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HRB 27 Final Exam Review ( Latest 2024 / 2025 ) Actual Questions and Answers 100% Correct
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HRB 27 Final Exam Review ( Latest 2024 / 2025 ) Actual Questions and Answers 100% Correct
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HRB 27 Final Exam ReviewBy ExamNavigator
, HRB 27 Final Exam Review
1. What income reporting form should an independent contractor sometimesreceive from the
person who paid him for his services?
Answer: Form 1099-MISC (15.6)
2. 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?
Answer:
• Under the accrual method, total sales and total charges for servicesare included in income
even though payment may be received in another tax year.
• Under the cash method, only income actually received or expenses actually paidduring the
year are included. (15.5)
3. What does it mean if a proprietor "materially participates" in the business?-
Answer: He is active in running the business in a substantial way on a day-to-day basis.(15.5)
4. Why is it important to know whether or not the proprietor materially participates?
Answer: If the proprietor does not materially participate, any loss from the businessis a
passive loss and generally may be currently deducted only against passive income. (15.6)
5. What are returns and allowances?
Answer:
• Amounts that were refunded to customerswho returned merchandise for refund or partial
refund.
• These amounts are subtracted from gross receipts. (15.6)
6. How is cost of goods sold determined?
Answer: Beginning inventory plus purchases,plus labor, supplies, depreciation, etc. attributable
to product manufacture or preparation for sale, minus ending inventory. (15.7)
7. If the client has contract labor, what should you remind the client that
they should do?
Answer: • Provide a Form 1099-MISC to any independent contractor who worked and earned
$600 or more. (15.9)
8. What is the purpose of self-employment tax?
Answer: To pay social security andmedicare taxes. (15.14)
9. What amounts does a proprietor have "at risk"?
Answer: Amounts invested in the business plus any business debts for which the proprietor is
personally liable. (15.16)
, 10. What difference does it make if the proprietor is "at risk" or not?
Answer: Only amounts at risk may be used to determine the actual loss on Schedule C.
(15.16)
11. How does a Tax Professional meet due diligence requirements?
Answer:
• Tax Professionals fulfill due diligence requirements by making every effort to prepare
accurate and complete returns.
• Tax Professionals must have knowledge of tax law, and apply a reasonability checkto the
information provided by their clients. (26.1)
12. What is a thorough interview?
Answer: A thorough interview consists of asking generalinformation questions, then asking
additional questions whenever information is incomplete or seems inaccurate or inconsistent.
(26.2)
13. What is a conflict of interest?
Answer: A conflict of interest is when one's situationmight benefit at the expense of another's
situation. (26.3)
14. What actions can resolve a conflict of interest?
Answer: A conflict of interest is resolved when it is acknowledged, disclosed to all parties,
and the parties haveconsented to waiving the conflict. (26.3)
15. What client information is confidential?
Answer: Any information that could potential-ly identify the client is confidential.
Information includes (but is not limited to):
• Name
• Address and phone number
• Social security numbers
• Place of employment
• Any information from a tax return (26.4)
16. Is it acceptable for a Tax Professional to leave a detailed phone message for a client,
letting them know their tax return is complete?
Answer:
• Tax Professionalsmust have prior consent from the client to leave phone messages related to
their taxreturn.
• The fact that a taxpayer is the client of a Tax Professional or tax preparationbusiness is
confidential information that must not be disclosed. (26.5)
17. What is a Tax Professional's responsibility upon finding out that a client has not complied
with any tax law?
Answer: A Tax Professional must advise the client ofthe noncompliance and the consequences
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