Exam (elaborations)
TAX 503 CHAPTER 9 EXAM QUESTIONS AND ANSWERS
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TAX 503 CHAPTER 9 EXAM QUESTIONS AND ANSWERS...
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Match the business entity with the tax form used to report taxableincome.
Schedule C
Form 1065
Form 1120S
Form 1120 - ANSWER Sole Proprietorship
Partnership
S Corporation
C Corporation
Which of the following choices is INCORRECT when defining the gross
income of a business? - ANSWER Gross income for a business may
be calculated as sales less returns and discounts.
All ____ and _____ expenses that are reasonable in amount and
incurred in carrying on a trade or business are deductible for tax
purposes. - ANSWER ordinary, necessary
The term ___ is used to describe an expense that is normal or
appropriate for the business under the circumstances. - ANSWER
ordinary
Ordinary and necessary business expenses are deductible only to the
extent they are ____ in amount. - ANSWER reasonable
Match the entity with the statement that describes the tax treatment of
that entity.
Sole proprietorship
Partnership
C corporation - ANSWER a.) 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
, b.) Entity reports income on tax forms separate tax (information) forms,
but the profit or loss flows through to owners' individual income tax
returns
c.) Income is taxed at the entity level rather than flow through to the
owners
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? - ANSWER The equipment
should be capitalized and depreciated according to the tax code.
Which of the following choices constitutes gross income from a
business? (Check all that apply.) - ANSWER - Income from renting
property
- Gross profit from inventory sales
- Income from services provided
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? -
ANSWER tuition for the marketing course
Which one of the following terms does the Internal Revenue Code use to
describe deductible business expenses? - ANSWER Ordinary
Due to the personal enjoyment element involved with meals, taxpayers
may only deduct _____% of the actual cost. - ANSWER 50
Which of the following criteria is NOT required for a business expense to
be considered ordinary and necessary? - ANSWER Repetitive in
nature
In addition to the all-events test, an accrual-basis business must meet
a(n) _____ _____ test with respect to a liability before the corresponding
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