from services provided Gross profit from inventory sales Income from renting property NOTE: Revenue less business expenses (wrong) Reason: This calculation results in net income. Gross income for a business includes gross profit. Gross income from a service business includes the service revenue.

Which of the following choices constitutes gross income from a business? - Income from services provided - Gross profit from inventory sales - Income from renting property - Revenue less business expenses

The course or courses qualify Evan for a new trade or business.

Evan incurred education-related expenditures related to his self-employment job. Under which of the following circumstances will Evan NOT be allowed to deduct these expenditures as a BUSINESS expense? - The course or courses meet the requirements necessary to keep his job. - The course or courses only improve Evan's skills in his existing business. - The course or courses qualify Evan for a new trade or business.

receipts, sales, revenues, revenue, or receipt 29 million

For 2023, taxpayers with average annual gross _______ during the prior three years in excess of _________ million dollars are not subject to the business interest deduction limitation.

liability year

For financial reporting purposes, an advance payment for services is NOT recorded as a revenue, but rather recorded as a(n) _________ . It will be recognized as a revenue when it is earned. For tax reporting purposes, an advance payment is taxed immediately because the payment meets the all-events test. However, there is an exception which allows the prepaid income to be recognized in the __________ following the receipt if certain conditions are met.

1: income, or revenue 2: deduction, or expense 3: deduction, or expense 4: income, revenues, or revenue

In reporting financial statement income, businesses have incentives to select accounting methods that accelerate _____(1)____ and defer _____(2)______. In reporting taxable income, businesses have incentives to select accounting methods that accelerate ______(3)____ and defer ____(4)____.

Schedule C - Sole proprietorship Form 1065 - Partnership Form 1120S - S corporation Form 1120 - C corporation

Match the business entity with the tax form used to report taxable income. Schedule C Form 1065 Form 1120 S Form 1120 Sole proprietorship Partnership S corporation C. corporation

reasonable

Ordinary and necessary business expenses are deductible only to the extent they are ________ in amount.

Tuition for the marketing course

Sonny incurred the following expenses last month in his self-employment business: 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? - tuition and clothing - Tuition for the marketing course - groceries for his lunches while at work - non are deductible - khaki pants and blue shirt

30%

Taxpayers with substantial gross receipts are generally limited to deducting no more than _______ percent of their adjusted taxable income, plus their business interest income, as a business interest deduction.

necessary or necessary expense

The term _______ is used to describe an expense that is helpful or conducive to a business activity.

Business must report their income and deductions for a full 12 month year, unless special circumstances apply.

What are the rules concerning reporting periods for tax purposes? - Businesses can file tax returns as often as they want, but must report at least once per year. - Businesses must file tax returns reporting income and deductions on a quarterly basis. - A business tax year can NOT consist of a period less than 12 months. - Business must report their income and deductions for a full 12 month year, unless special circumstances apply. correct

When it is not extravagant

When is a business expense deemed to be reasonable in amount? - When it is not extravagant - When it is paid to a person or entity that is not related to the taxpayer - When it is not illegal

Legal fees incurred to defend the business in a lawsuit Depreciation expense on a building used to store company vehicles Advertising cost for ads placed in the local newspaper

Which of the following business expenses are deductible for tax purposes? - Legal fees incurred to defend the business in a lawsuit - Contributions to the governor's reelection campaign - Interest expense paid on loans to purchase tax-exempt securities - Traffic fines incurred by an over-the-road truck driver - Depreciation expense on a building used to store company vehicles - Advertising cost for ads placed in the local newspaper

Advertising cost for ads placed in the local newspaper Legal fees incurred to defend the business in a lawsuit Depreciation expense on a building used to store company vehicles

Which of the following business expenses are deductible for tax purposes? - Traffic fines incurred by an over-the-road truck driver - Advertising cost for ads placed in the local newspaper - Contributions to the governor's reelection campaign - Legal fees incurred to defend the business in a lawsuit - Depreciation expense on a building used to store company vehicles - Interest expense paid on loans to purchase tax-exempt securities

Gross profit from inventory sales Income from renting property Income from services provided NOTE: Revenue less business expenses (wrong) This calculation results in net income. Gross income for a business includes gross profit. Gross income from a service business includes the service revenue.

Which of the following choices constitutes gross income from a business? - Gross profit from inventory sales - Income from renting property - Income from services provided - Revenue less business expenses

Gross income for a business may be calculated as sales less returns and discounts.

Which of the following choices is INCORRECT when defining the gross income of a business? - Gross income for a service business can be calculated as income from services provided. - Revenues from renting property is included in gross profit for rental businesses. - Gross income from a business includes gross profit from inventory sales. - Gross income for a business is Net Sales less Cost of Goods Sold - Gross income for a business may be calculated as sales less returns and discounts.

Repetitive in nature

Which of the following criteria is NOT required for a business expense to be considered ordinary and necessary? - Helpful to the business - Appropriate under the circumstances - Conducive to the business activities - Repetitive in nature

Businesses have an incentive to maximize financial reporting income, but minimize taxable income.

Which of the following statements is correct when describing the accounting methods used for tax versus financial reporting? - All reporting requirements for GAAP are permissible methods of reporting for tax purposes. - Taxable income and financial reporting income should equal the same amount. - Businesses must use the same accounting method for tax purposes that they use for financial reporting purposes. - Businesses have an incentive to maximize financial reporting income, but minimize taxable income.

Necessary & ordinary

Which one of the following terms does the Internal Revenue Code use to describe deductible business expenses? - Important - Relevant - Crucial - Necessary

Ordinary

Which one of the following terms does the Internal Revenue Code use to describe deductible business expenses? - Ordinary - Important - Relevant - Crucial

first or initial final or last

A business may have a tax year that is shorter than a full 12 months during its ________ year in business or its ________ year in business.

The equipment should be capitalized and depreciated according to the tax code.

Allison purchased equipment that cost $100,000 for use in her business. She expects the equipment to be useful for the business for the next 8 years. Which of the following choices correctly describes the tax treatment of the cost of the equipment? - The equipment should be deducted in the year that it is purchased. - The equipment should be capitalized and depreciated according to the tax code. - The equipment should NOT be deducted until the year Allison sells or disposes of it.

constructively paid

Although there are exceptions, a taxpayer or business using the cash method of accounting recognizes revenue when property or services are actually or ______ received and recognizes deductions when the expense is _____.

all events

Businesses using the accrual method of accounting generally recognize income when they meet the _____ - _____test.

Sole proprietorship - Revenues and expenses are reported directly on the owner's tax return and the profit (or loss) is subject to both individual income and self employment taxes. Partnership - Entity files a tax return but the profit or loss flows through to owners' individual income tax returns. C corporation - Income is taxed at the entity level rather than flowing through to the owner(s).

Match the entity with the statement that describes the tax treatment of that entity. Sole proprietorship Partnership C corporation - Revenue and expenses are reported directly on the owner's tax return and the profit (or loss) is subject to both individual income and self employment taxes. - Entity files a tax return but the profit or loss flows through to owner's individual income tax returns. - Income is taxed at the entity level rather than flowing through to the owner(s).

cash

The ________ method of accounting recognizes revenues when property is received and recognizes deductions when the expense is paid.

The cost of driving from home to work

Which of the following choices is NOT considered deductible transportation expenses? - The cost of driving to a client's place of business to deliver a final report - The cost of driving from home to work - The cost of driving a pizza delivery vehicle to deliver pizzas - The cost of airfare to attend a business conference in another state

The taxpayer can deduct the business portion of the vehicle operating costs, plus depreciation, plus a standard mileage rate based on business miles.

Which of the following choices is NOT considered deductible transportation expenses? - The cost of driving to a client's place of business to deliver a final report - The cost of driving from home to work - The cost of driving a pizza delivery vehicle to deliver pizzas - The cost of airfare to attend a business conference in another state

The meal must be eaten on the business premises.

Which of the following criteria is NOT required for a meal to be considered a tax-deductible business meal? - The amount must be reasonable under the circumstances. - The meal must be eaten on the business premises. - The meal must be directly associated with the active conduct of the business. - The taxpayer or an employee of the taxpayer must be present for the meal.